G.R. No. L-49188               January 30, 1990 2.
2. On the third cause of action, to pay to the the corresponding writ in favor of the respondent. The writ was
PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO,
Court of First Instance of Manila, Branch XIII, JAIME K. DEL
ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and
AMELIA TAN, respondents.
GUTIERREZ, JR., J.:
Behind the simple issue of validity of an alias writ of execution in
this case is a more fundamental question. Should the Court allow
a too literal interpretation of the Rules with an open invitation to
knavery to prevail over a more discerning and just approach?
Should we not apply the ancient rule of statutory construction
that laws are to be interpreted by the spirit which vivifies and not
by the letter which killeth?
This is a petition to review on certiorari the decision of the Court
of Appeals in CA-G.R. No. 07695 entitled "Philippine Airlines, Inc.
v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for
certiorari against the order of the Court of First Instance of Manila
which issued an alias writ of execution against the petitioner.
The petition involving the alias writ of execution had its
beginnings on November 8, 1967, when respondent Amelia Tan,
under the name and style of Able Printing Press commenced a
complaint for damages before the Court of First Instance of
Manila. The case was docketed as Civil Case No. 71307,
entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then
presided over by the late Judge Jesus P. Morfe rendered judgment
on June 29, 1972, in favor of private respondent Amelia Tan and
against petitioner Philippine Airlines, Inc. (PAL) as follows:
WHEREFORE, judgment is hereby rendered, ordering
the defendant Philippine Air Lines:
1. On the first cause of action, to pay to the
plaintiff the amount of P75,000.00 as actual
damages, with legal interest thereon from
plaintiffs extra-judicial demand made by the
letter of July 20, 1967;
plaintiff the amount of P18,200.00,
representing the unrealized profit of 10%
included in the contract price of
P200,000.00 plus legal interest thereon
from July 20,1967;
3. On the fourth cause of action, to pay to
the plaintiff the amount of P20,000.00 as
and for moral damages, with legal interest
thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to the
plaintiff the amount of P5,000.00 damages
as and for attorney's fee.
Plaintiffs second and fifth causes of action, and
defendant's counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of
Appeals. The case was docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision,
the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is
condemned to pay plaintiff the sum of P25,000.00 as
damages and P5,000.00 as attorney's fee, judgment is
affirmed, with costs. (CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial
court and on dates subsequent thereto, a motion for
reconsideration was filed by respondent Amelia Tan, duly
opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution
denying the respondent's motion for reconsideration for lack of
merit.
No further appeal having been taken by the parties, the judgment
became final and executory and on May 31, 1977, judgment was
correspondingly entered in the case.
The case was remanded to the trial court for execution and on
September 2,1977, respondent Amelia Tan filed a motion praying
for the issuance of a writ of execution of the judgment rendered
by the Court of Appeals. On October 11, 1977, the trial court,
presided over by Judge Galano, issued its order of execution with
duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the
Court of First Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan
moved for the issuance of an alias writ of execution stating that
the judgment rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the
motion for the issuance of an alias writ of execution stating that it
had already fully paid its obligation to plaintiff through the deputy
sheriff of the respondent court, Emilio Z. Reyes, as evidenced by
cash vouchers properly signed and receipted by said Emilio Z.
Reyes.
On March 3,1978, the Court of Appeals denied the issuance of the
alias writ for being premature, ordering the executing sheriff
Emilio Z. Reyes to appear with his return and explain the reason
for his failure to surrender the amounts paid to him by petitioner
PAL. However, the order could not be served upon Deputy Sheriff
Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ
of execution was filed by respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to
withdraw "Motion for Partial Alias Writ of Execution" with
Substitute Motion for Alias Writ of Execution. On May 1, 1978, the
respondent Judge issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to
Withdraw 'Motion for Partial Alias Writ of Execution
with Substitute Motion for Alias Writ of Execution is
hereby granted, and the motion for partial alias writ of
execution is considered withdrawn.
Let an Alias Writ of Execution issue against the
defendant for the fall satisfaction of the judgment
rendered. Deputy Sheriff Jaime K. del Rosario is hereby
appointed Special Sheriff for the enforcement thereof.
(CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first alias
writ of execution issued on the same day directing Special Sheriff
Jaime K. del Rosario to levy on execution in the sum of P25,000.00
with legal interest thereon from July 20,1967 when respondent
Amelia Tan made an extra-judicial demand through a letter. Levy
was also ordered for the further sum of P5,000.00 awarded as
attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash
the alias writ of execution stating that no return of the writ had as
yet been made by Deputy Sheriff Emilio Z. Reyes and that the
judgment debt had already been fully satisfied by the petitioner
as evidenced by the cash vouchers signed and receipted by the
server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a
notice of garnishment on the depository bank of petitioner, Far
East Bank and Trust Company, Rosario Branch, Binondo, Manila,
through its manager and garnished the petitioner's deposit in the
said bank in the total amount of P64,408.00 as of May 16, 1978.
Hence, this petition for certiorari filed by the Philippine Airlines,
Inc., on the grounds that:
I execution for an indefinite and over extended period,
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED
WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY
THE IMPLEMENTING OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING
OFFICER AS DIRECTED IN THE WRIT OF EXECUTION
CONSTITUTES SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS
SILENT AS TO THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY
OF PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL
OR SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of
the original writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's
decision with approval:
The issuance of the questioned alias writ of execution
under the circumstances here obtaining is justified
because even with the absence of a Sheriffs return on
the original writ, the unalterable fact remains that such
a return is incapable of being obtained (sic) because
the officer who is to make the said return has
absconded and cannot be brought to the Court despite
the earlier order of the court for him to appear for this
purpose. (Order of Feb. 21, 1978, Annex C, Petition).
Obviously, taking cognizance of this circumstance, the
order of May 11, 1978 directing the issuance of an alias
writ was therefore issued. (Annex D. Petition). The
need for such a return as a condition precedent for the
issuance of an alias writ was justifiably dispensed with
by the court below and its action in this regard meets
with our concurrence. A contrary view will produce an
abhorent situation whereby the mischief of an erring
officer of the court could be utilized to impede
indefinitely the undisputed and awarded rights which a
prevailing party rightfully deserves to obtain and with
dispatch. The final judgment in this case should not
indeed be permitted to become illusory or incapable of
as had already transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere
debet (A judgment ought not to be illusory it ought to have its
proper effect).
Indeed, technicality cannot be countenanced to defeat the
execution of a judgment for execution is the fruit and end of the
suit and is very aptly called the life of the law (Ipekdjian
Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963];
Commissioner of Internal Revenue v. Visayan Electric Co., 19 SCRA
697, 698 [1967]). A judgment cannot be rendered nugatory by the
unreasonable application of a strict rule of procedure. Vested
rights were never intended to rest on the requirement of a return,
the office of which is merely to inform the court and the parties,
of any and all actions taken under the writ of execution. Where
such information can be established in some other manner, the
absence of an executing officer's return will not preclude a
judgment from being treated as discharged or being executed
through an alias writ of execution as the case may be. More so, as
in the case at bar. Where the return cannot be expected to be
forthcoming, to require the same would be to compel the
enforcement of rights under a judgment to rest on an
impossibility, thereby allowing the total avoidance of judgment
debts. So long as a judgment is not satisfied, a plaintiff is entitled
to other writs of execution (Government of the Philippines v.
Echaus and Gonzales, 71 Phil. 318). It is a well known legal maxim
that he who cannot prosecute his judgment with effect, sues his
case vainly.
More important in the determination of the propriety of the trial
court's issuance of an alias writ of execution is the issue of
satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the
payment made to the absconding sheriff by check in his name
operate to satisfy the judgment debt? The Court rules that the
plaintiff who has won her case should not be adjudged as having
sued in vain. To decide otherwise would not only give her an
empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia
Tan was found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First
Instance and the Court of Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a
centavo of what the courts have solemnly declared as rightfully
hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from the
start, before 1967, without need of her going to court to enforce
her rights. And all because PAL did not issue the checks intended
for her, in her name.
Under the peculiar circumstances of this case, the payment to the
absconding sheriff by check in his name did not operate as a
satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Article 1240 of
the Civil Code provides:
Payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in
interest, or any person authorized to receive
it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the
particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111
ALR 65). Payment made to one having apparent authority to
receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is
made to one who by law is authorized to act for the creditor, it
will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34
LRA 283). The receipt of money due on ajudgment by an officer
authorized by law to accept it will, therefore, satisfy the debt (See
40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v. Stirrat 55
Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized and
recognized by the creditor, the payment to such a person so
authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at
bar, to the sheriff should be valid payment to extinguish the
judgment debt.
There are circumstances in this case, however, which compel a
different conclusion.
The payment made by the petitioner to the absconding sheriff
was not in cash or legal tender but in checks. The checks were not
payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have
been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived from the original
obligation shall be held in abeyance.
In the absence of an agreement, either express or implied,
payment means the discharge of a debt or obligation in money
(US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the
parties so agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of payment of his
debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am.
St. Rep. 402). Consequently, unless authorized to do so by law or
by consent of the obligee a public officer has no authority to
accept anything other than money in payment of an obligation
under a judgment being executed. Strictly speaking, the
acceptance by the sheriff of the petitioner's checks, in the case at
bar, does not, per se, operate as a discharge of the judgment
debt.
Since a negotiable instrument is only a substitute for money and
not money, the delivery of such an instrument does not, by itself,
operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249,
Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan
Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a
manager's check or ordinary cheek, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor.
Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually
realized (Art. 1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and
not the Sheriff's, there would have been no payment. After
dishonor of the checks, Ms. Tan could have run after other
properties of PAL. The theory is that she has received no value for
what had been awarded her. Because the checks were drawn in
the name of Emilio Z. Reyes, neither has she received anything.
The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there
would have been payment in full legal contemplation. The
reasoning is logical but is it valid and proper? Logic has its limits in
decision making. We should not follow rulings to their logical
extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain
cautions. Nobody hands over big amounts of cash in a careless
and inane manner. Mature thought is given to the possibility of
the cash being lost, of the bearer being waylaid or running off
with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to
the wrong party. The situation is entirely different where a Sheriff
seizes a car, a tractor, or a piece of land. Logic often has to give
way to experience and to reality. Having paid with checks, PAL
should have done so properly.
Payment in money or cash to the implementing officer may be
deemed absolute payment of the judgment debt but the Court
has never, in the least bit, suggested that judgment debtors
should settle their obligations by turning over huge amounts of
cash or legal tender to sheriffs and other executing officers.
Payment in cash would result in damage or interminable
litigations each time a sheriff with huge amounts of cash in his
hands decides to abscond.
As a protective measure, therefore, the courts encourage the
practice of payments by cheek provided adequate controls are
instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds. If particularly big amounts are involved,
escrow arrangements with a bank and carefully supervised by the
court would be the safer procedure. Actual transfer of funds takes
place within the safety of bank premises. These practices are
perfectly legal. The object is always the safe and incorrupt
execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a
particular payee are made out in the name of another. Making the
checks payable to the judgment creditor would have prevented
the encashment or the taking of undue advantage by the sheriff,
or any person into whose hands the checks may have fallen,
whether wrongfully or in behalf of the creditor. The issuance of
the checks in the name of the sheriff clearly made possible the
misappropriation of the funds that were withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was
for the private party respondent Amelia Tan, the
petitioner corporation, utilizing the services of its
personnel who are or should be knowledgeable about
the accepted procedures and resulting consequences
of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally
observed and done, and placed as payee in the checks
the name of the errant Sheriff and not the name of the
rightful payee. Petitioner thereby created a situation
which permitted the said Sheriff to personally encash
said checks and misappropriate the proceeds thereof
to his exclusive personal benefit. For the prejudice that
resulted, the petitioner himself must bear the fault.
The judicial guideline which we take note of states as
follows:
As between two innocent persons, one of whom must
suffer the consequence of a breach of trust, the one
who made it possible by his act of confidence must
bear the loss. (Blondeau, et al. v. Nano, et al., L-41377,
July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself,
the judgment debtor whose act made possible the loss had but
itself to blame.
The attention of this Court has been called to the bad practice of a
number of executing officers, of requiring checks in satisfaction of
judgment debts to be made out in their own names. If a sheriff
directs a judgment debtor to issue the checks in the sheriff's
name, claiming he must get his commission or fees, the debtor
must report the sheriff immediately to the court which ordered
the execution or to the Supreme Court for appropriate disciplinary
action. Fees, commissions, and salaries are paid through regular
channels. This improper procedure also allows such officers, who
have sixty (60) days within which to make a return, to treat the
moneys as their personal finds and to deposit the same in their
private accounts to earn sixty (60) days interest, before said finds
are turned over to the court or judgment creditor (See Balgos v.
Velasco, 108 SCRA 525 [1981]). Quite as easily, such officers could
put up the defense that said checks had been issued to them in
their private or personal capacity. Without a receipt evidencing Sheriff, the judgment debt legally and factually remains
payment of the judgment debt, the misappropriation of finds by unsatisfied.
such officers becomes clean and complete. The practice is
ingenious but evil as it unjustly enriches court personnel at the
Strictly speaking execution cannot be equated with satisfaction of
expense of litigants and the proper administration of justice. The
a judgment. Under unusual circumstances as those obtaining in
temptation could be far greater, as proved to be in this case of the
this petition, the distinction comes out clearly.
absconding sheriff. The correct and prudent thing for the
petitioner was to have issued the checks in the intended payee's
name. Execution is the process which carries into effect a decree or
judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360,
363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's
The pernicious effects of issuing checks in the name of a person
Law Dictionary), whereas the satisfaction of a judgment is the
other than the intended payee, without the latter's agreement or
payment of the amount of the writ, or a lawful tender thereof, or
consent, are as many as the ways that an artful mind could
the conversion by sale of the debtor's property into an amount
concoct to get around the safeguards provided by the law on
equal to that due, and, it may be done otherwise than upon an
negotiable instruments. An angry litigant who loses a case, as a
execution (Section 47, Rule 39). Levy and delivery by an execution
rule, would not want the winning party to get what he won in the
officer are not prerequisites to the satisfaction of a judgment
judgment. He would think of ways to delay the winning party's
when the same has already been realized in fact (Section 47, Rule
getting what has been adjudged in his favor. We cannot condone
39). Execution is for the sheriff to accomplish while satisfaction of
that practice especially in cases where the courts and their
the judgment is for the creditor to achieve. Section 15, Rule 39
officers are involved.1âwphi1 We rule against the petitioner.
merely provides the sheriff with his duties as executing officer
including delivery of the proceeds of his levy on the debtor's
Anent the applicability of Section 15, Rule 39, as follows: property to satisfy the judgment debt. It is but to stress that the
implementing officer's duty should not stop at his receipt of
payments but must continue until payment is delivered to the
Section 15. Execution of money judgments. — The
obligor or creditor.
officer must enforce an execution of a money
judgment by levying on all the property, real and
personal of every name and nature whatsoever, and Finally, we find no error in the respondent court's pronouncement
which may be disposed of for value, of the judgment on the inclusion of interests to be recovered under the alias writ
debtor not exempt from execution, or on a sufficient of execution. This logically follows from our ruling that PAL is
amount of such property, if they be sufficient, and liable for both the lost checks and interest. The respondent
selling the same, and paying to the judgment creditor, court's decision in CA-G.R. No. 51079-R does not totally supersede
or his attorney, so much of the proceeds as will satisfy the trial court's judgment in Civil Case No. 71307. It merely
the judgment. ... modified the same as to the principal amount awarded as actual
damages.
the respondent court held:
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby
DISMISSED. The judgment of the respondent Court of Appeals is
We are obliged to rule that the judgment debt cannot
AFFIRMED and the trial court's issuance of the alias writ of
be considered satisfied and therefore the orders of the
execution against the petitioner is upheld without prejudice to
respondent judge granting the alias writ of execution
any action it should take against the errant sheriff Emilio Z. Reyes.
may not be pronounced as a nullity.
The Court Administrator is ordered to follow up the actions taken
against Emilio Z. Reyes.
x x x           x x x          x x x
SO ORDERED.
It is clear and manifest that after levy or garnishment,
for a judgment to be executed there is the requisite of
payment by the officer to the judgment creditor, or his
attorney, so much of the proceeds as will satisfy the
judgment and none such payment had been
concededly made yet by the absconding Sheriff to the G.R. No. 126389 July 10, 1998
private respondent Amelia Tan. The ultimate and
essential step to complete the execution of the SOUTHEASTERN COLLEGE INC., petitioner,
judgment not having been performed by the City
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO,
EMERITA DIMAANO, REMEDIOS DIMAANO, CONSOLACION
DIMAANO and MILAGROS DIMAANO, respondents.
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to
set aside the Decision 1 promulgated on July 31, 1996, and
Resolution 2 dated September 12, 1996 of the Court of
Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda.
de Dimaano, et al. vs. Southeastern College, Inc.", which
reduced the moral damages awarded below from P1,000,000.00
to P200,000.00. 4 The Resolution under attack denied petitioner's
motion for reconsideration.
Private respondents are owners of a house at 326 College Road,
Pasay City, while petitioner owns a four-storey school building
along the same College Road. On October 11, 1989, at about
6:30 in the morning, a powerful typhoon "Saling" hit Metro
Manila. Buffeted by very strong winds, the roof of petitioner's
building was partly ripped off and blown away, landing on and
destroying portions of the roofing of private respondents' house.
After the typhoon had passed, an ocular inspection of the
destroyed building was conducted by a team of engineers
headed by the city building official, Engr. Jesus L. Reyna.
Pertinent aspects of the latter's Report 5 dated October 18, 1989
stated, as follows:
5. One of the factors that may have led to this calamitous event
is the formation of the building in the area and the general
direction of the wind. Situated in the peripheral lot is an almost
U-shaped formation of 4-storey building. Thus, with the strong
winds having a westerly direction, the general formation of the
building becomes a big funnel-like structure, the one situated
along College Road, receiving the heaviest impact of the strong
winds. Hence, there are portions of the roofing, those located on
both ends of the building, which remained intact after the storm.
6. Another factor and perhaps the most likely reason for the
dislodging of the roofing structural trusses is the improper
anchorage of the said trusses to the roof beams. The 1/2'
diameter steel bars embedded on the concrete roof beams
which serve as truss anchorage are not bolted nor nailed to the
trusses. Still, there are other steel bars which were not even
bent to the trusses, thus, those trusses are not anchored at all to
the roof beams.
It then recommended that "to avoid any further loss and
damage to lives, limbs and property of persons living in the
vicinity," the fourth floor of subject school building be declared
as a "structural hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City,
Branch 117, for damages based on culpa aquiliana, private
respondents alleged that the damage to their house rendered
the same uninhabitable, forcing them to stay temporarily in
others' houses. And so they sought to recover from petitioner
P117,116.00, as actual damages, P1,000,000.00, as moral
damages, P300,000.00, as exemplary damages and P100,000.00,
for and as attorney's fees; plus costs.
In its Answer, petitioner averred that subject school building had
withstood several devastating typhoons and other calamities in
the past, without its roofing or any portion thereof giving way;
that it has not been remiss in its responsibility to see to it that
said school building, which houses school children, faculty
members, and employees, is "in tip-top condition"; and
furthermore, typhoon "Saling" was "an act of God and therefore
beyond human control" such that petitioner cannot be
answerable for the damages wrought thereby, absent any
negligence on its part.
The trial court, giving credence to the ocular inspection report to
the effect that subject school building had a "defective roofing
structure," found that, while typhoon "Saling" was accompanied
by strong winds, the damage to private respondents' houses
"could have been avoided if the construction of the roof of
[petitioner's] building was not faulty." The dispositive portion of
the lower court's decision 7 reads, thus:
WHEREFORE, in view of the foregoing, the Court renders
judgment (sic) in favor of the plaintiff (sic) and against the
defendants, (sic) ordering the latter to pay jointly and severally
the former as follows:
a) P117,116.00, as actual damages, plus litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that
the defendants (sic) did in a wanton fraudulent, reckless,
oppressive or malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as
errors, 8 that:
I 4. Whether or not the award of attorney's fees when the case
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON "SALING",
AS AN ACT OF GOD, IS NOT "THE SOLE AND ABSOLUTE REASON"
FOR THE RIPPING-OFF OF THE SMALL PORTION OF THE ROOF OF
SOUTHEASTERN'S FOUR (4) STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT "THE
CONSTRUCTION OF THE ROOF OF DEFENDANT'S SCHOOL
BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION
THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS
TYPHOON "SALING" WHICH IS THE DIRECT AND PROXIMATE
CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEY'S FEES AND LITIGATION
EXPENSES AND COSTS OF SUIT TO DIMAANOS WHEN THEY HAVE
NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE
ALREADY SOLD THEIR PROPERTY, AN INTERVENING EVENT THAT
RENDERS THIS CASE MOOT AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE
WRIT OF EXECUTION INSPITE OF THE PERFECTION OF
SOUTHEASTERN'S APPEAL WHEN THERE IS NO COMPELLING
REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed
with modification the trial court's disposition by reducing the
award of moral damages from P1,000,000.00 to P200,000.00.
Hence, petitioner's resort to this Court, raising for resolution the
issues of:
1. Whether or not the award of actual damages [sic] to
respondent Dimaanos on the basis of speculation or conjecture,
without proof or receipts of actual damage, [sic] legally feasible
or justified.
2. Whether or not the award of moral damages to respondent
Dimaanos, with the latter having suffered, actual damage has
legal basis.
3. Whether or not respondent Dimaanos who are no longer the
owner of the property, subject matter of the case, during its
pendency, has the right to pursue their complaint against
petitioner when the case was already moot and academic by the
sale of the property to third party.
was already moot academic [sic] legally justified.
5. Whether or not petitioner is liable for damage caused to
others by typhoon "Saling" being an act of God.
6. Whether or not the issuance of a writ of execution pending
appeal, ex-parte or without hearing, has support in law.
The pivot of inquiry here, determinative of the other issues, is
whether the damage on the roof of the building of private
respondents resulting from the impact of the falling portions of
the school building's roof ripped off by the strong winds of
typhoon "Saling", was, within legal contemplation, due to
fortuitous event? If so, petitioner cannot be held liable for the
damages suffered by the private respondents. This conclusion
finds support in Article 1174 of Civil Code, which provides:
Art 1174. Except in cases expressly specified by the law, or when
it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.
The antecedent of fortuitous event or caso fortuito is found in
the Partidas which defines it as "an event which takes place by
accident and could not have been foreseen." 9 Escriche
elaborates it as "an unexpected event or act of God which could
neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino
adds that "[f]ortuitous events may be produced by two general
causes: (1) by nature, such as earthquakes, storms, floods,
epidemics, fires, etc. and (2) by the act of man, such as an armed
invasion, attack by bandits, governmental prohibitions, robbery,
etc." 11
In order that a fortuitous event may exempt a person from
liability, it is necessary that he be free from any previous
negligence or misconduct by reason of which the loss may have
been occasioned. 12 An act of God cannot be invoked for the
protection of a person who has been guilty of gross negligence in
not trying to forestall its possible adverse consequences. When a
person's negligence concurs with an act of God in producing
damage or injury to another, such person is not exempt from
liability by showing that the immediate or proximate cause of
the damages or injury was a fortuitous event. When the effect is
found to be partly the result of the participation of man —
whether it be from active intervention, or neglect, or failure to
act — the whole occurrence is hereby humanized, and removed
from the rules applicable to acts of God. 13
In the case under consideration, the lower court accorded full
credence to the finding of the investigating team that subject
school building's roofing had "no sufficient anchorage to hold it
in position especially when battered by strong winds." Based on
such finding, the trial court imputed negligence to petitioner and
adjudged it liable for damages to private respondents.
After a thorough study and evaluation of the evidence on record,
this Court believes otherwise, notwithstanding the general rule
that factual findings by the trail court, especially when affirmed
by the appellate court, are binding and conclusive upon this
Court. 14 After a careful scrutiny of the records and the pleadings
submitted by the parties, we find exception to this rule and hold
that the lower courts misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous
event, a natural occurrence which may be foreseen but is
unavoidable despite any amount of foresight, diligence or
care. 15 In order to be exempt from liability arising from any
adverse consequence engendered thereby, there should have
been no human participation amounting to a negligent act. 16 In
other words; the person seeking exoneration from liability must
not be guilty of negligence. Negligence, as commonly
understood, is conduct which naturally or reasonably creates
undue risk or harm to others. It may be the failure to observe
that degree of care, precaution, and vigilance which the
circumstances justify demand, 17 or the omission to do
something which a prudent and reasonable man, guided by
considerations which ordinarily regulate the conduct of human
affairs, would
do. 18 From these premises, we proceed to determine whether
petitioner was negligent, such that if it were not, the damage
caused to private respondents' house could have been avoided?
At the outset, it bears emphasizing that a person claiming
damages for the negligence of another has the burden of
proving the existence of fault or negligence causative of his
injury or loss. The facts constitutive of negligence must be
affirmatively established by competent evidence, 19 not merely
by presumptions and conclusions without basis in fact. Private
respondents, in establishing the culpability of petitioner, merely
relied on the aforementioned report submitted by a team which
made an ocular inspection of petitioner's school building after
the typhoon. As the term imparts, an ocular inspection is one by
means of actual sight or viewing. 20 What is visual to the eye
through, is not always reflective of the real cause behind. For
instance, one who hears a gunshot and then sees a wounded
person, cannot always definitely conclude that a third person
shot the victim. It could have been self-inflicted or caused
accidentally by a stray bullet. The relationship of cause and
effect must be clearly shown.
In the present case, other than the said ocular inspection, no
investigation was conducted to determine the real cause of the
partial unroofing of petitioner's school building. Private
respondents did not even show that the plans, specifications and
design of said school building were deficient and defective.
Neither did they prove any substantial deviation from the
approved plans and specifications. Nor did they conclusively
establish that the construction of such building was basically
flawed. 21
On the other hand, petitioner elicited from one of the witnesses
of private respondents, city building official Jesus Reyna, that
the original plans and design of petitioner's school building were
approved prior to its construction. Engr. Reyna admitted that it
was a legal requirement before the construction of any building
to obtain a permit from the city building official (city engineer,
prior to the passage of the Building Act of 1977). In like manner,
after construction of the building, a certification must be secured
from the same official attesting to the readiness for occupancy of
the edifice. Having obtained both building permit and certificate
of occupancy, these are, at the very least, prima facie evidence
of the regular and proper construction of subject school
building. 22
Furthermore, when part of its roof needed repairs of the
damage inflicted by typhoon "Saling", the same city official gave
the go-signal for such repairs — without any deviation from the
original design — and subsequently, authorized the use of the
entire fourth floor of the same building. These only prove that
subject building suffers from no structural defect, contrary to the
report that its "U-shaped" form was "structurally defective."
Having given his unqualified imprimatur, the city building official
is presumed to have properly performed his duties 23 in
connection therewith.
In addition, petitioner presented its vice president for finance
and administration who testified that an annual maintenance
inspection and repair of subject school building were regularly
undertaken. Petitioner was even willing to present its
maintenance supervisor to attest to the extent of such regular
inspection but private respondents agreed to dispense with his
testimony and simply stipulated that it would be corroborative
of the vice president's narration.
Moreover, the city building official, who has been in the city
government service since 1974, admitted in open court that no
complaint regarding any defect on the same structure has ever
been lodged before his office prior to the institution of the case
at bench. It is a matter of judicial notice that typhoons are
common occurrences in this country. If subject school building's
roofing was not firmly anchored to its trusses, obviously, it could
not have withstood long years and several typhoons even
stronger than "Saling."
In light of the foregoing, we find no clear and convincing
evidence to sustain the judgment of the appellate court. We
thus hold that petitioner has not been shown negligent or at
fault regarding the construction and maintenance of its school
building in question and that typhoon "Saling" was the
proximate cause of the damage suffered by private respondents'
house.

With this disposition on the pivotal issue, private respondents'

claim for actual and moral damages as well as attorney's fees
must fail. 24 Petitioner cannot be made to answer for a purely
fortuitous event. 25 More so because no bad faith or willful act to
cause damage was alleged and proven to warrant moral
damages.

Private respondents failed to adduce adequate and competent

proof of the pecuniary loss they actually incurred. 26 It is not
enough that the damage be capable of proof but must be
actually proved with a reasonable degree of certainty, pointing
out specific facts that afford a basis for measuring whatever
compensatory damages are borne. 27 Private respondents merely
submitted an estimated amount needed for the repair of the
roof their subject building. What is more, whether the
"necessary repairs" were caused ONLY by petitioner's alleged
negligence in the maintenance of its school building, or included
the ordinary wear and tear of the house itself, is an essential
question that remains indeterminable.

The Court deems unnecessary to resolve the other issues posed

by petitioner.

As regards the sixth issue, however, the writ of execution issued

on April 1, 1993 by the trial court is hereby nullified and set
aside. Private respondents are ordered to reimburse any amount
or return to petitioner any property which they may have
received by virtue of the enforcement of said writ.

WHEREFORE, the petition is GRANTED and the challenged

Decision is REVERSED. The complaint of private respondents in
Civil Case No. 7314 before the trial court a quo is ordered
DISMISSED and the writ of execution issued on April 1, 1993 in
said case is SET ASIDE. Accordingly, private respondents are
ORDERED to return to petitioner any amount or property
received by them by virtue of said writ. Costs against the private
respondents.

SO ORDERED.

[G.R. NO. 147324 : May 25, 2004]

PHILIPPINE COMMUNICATIONS SATELLITE

CORPORATION, Petitioner, v. GLOBE TELECOM, INC. (formerly
and Globe Mckay Cable and Radio Corporation), Respondents.
[G.R. NO. 147334 : May 25, 2004]
GLOBE TELECOM, INC., Petitioner, v. PHILIPPINE
COMMUNICATION SATELLITE CORPORATION, Respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing
the Decision of the Court of Appeals, dated 27 February 2001, in
CA-G.R. CV No. 63619.1 ςrνll
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been engaged
in the coordination of the provision of various communication
facilities for the military bases of the United States of America
(US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in
Cubi Point, Zambales. The said communication facilities were
installed and configured for the exclusive use of the US Defense
Communications Agency (USDCA), and for security reasons, were
operated only by its personnel or those of American companies
contracted by it to operate said facilities. The USDCA contracted
with said American companies, and the latter, in turn, contracted
with Globe for the use of the communication facilities. Globe, on
the other hand, contracted with local service providers such as
the Philippine Communications Satellite Corporation (Philcomsat)
for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an
Agreement whereby Philcomsat obligated itself to establish,
operate and provide an IBS Standard B earth station (earth
station) within Cubi Point for the exclusive use of the USDCA.2 The
term of the contract was for 60 months, or five (5) years. 3 In turn,
Globe promised to pay Philcomsat monthly rentals for each leased
circuit involved.4 ςrνll
At the time of the execution of the Agreement, both parties knew
that the Military Bases Agreement between the Republic of the
Philippines and the US (RP-US Military Bases Agreement), which
was the basis for the occupancy of the Clark Air Base and Subic
Naval Base in Cubi Point, was to expire in 1991. Under Section 25,
Article XVIII of the 1987 Constitution, foreign military bases,
troops or facilities, which include those located at the US Naval
Facility in Cubi Point, shall not be allowed in the Philippines unless
a new treaty is duly concurred in by the Senate and ratified by a
majority of the votes cast by the people in a national referendum
when the Congress so requires, and such new treaty is recognized
as such by the US Government.
Subsequently, Philcomsat installed and established the earth
station at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate
Resolution No. 141, expressing its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements that was supposed to extend
the term of the use by the US of Subic Naval Base, among
others.5 The last two paragraphs of the Resolution
state:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
FINDING that the Treaty constitutes a defective framework for the
continuing relationship between the two countries in the spirit of
friendship, cooperation and sovereign equality: Now, therefore,
be it
Resolved by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary
Agreements, at the same time reaffirming its desire to continue
friendly relations with the government and people of the United
States of America.6 ςrνll
On 31 December 1991, the Philippine Government sent a Note
Verbale to the US Government through the US Embassy, notifying
it of the Philippines termination of the RP-US Military Bases
Agreement. The Note Verbale stated that since the RP-US Military
Bases Agreement, as amended, shall terminate on 31 December
1992, the withdrawal of all US military forces from Subic Naval
Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its
intention to discontinue the use of the earth station effective 08
November 1992 in view of the withdrawal of US military
personnel from Subic Naval Base after the termination of the RP-
US Military Bases Agreement. Globe invoked as basis for the letter
of termination Section 8 (Default) of the Agreement, which
provides:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Neither party shall be held liable or deemed to be in default for
any failure to perform its obligation under this Agreement if such
failure results directly or indirectly from force majeure or
fortuitous event. Either party is thus precluded from performing
its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall
mean circumstances beyond the control of the party involved
including, but not limited to, any law, order, regulation, direction
or request of the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe,
stating that we expect [Globe] to know its commitment to pay the
stipulated rentals for the remaining terms of the Agreement even
after [Globe] shall have discontinue[d] the use of the earth station
after November 08, 1992.7 Philcomsat referred to Section 7 of the
Agreement, stating as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
7.DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth
station after it has been put into operation, a written notice shall
be served to PHILCOMSAT at least sixty (60) days prior to the
expected date of termination. Notwithstanding the non-use of the
earth station, [Globe] shall continue to pay PHILCOMSAT for the
rental of the actual number of T1 circuits in use, but in no case
shall be less than the first two (2) T1 circuits, for the remaining life
of the agreement. However, should PHILCOMSAT make use or sell
the earth station subject to this agreement, the obligation of
[Globe] to pay the rental for the remaining life of the agreement
shall be at such monthly rate as may be agreed upon by the
parties.8 ςrνll
After the US military forces left Subic Naval Base, Philcomsat sent
Globe a letter dated 24 November 1993 demanding payment of
its outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorneys fees. However, Globe
refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court
of Makati a Complaint against Globe, praying that the latter be
ordered to pay liquidated damages under the Agreement, with
legal interest, exemplary damages, attorneys fees and costs of
suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was
constrained to end the Agreement due to the termination of the
RP-US Military Bases Agreement and the non-ratification by the
Senate of the Treaty of Friendship and Cooperation, which events
constituted force majeure under the Agreement. Globe explained
that the occurrence of said events exempted it from paying
rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the
dispositive portion of which reads:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
WHEREFORE, premises considered, judgment is hereby rendered
as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1.Ordering the defendant to pay the plaintiff the amount of
Ninety Two Thousand Two Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in Philippine Currency (computed
at the exchange rate prevailing at the time of compliance or
payment) representing rentals for the month of December 1992
with interest thereon at the legal rate of twelve percent (12%) per
annum starting December 1992 until the amount is fully
paid;chanroblesvirtuallawlibrary
2.Ordering the defendant to pay the plaintiff the amount of Three
Hundred Thousand (P300,000.00) Pesos as and for attorneys
fees;chanroblesvirtuallawlibrary
3.Ordering the DISMISSAL of defendants counterclaim for lack of
merit; andcralawlibrary
4.With costs against the defendant.
SO ORDERED.9 ςrνll
Both parties appealed the trial courts Decision to the Court of
Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the
non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements
constitutes force majeure which exempts Globe from complying
with its obligations under the Agreement; (2) Globe is not liable to
pay the rentals for the remainder of the term of the Agreement;
and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in
holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it
terminated Philcomsats services on 08 November 1992; hence, it
had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsats appeal for lack of merit and
affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals for
the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate
of the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine
Governments Note Verbale to the US Government, are acts,
directions, or requests of the Government of the Philippines
which constitute force majeure. In addition, there were
circumstances beyond the control of the parties, such as the
issuance of a formal order by Cdr. Walter Corliss of the US Navy,
the issuance of the letter notification from ATT and the complete
withdrawal of all US military forces and personnel from Cubi
Point, which prevented further use of the earth station under the
Agreement.
However, the Court of Appeals ruled that although Globe sought
to terminate Philcomsats services by 08 November 1992, it is still
liable to pay rentals for the December 1992, amounting to
US$92,238.00 plus interest, considering that the US military forces
and personnel completely withdrew from Cubi Point only on 31
December 1992.10 ςrνll
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following
assignments of error:
A.THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A
DEFINITION OF FORCE MAJEURE DIFFERENT FROM WHAT ITS
LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE,
PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM
COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
B.THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS
FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE
CLEAR TENOR OF SECTION 7 OF THE AGREEMENT.
C.THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE
TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF
PHILCOMSAT.
D.THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY
DAMAGES.12 ςrνll
Philcomsat argues that the termination of the RP-US Military
Bases Agreement cannot be considered a fortuitous event
because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8
should be deemed ineffective because it is contrary to Article
1174 of the Civil Code. Philcomsat posits the view that the validity
of the parties definition of force majeure in Section 8 of the
Agreement as circumstances beyond the control of the party
involved including, but not limited to, any law, order, regulation,
direction or request of the Government of the Philippines, strikes
or other labor difficulties, insurrection riots, national emergencies,
war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God, should be deemed subject to Article
1174 which defines fortuitous events as events which could not
be foreseen, or which, though foreseen, were inevitable. 13 ςrνll
Philcomsat further claims that the Court of Appeals erred in
holding that Globe is not liable to pay for the rental of the earth
station for the entire term of the Agreement because it runs
counter to what was plainly stipulated by the parties in Section 7
thereof.Moreover, said ruling is inconsistent with the appellate
courts pronouncement that Globe is liable to pay rentals for
December 1992 even though it terminated Philcomsats services
effective 08 November 1992, because the US military and
personnel completely withdrew from Cubi Point only in December
1992. Philcomsat points out that it was Globe which proposed the
five-year term of the Agreement, and that the other provisions of
the Agreement, such as Section 4.114 thereof, evince the intent of
Globe to be bound to pay rentals for the entire five-year
term.15 ςrνll
Philcomsat also maintains that contrary to the appellate courts
findings, it is entitled to attorneys fees and exemplary
damages.16 ςrνll
In its Comment to Philcomsats Petition, Globe asserts that Section
8 of the Agreement is not contrary to Article 1174 of the Civil
Code because said provision does not prohibit parties to a
contract from providing for other instances when they would be
exempt from fulfilling their contractual obligations. Globe also
claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from
complying with its obligations under the Agreement.17 On the
issue of the propriety of awarding attorneys fees and exemplary
damages to Philcomsat, Globe maintains that Philcomsat is not
entitled thereto because in refusing to pay rentals for the
remainder of the term of the Agreement, Globe only acted in
accordance with its rights.18 ςrνll
In G.R. No. 147334,19 Globe, the petitioner therein, contends that
the Court of Appeals erred in finding it liable for the amount of
US$92,238.00, representing rentals for December 1992, since
Philcomsats services were actually terminated on 08 November
1992.20 ςrνll
In its Comment, Philcomsat claims that Globes petition should be
dismissed as it raises a factual issue which is not cognizable by the
Court in a Petition for Review on Certiorari .21 ςrνll
On 15 August 2001, the Court issued a Resolution giving due
course to Philcomsats Petition in G.R. No. 147324 and required
the parties to submit their respective memoranda.22 ςrνll
Similarly, on 20 August 2001, the Court issued a Resolution giving
due course to the Petition filed by Globe in G.R. No. 147334and
required both parties to submit their memoranda.23 ςrνll
Philcomsat and Globe thereafter filed their
respective Consolidated Memoranda in the two cases, reiterating
their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether
the termination of the RP-US Military Bases Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security,
and the consequent withdrawal of US military forces and
personnel from Cubi Point constitute force majeure which would
exempt Globe from complying with its obligation to pay rentals
under its Agreement with Philcomsat; (2) whether Globe is liable
to pay rentals under the Agreement for the month of December
1992; and (3) whether Philcomsat is entitled to attorneys fees and
exemplary damages.
No reversible error was committed by the Court of Appeals in
issuing the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of the
Agreement cannot be given effect because the enumeration of
events constituting force majeure therein unduly expands the
concept of a fortuitous event under Article 1174 of the Civil Code
and is therefore invalid.
In support of its position, Philcomsat contends that under Article
1174 of the Civil Code, an event must be unforeseen in order to
exempt a party to a contract from complying with its obligations
therein. It insists that since the expiration of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security and the withdrawal of US military forces
and personnel from Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they entered into
the Agreement, such events cannot exempt Globe from
performing its obligation of paying rentals for the entire five-year
term thereof.
However, Article 1174, which exempts an obligor from liability on
account of fortuitous events or force majeure, refers not only to
events that are unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or
which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an act of God,
or natural occurrences such as floods or typhoons,24 or an act of
man, such as riots, strikes or wars.25 ςrνll
Philcomsat and Globe agreed in Section 8 of the Agreement that
the following events shall be deemed events constituting force
majeure:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1.Any law, order, regulation, direction or request of the Philippine
Government;chanroblesvirtuallawlibrary
2.Strikes or other labor difficulties;chanroblesvirtuallawlibrary
3.Insurrection;chanroblesvirtuallawlibrary parties have control over the subsequent withdrawal of the US
military forces and personnel from Cubi Point in December
4.Riots;chanroblesvirtuallawlibrary 1992:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
5.National emergencies;chanroblesvirtuallawlibrary Obviously the non-ratification by the Senate of the RP-US Military
Bases Agreement (and its Supplemental Agreements) under its
6.War;chanroblesvirtuallawlibrary
Resolution No. 141. (Exhibit 2) on September 16, 1991 is beyond
7.Acts of public enemies;chanroblesvirtuallawlibrary the control of the parties. This resolution was followed by the
sending on December 31, 1991 o[f] a Note Verbale (Exhibit 3) by
8.Fire, floods, typhoons or other catastrophies or acts of the Philippine Government to the US Government notifying the
God;chanroblesvirtuallawlibrary latter of the formers termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that
9.Other circumstances beyond the control of the parties. accordingly, the withdrawal of all U.S. military forces from Subic
Naval Base should be completed by said date. Subsequently,
Clearly, the foregoing are either unforeseeable, or foreseeable
defendant [Globe] received a formal order from Cdr. Walter F.
but beyond the control of the parties. There is nothing in the
Corliss II Commander USN dated July 31, 1992 and a notification
enumeration that runs contrary to, or expands, the concept of a
from ATT dated July 29, 1992 to terminate the provision of T1s
fortuitous event under Article 1174.
services (via an IBS Standard B Earth Station) effective November
Furthermore, under Article 130626 of the Civil Code, parties to a 08, 1992. Plaintiff [Philcomsat] was furnished with copies of the
contract may establish such stipulations, clauses, terms and said order and letter by the defendant on August 06, 1992.
conditions as they may deem fit, as long as the same do not run
Resolution No. 141 of the Philippine Senate and the Note Verbale
counter to the law, morals, good customs, public order or public
of the Philippine Government to the US Government are acts,
policy.27 ςrνll
direction or request of the Government of the Philippines and
circumstances beyond the control of the defendant. The formal
Article 1159 of the Civil Code also provides that [o]bligations
order from Cdr. Walter Corliss of the USN, the letter notification
arising from contracts have the force of law between the
from ATT and the complete withdrawal of all the military forces
contracting parties and should be complied with in good
and personnel from Cubi Point in the year-end 1992 are also acts
faith.28 Courts cannot stipulate for the parties nor amend their
and circumstances beyond the control of the defendant.
agreement where the same does not contravene law, morals,
good customs, public order or public policy, for to do so would be
Considering the foregoing, the Court finds and so holds that the
to alter the real intent of the parties, and would run contrary to
afore-narrated circumstances constitute force majeure or
the function of the courts to give force and effect thereto.29 ςrνll
fortuitous event(s) as defined under paragraph 8 of the
Agreement.
Not being contrary to law, morals, good customs, public order, or
public policy, Section 8 of the Agreement which Philcomsat and
From the foregoing, the Court finds that the defendant is
Globe freely agreed upon has the force of law between
exempted from paying the rentals for the facility for the
them.30 ςrνll
remaining term of the contract.
In order that Globe may be exempt from non-compliance with its
As a consequence of the termination of the RP-US Military Bases
obligation to pay rentals under Section 8, the concurrence of the
Agreement (as amended) the continued stay of all US Military
following elements must be established: (1) the event must be
forces and personnel from Subic Naval Base would no longer be
independent of the human will; (2) the occurrence must render it
allowed, hence, plaintiff would no longer be in any position to
impossible for the debtor to fulfill the obligation in a normal
render the service it was obligated under the Agreement. To put it
manner; and (3) the obligor must be free of participation in, or
blantly (sic), since the US military forces and personnel left or
aggravation of, the injury to the creditor.31 ςrνll
withdrew from Cubi Point in the year end December 1992, there
The Court agrees with the Court of Appeals and the trial court was no longer any necessity for the plaintiff to continue
that the abovementioned requisites are present in the instant maintaining the IBS facility.32 (Emphasis in the original.)
case. Philcomsat and Globe had no control over the non-renewal
The aforementioned events made impossible the continuation of
of the term of the RP-US Military Bases Agreement when the
the Agreement until the end of its five-year term without fault on
same expired in 1991, because the prerogative to ratify the treaty
the part of either party. The Court of Appeals was thus correct in
extending the life thereof belonged to the Senate. Neither did the
ruling that the happening of such fortuitous events rendered
Globe exempt from payment of rentals for the remainder of the
term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying
rentals even though Philcomsat cannot be compelled to perform
its corresponding obligation under the Agreement. As noted by
the appellate court:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
in refusing to satisfy the other partys claims and compelled the
former to litigate to protect his rights;37 when the action filed is
clearly unfounded,38 or where moral or exemplary damages are
awarded.39 However, in cases where both parties have legitimate
claims against each other and no party actually prevailed, such as
in the present case where the claims of both parties were
sustained in part, an award of attorneys fees would not be
warranted.40 ςrνll

We also point out the sheer inequity of PHILCOMSATs position.
PHILCOMSAT would like to charge GLOBE rentals for the balance
of the lease term without there being any corresponding
telecommunications service subject of the lease.It will be grossly
unfair and iniquitous to hold GLOBE liable for lease charges for a
service that was not and could not have been rendered due to an
act of the government which was clearly beyond GLOBEs control.
The binding effect of a contract on both parties is based on the
principle that the obligations arising from contracts have the force
of law between the contracting parties, and there must be
mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract
while leaving the other party free therefrom (Allied Banking
Corporation v. Court of Appeals, 284 SCRA 357 ). 33 ςrνll
Exemplary damages may be awarded in cases involving contracts
or quasi-contracts, if the erring party acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.41 In the
present case, it was not shown that Globe acted wantonly or
oppressively in not heeding Philcomsats demands for payment of
rentals. It was established during the trial of the case before the
trial court that Globe had valid grounds for refusing to comply
with its contractual obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619
is AFFIRMED.
SO ORDERED.

With respect to the issue of whether Globe is liable for payment

of rentals for the month of December 1992, the Court likewise
affirms the appellate courts ruling that Globe should pay the
same.

Although Globe alleged that it terminated the Agreement with

Philcomsat effective 08 November 1992 pursuant to the formal
order issued by Cdr. Corliss of the US Navy, the date when they
actually ceased using the earth station subject of the Agreement
was not established during the trial.34 However, the trial court
found that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992.35 Thus, until
that date, the USDCA had control over the earth station and had
the option of using the same. Furthermore, Philcomsat could not
have removed or rendered ineffective said communication facility G.R. No. 147839             June 8, 2006
until after 31 December 1992 because Cubi Point was accessible
only to US naval personnel up to that time. Hence, the Court of GAISANO CAGAYAN, INC. Petitioner,
Appeals did not err when it affirmed the trial courts ruling that vs.
Globe is liable for payment of rentals until December 1992. INSURANCE COMPANY OF NORTH AMERICA, Respondent.

Neither did the appellate court commit any error in holding that DECISION
Philcomsat is not entitled to attorneys fees and exemplary
AUSTRIA-MARTINEZ, J.:
damages.
Before the Court is a petition for review on certiorari of the
The award of attorneys fees is the exception rather than the rule,
Decision1 dated October 11, 2000 of the Court of Appeals (CA) in
and must be supported by factual, legal and equitable
CA-G.R. CV No. 61848 which set aside the Decision dated August
justifications.36 In previously decided cases, the Court awarded
31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in
attorneys fees where a party acted in gross and evident bad faith
Civil Case No. 92-322 and upheld the causes of action for damages
of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated
April 11, 2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local
distributor of products bearing trademarks owned by Levi Strauss
& Co.. IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The insurance
policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered
to various customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this Policy." 3 The
policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the
Insured which are outstanding at the date of loss for a period in
excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all
amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and
LSPI. On February 25, 1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by IMC and
LSPI.
On February 4, 1992, respondent filed a complaint for damages
against petitioner. It alleges that IMC and LSPI filed with
respondent their claims under their respective fire insurance
policies with book debt endorsements; that as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery
of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; that respondent paid the
claims of IMC and LSPI and, by virtue thereof, respondent was
subrogated to their rights against petitioner; that respondent
made several demands for payment upon petitioner but these
went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner
contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to fortuities
event or force majeure; that respondent's right of subrogation has
no basis inasmuch as there was no breach of contract committed
by it since the loss was due to fire which it could not prevent or
foresee; that IMC and LSPI never communicated to it that they
insured their properties; that it never consented to paying the
claim of the insured.6
At the pre-trial conference the parties failed to arrive at an
amicable settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.8 It held that the fire was purely
accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that
petitioner is the debtor of IMC and LSPI; that since the sales
invoices state that "it is further agreed that merely for purpose of
securing the payment of purchase price, the above-described
merchandise remains the property of the vendor until the
purchase price is fully paid", IMC and LSPI retained ownership of
the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000,
the CA rendered its decision setting aside the decision of the RTC.
The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by
the plaintiff-appellant to the insured Inter Capitol Marketing
Corporation, plus legal interest from the time of demand until
fully paid;
2. the amount of P535,613.00 representing the amount paid by
the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus
legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being
detailed statements of the nature, quantity and cost of the thing
sold; that loss of the goods in the fire must be borne by petitioner
since the proviso contained in the sales invoices is an exception
under Article 1504 (1) of the Civil Code, to the general rule that if
the thing is lost by a fortuitous event, the risk is borne by the
owner of the thing at the time the loss under the principle of res
perit domino; that petitioner's obligation to IMC and LSPI is not
the delivery of the lost goods but the payment of its unpaid
account and as such the obligation to pay is not extinguished,
even if the fire is considered a fortuitous event; that by
subrogation, the insurer has the right to go against petitioner;
that, being a fire insurance with book debt endorsements, what
was insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by
the CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on
the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER
THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED
TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE
IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the
present case cannot be deemed to be over credit since an
insurance "on credit" belies not only the nature of fire insurance
but the express terms of the policies; that it was not credit that
was insured since respondent paid on the occasion of the loss of
the insured goods to fire and not because of the non-payment by
petitioner of any obligation; that, even if the insurance is deemed
as one over credit, there was no loss as the accounts were not yet
due since no prior demands were made by IMC and LSPI against
petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the
fire insurance policies.15
As to the second error, petitioner avers that despite delivery of
the goods, petitioner-buyer IMC and LSPI assumed the risk of loss
when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be
maintained thereon by IMC and LSPI since all risk had transferred
to petitioner upon delivery of the goods; that petitioner was not
privy to the insurance contract or the payment between
respondent and its insured nor was its consent or approval ever
secured; that this lack of privity forecloses any real interest on the
part of respondent in the obligation to pay, limiting its interest to
keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the
ready- made clothing materials was transferred upon delivery to
petitioner, IMC and LSPI have insurable interest over said goods as
creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-
made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that
the fire was caused through petitioner's negligence in failing to
provide stringent measures of caution, care and maintenance on
its property because electric wires do not usually short circuit
unless there are defects in their installation or when there is lack
of proper maintenance and supervision of the property; that
petitioner is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for
contracted lawyer's fees, litigation expenses and cost of suit. 17
As a general rule, in petitions for review, the jurisdiction of this
Court in cases brought before it from the CA is limited to
reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any
of them.18 The Supreme Court is not a trier of facts; it is not its
function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are
generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in
which factual issues may be resolved by this Court, such as: (1)
when the findings are grounded entirely on speculation, surmises
or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension
of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the CA went beyond the issues of the case, or
its findings are contrary to the admissions of both the appellant
and the appellee; (7) when the findings are contrary to the trial
court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioner's main and reply
briefs are not disputed by the respondent; (10) when the findings
of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different
conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present
petition.
At issue is the proper interpretation of the questioned insurance
policy. Petitioner claims that the CA erred in construing a fire
insurance policy on book debts as one covering the unpaid
accounts of IMC and LSPI since such insurance applies to loss of
the ready-made clothing materials sold and delivered to
petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and
readily understood, there is no room for construction.22 In this
case, the questioned insurance policies provide coverage for
"book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines."23 ; and
defined book debts as the "unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss
covered under this Policy." 24 Nowhere is it provided in the
questioned insurance policies that the subject of the insurance is
the goods sold and delivered to the customers and dealers of the
insured.
Indeed, when the terms of the agreement are clear and explicit
that they do not justify an attempt to read into it any alleged
intention of the parties, the terms are to be understood literally
just as they appear on the face of the contract.25 Thus, what were
insured against were the accounts of IMC and LSPI with petitioner
which remained unpaid 45 days after the loss through fire, and
not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it
expressly reserved ownership of the goods by stipulating in the
sales invoices that "[i]t is further agreed that merely for purpose
of securing the payment of the purchase price the above
described merchandise remains the property of the vendor until
the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of
the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to
secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such
delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the
buyer will pay its debt, the risk of loss is borne by the
buyer.27 Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods. They
have an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who bears the
risk of loss, in property insurance, one's interest is not determined
by concept of title, but whether insured has substantial economic
interest in the property.28
Section 13 of our Insurance Code defines insurable interest as
"every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that
a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which
the expectancy arises.
Therefore, an insurable interest in property does not necessarily
imply a property interest in, or a lien upon, or possession of, the
subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest,
it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or
destroyed by the peril against which it is insured.29 Anyone has an
insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.30 Indeed, a
vendor or seller retains an insurable interest in the property sold
so long as he has any interest therein, in other words, so long as
he would suffer by its destruction, as where he has a vendor's
lien.31 In this case, the insurable interest of IMC and LSPI pertain
to the unpaid accounts appearing in their Books of Account 45
days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a
fortuitous event under Article 117432 of the Civil Code is
misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is
not for loss of goods by fire but for petitioner's accounts with IMC
and LSPI that remained unpaid 45 days after the fire. Accordingly,
petitioner's obligation is for the payment of money. As correctly
stated by the CA, where the obligation consists in the payment of
money, the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his
liability.33 The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a
fortuitous event only holds true when the obligation consists in
the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. It does not confirms the loss of Levi's products in the amount of P535,613.00
apply when the obligation is pecuniary in nature.34 in the fire that razed petitioner's building on February 25, 1991.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver
a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation." If the obligation is
generic in the sense that the object thereof is designated merely
by its class or genus without any particular designation or physical
segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the
debtor's fault and before he has incurred in delay will not have
the effect of extinguishing the obligation.35 This rule is based on
the principle that the genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money is generic; therefore,
it is not excused by fortuitous loss of any specific property of the
debtor.37
Moreover, there is no proof of full settlement of the insurance
claim of LSPI; no subrogation receipt was offered in evidence.
Thus, there is no evidence that respondent has been subrogated
to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case
for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed
Decision dated October 11, 2000 and Resolution dated April 11,
2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to pay the
amount of P535,613.00 to respondent is DELETED for lack of
factual basis.

Thus, whether fire is a fortuitous event or petitioner was negligent No pronouncement as to costs.
are matters immaterial to this case. What is relevant here is
SO ORDERED.
whether it has been established that petitioner has outstanding
accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established

its claim. Exhibits "C" to "C-22"38 show that petitioner has an
outstanding account with IMC in the amount of P2,119,205.00.
Exhibit "E"39 is the check voucher evidencing payment to IMC.
Exhibit "F"40 is the subrogation receipt executed by IMC in favor of
respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked
as exhibits in court. The subrogation receipt, by itself, is sufficient
to establish not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle the
insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or G.R. No. 159617             August 8, 2007
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the ROBERTO C. SICAM and AGENCIA de R.C. SICAM,
insured against the wrongdoer or the person who has violated the INC., petitioners,
contract. x x x vs.
LULU V. JORGE and CESAR JORGE, respondents.
Petitioner failed to refute respondent's evidence.
DECISION
As to LSPI, respondent failed to present sufficient evidence to
prove its cause of action. No evidentiary weight can be given to AUSTRIA-MARTINEZ, J.:
Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from
Before us is a Petition for Review on Certiorari filed by Roberto C.
petitioner's General Manager, Stephen S. Gaisano, Jr., since it is
Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc.
not an admission of petitioner's unpaid account with LSPI. It only
(petitioner corporation) seeking to annul the Decision 1 of the
Court of Appeals dated March 31, 2003, and its Resolution2 dated
August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October
1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of
jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre
Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the
total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and
took away whatever cash and jewelry were found inside the
pawnshop vault. The incident was entered in the police blotter of
the Southern Police District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims were inside
the office, two (2) male unidentified persons entered into the said
office with guns drawn. Suspects(sic) (1) went straight inside and
poked his gun toward Romeo Sicam and thereby tied him with an
electric wire while suspects (sic) (2) poked his gun toward Divina
Mata and Isabelita Rodriguez and ordered them to lay (sic) face
flat on the floor. Suspects asked forcibly the case and assorted
pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a
Marson Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19,
1987 informing her of the loss of her jewelry due to the robbery
incident in the pawnshop. On November 2, 1987, respondent Lulu
then wrote a letter4 to petitioner Sicam expressing disbelief
stating that when the robbery happened, all jewelry pawned were
deposited with Far East Bank near the pawnshop since it had been
the practice that before they could withdraw, advance notice
must be given to the pawnshop so it could withdraw the jewelry
from the bank. Respondent Lulu then requested petitioner Sicam
to prepare the pawned jewelry for withdrawal on November 6,
1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband,
Cesar Jorge, filed a complaint against petitioner Sicam with the
Regional Trial Court of Makati seeking indemnification for the loss
of pawned jewelry and payment of actual, moral and exemplary
damages as well as attorney's fees. The case was docketed as Civil
Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the
real party-in-interest as the pawnshop was incorporated on April
20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner
corporation had exercised due care and diligence in the
safekeeping of the articles pledged with it and could not be made
liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to
include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he
is concerned considering that he is not the real party-in-interest.
Respondents opposed the same. The RTC denied the motion in an
Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision 6 dated
January 12, 1993, dismissing respondents’ complaint as well as
petitioners’ counterclaim. The RTC held that petitioner Sicam
could not be made personally liable for a claim arising out of a
corporate transaction; that in the Amended Complaint of
respondents, they asserted that "plaintiff pawned assorted
jewelries in defendants' pawnshop"; and that as a consequence of
the separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be
held liable for the loss of the pawned jewelry since it had not
been rebutted by respondents that the loss of the pledged pieces
of jewelry in the possession of the corporation was occasioned by
armed robbery; that robbery is a fortuitous event which exempts
the victim from liability for the loss, citing the case of Austria v.
Court of Appeals;7 and that the parties’ transaction was that of a
pledgor and pledgee and under Art. 1174 of the Civil Code, the
pawnshop as a pledgee is not responsible for those events which
could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision
dated March 31, 2003, the CA reversed the RTC, the dispositive
portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is
GRANTED, and the Decision dated January 12, 1993,of the
Regional Trial Court of Makati, Branch 62, is hereby REVERSED
and SET ASIDE, ordering the appellees to pay appellants the actual
value of the lost jewelry amounting to P272,000.00, and attorney'
fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner
corporation, the CA applied the doctrine of piercing the veil of
corporate entity reasoning that respondents were misled into
thinking that they were dealing with the pawnshop owned by
petitioner Sicam as all the pawnshop tickets issued to them bear
the words "Agencia de R.C. Sicam"; and that there was no
indication on the pawnshop tickets that it was the petitioner
corporation that owned the pawnshop which explained why
respondents had to amend their complaint impleading petitioner
corporation.
The CA further held that the corresponding diligence required of a
pawnshop is that it should take steps to secure and protect the
pledged items and should take steps to insure itself against the
loss of articles which are entrusted to its custody as it derives
earnings from the pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the robbery
incident happened in 1961 when the criminality had not as yet
reached the levels attained in the present day; that they are at
least guilty of contributory negligence and should be held liable
for the loss of jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop business
are expected to foresee.
The CA concluded that both petitioners should be jointly and
severally held liable to respondents for the loss of the pawned
jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution
dated August 8, 2003.
Hence, the instant petition for review with the following
assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT
IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN
THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY
UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT
AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT
ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS
IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO
DESPITE THE FACT THAT THE SAID ARGUMENT OF THE
RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF
UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CA’s
finding that petitioner Sicam is personally liable for the loss of the
pawned jewelries is "a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of respondents
in their Appellants’ Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their
Amended Complaint that Agencia de R.C. Sicam, Inc. is the
present owner of Agencia de R.C. Sicam Pawnshop, and therefore,
the CA cannot rule against said conclusive assertion of
respondents;
(2) The issue resolved against petitioner Sicam was not among
those raised and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to
have pierced the corporate veil since a corporation has a
personality distinct and separate from its individual stockholders
or members.
Anent the second error, petitioners point out that the CA finding
on their negligence is likewise an unedited reproduction of
respondents’ brief which had the following defects:
(1) There were unrebutted evidence on record that petitioners
had observed the diligence required of them, i.e, they wanted to
open a vault with a nearby bank for purposes of safekeeping the
pawned articles but was discouraged by the Central Bank (CB)
since CB rules provide that they can only store the pawned
articles in a vault inside the pawnshop premises and no other
place;
(2) Petitioners were adjudged negligent as they did not take
insurance against the loss of the pledged jelweries, but it is
judicial notice that due to high incidence of crimes, insurance
companies refused to cover pawnshops and banks because of
high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39,
45-46), the victim of robbery was exonerated from liability for the
sum of money belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply
thereto. The parties subsequently submitted their respective
Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were
exact reproductions of the arguments raised in respondents’
(appellants’) brief filed with the CA, we find the same to be not
fatally infirmed. Upon examination of the Decision, we find that it
expressed clearly and distinctly the facts and the law on which it is
based as required by Section 8, Article VIII of the Constitution. The
discretion to decide a case one way or another is broad enough to
justify the adoption of the arguments put forth by one of the
parties, as long as these are legally tenable and supported by law
and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to
the review of errors of law committed by the appellate court.
Generally, the findings of fact of the appellate court are deemed
conclusive and we are not duty-bound to analyze and calibrate all
over again the evidence adduced by the parties in the court a
quo.12 This rule, however, is not without exceptions, such as
where the factual findings of the Court of Appeals and the trial
court are conflicting or contradictory13 as is obtaining in the
instant case.
However, after a careful examination of the records, we find no
justification to absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and
adjudged petitioner Sicam liable together with petitioner
corporation. The rule is that the veil of corporate fiction may be
pierced when made as a shield to perpetrate fraud and/or
confuse legitimate issues. 14 The theory of corporate entity was
not meant to promote unfair objectives or otherwise to shield
them.15
Notably, the evidence on record shows that at the time
respondent Lulu pawned her jewelry, the pawnshop was owned
by petitioner Sicam himself. As correctly observed by the CA, in all
the pawnshop receipts issued to respondent Lulu in September
1987, all bear the words "Agencia de R. C. Sicam,"
notwithstanding that the pawnshop was allegedly incorporated in
April 1987. The receipts issued after such alleged incorporation
were still in the name of "Agencia de R. C. Sicam," thus inevitably
misleading, or at the very least, creating the wrong impression to
respondents and the public as well, that the pawnshop was
owned solely by petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his
letter16 dated October 15, 1987 addressed to the Central Bank,
expressly referred to petitioner Sicam as the proprietor of the
pawnshop notwithstanding the alleged incorporation in April
1987.
We also find no merit in petitioners' argument that since
respondents had alleged in their Amended Complaint that
petitioner corporation is the present owner of the pawnshop, the
CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an
admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The
admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon
the party making it and does not require proof, admits of two
exceptions, to wit: (1) when it is shown that such admission was
made through palpable mistake, and (2) when it is shown that no
such admission was in fact made. The latter exception allows one
to contradict an admission by denying that he made such an
admission.17
The Committee on the Revision of the Rules of Court explained
the second exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but
cites the admission "out of context," then the one making the
"admission" may show that he made no "such" admission, or that
his admission was taken out of context.
x x x that the party can also show that he made no "such
admission", i.e., not in the sense in which the admission is made
to appear.
That is the reason for the modifier "such" because if the rule
simply states that the admission may be contradicted by showing
that "no admission was made," the rule would not really be
providing for a contradiction of the admission but just a
denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended
Complaint that petitioner corporation is the present owner of the
pawnshop, they did so only because petitioner Sicam alleged in
his Answer to the original complaint filed against him that he was
not the real party-in-interest as the pawnshop was incorporated
in April 1987. Moreover, a reading of the Amended Complaint in
its entirety shows that respondents referred to both petitioner
Sicam and petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed to both the
failure to observe due diligence commensurate with the business
which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’ Motion
to Dismiss Amended Complaint, insofar as petitioner Sicam is
concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original
complaint because the pawnshop tickets involved in this case did
not show that the R.C. Sicam Pawnshop was a corporation. In
paragraph 1 of his Answer, he admitted the allegations in
paragraph 1 and 2 of the Complaint. He merely added "that
defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop
tickets used in the subject transactions in this case which was the
cause of the instant action. He cannot now ask for the dismissal of
the complaint against him simply on the mere allegation that his
pawnshop business is now incorporated. It is a matter of defense,
the merit of which can only be reached after consideration of the
evidence to be presented in due course.19
Unmistakably, the alleged admission made in respondents'
Amended Complaint was taken "out of context" by petitioner
Sicam to suit his own purpose. Ineluctably, the fact that petitioner
Sicam continued to issue pawnshop receipts under his name and
not under the corporation's name militates for the piercing of the
corporate veil.
We likewise find no merit in petitioners' contention that the CA
erred in piercing the veil of corporate fiction of petitioner
corporation, as it was not an issue raised and litigated before the
RTC.
Petitioner Sicam had alleged in his Answer filed with the trial
court that he was not the real party-in-interest because since April
20, 1987, the pawnshop business initiated by him was
incorporated and known as Agencia de R.C. Sicam. In the pre-trial
brief filed by petitioner Sicam, he submitted that as far as he was
concerned, the basic issue was whether he is the real party in
interest against whom the complaint should be directed.20 In fact,
he subsequently moved for the dismissal of the complaint as to
him but was not favorably acted upon by the trial court.
Moreover, the issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as
far as he is concerned for the reason that he cannot be made
personally liable for a claim arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C.
Sicam, Jr. The amended complaint itself asserts that "plaintiff
pawned assorted jewelries in defendant's pawnshop." It has been
held that " as a consequence of the separate juridical personality
of a corporation, the corporate debt or credit is not the debt or
credit of the stockholder, nor is the stockholder's debt or credit
that of a corporation.21
Clearly, in view of the alleged incorporation of the pawnshop, the
issue of whether petitioner Sicam is personally liable is
inextricably connected with the determination of the question
whether the doctrine of piercing the corporate veil should or
should not apply to the case.
The next question is whether petitioners are liable for the loss of
the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a
fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when
it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen or
which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to
avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible
for the debtor to fulfill obligations in a normal manner; and, (d)
the obligor must be free from any participation in the aggravation
of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event
rests on him who invokes it.24 And, in order for a fortuitous event
to exempt one from liability, it is necessary that one has
committed no negligence or misconduct that may have
occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a
person who has failed to take steps to forestall the possible
adverse consequences of such a loss. One's negligence may have
concurred with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or proximate
cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly
the result of a person's participation -- whether by active
intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of
God. 26
Petitioner Sicam had testified that there was a security guard in
their pawnshop at the time of the robbery. He likewise testified
that when he started the pawnshop business in 1983, he thought
of opening a vault with the nearby bank for the purpose of
safekeeping the valuables but was discouraged by the Central
Bank since pawned articles should only be stored in a vault inside
the pawnshop. The very measures which petitioners had allegedly
adopted show that to them the possibility of robbery was not only
foreseeable, but actually foreseen and anticipated. Petitioner
Sicam’s testimony, in effect, contradicts petitioners’ defense of
fortuitous event.
Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have
been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It
does not foreclose the possibility of negligence on the part of
herein petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape
liability simply because the damage or loss of a thing lawfully
placed in its possession was due to carnapping. Carnapping per se
cannot be considered as a fortuitous event. The fact that a thing
was unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically
give rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking of
another's property. It must be proved and established that the
event was an act of God or was done solely by third parties and
that neither the claimant nor the person alleged to be negligent
has any participation. In accordance with the Rules of Evidence,
the burden of proving that the loss was due to a fortuitous event
rests on him who invokes it — which in this case is the private
respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private
respondent to the effect that the incident was not due to its fault.
A police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the carnapping.
Neither does it prove that there was no fault on the part of
private respondent notwithstanding the parties' agreement at the
pre-trial that the car was carnapped. Carnapping does not
foreclose the possibility of fault or negligence on the part of
private respondent.28
Just like in Co, petitioners merely presented the police report of
the Parañaque Police Station on the robbery committed based on
the report of petitioners' employees which is not sufficient to
establish robbery. Such report also does not prove that
petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did
not err in finding that petitioners are guilty of concurrent or
contributory negligence as provided in Article 1170 of the Civil
Code, to wit:
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to
pawnshops and other establishments which are engaged in
making loans secured by pledges, the special laws and regulations
concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil
Code, provides that the creditor shall take care of the thing
pledged with the diligence of a good father of a family. This
means that petitioners must take care of the pawns the way a
prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the
persons, of time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2 shall
apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission
to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human
affairs, would do; or the doing of something which a prudent and
reasonable man would not do.31 It is want of care required by the
circumstances.
A review of the records clearly shows that petitioners failed to
exercise reasonable care and caution that an ordinarily prudent
person would have used in the same situation. Petitioners were
guilty of negligence in the operation of their pawnshop business.
Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the
premises when according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a
pawnshop.
Q. I am asking you how were the robbers able to enter despite the
fact that there was a security guard?
A. At the time of the incident which happened about 1:00 and
2:00 o'clock in the afternoon and it happened on a Saturday and
everything was quiet in the area BF Homes Parañaque they
pretended to pawn an article in the pawnshop, so one of my
employees allowed him to come in and it was only when it was
announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the
pawnshop is partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was
open the reason why the robbers were able to get all the items
pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by
petitioners in the operation of the pawnshop. Evidently, no
sufficient precaution and vigilance were adopted by petitioners to
protect the pawnshop from unlawful intrusion. There was no clear
showing that there was any security guard at all. Or if there was
one, that he had sufficient training in securing a pawnshop.
Further, there is no showing that the alleged security guard
exercised all that was necessary to prevent any untoward incident
or to ensure that no suspicious individuals were allowed to enter
the premises. In fact, it is even doubtful that there was a security
guard, since it is quite impossible that he would not have noticed
that the robbers were armed with caliber .45 pistols each, which
were allegedly poked at the employees.33 Significantly, the alleged
security guard was not presented at all to corroborate petitioner
Sicam's claim; not one of petitioners' employees who were
present during the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was
open at the time of robbery is clearly a proof of petitioners' failure
to observe the care, precaution and vigilance that the
circumstances justly demanded. Petitioner Sicam testified that
once the pawnshop was open, the combination was already off.
Considering petitioner Sicam's testimony that the robbery took
place on a Saturday afternoon and the area in BF Homes
Parañaque at that time was quiet, there was more reason for
petitioners to have exercised reasonable foresight and diligence in
protecting the pawned jewelries. Instead of taking the precaution
to protect them, they let open the vault, providing no difficulty for
the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners
negligent for not taking steps to insure themselves against loss of
the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and
Regulations for Pawnshops, which took effect on July 13, 1973,
and which was issued pursuant to Presidential Decree No. 114,
Pawnshop Regulation Act, it is provided that pawns pledged must
be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of
business of a pawnshop and the pawns pledged to it must be
insured against fire and against burglary as well as for the
latter(sic), by an insurance company accredited by the Insurance
Commissioner.
However, this Section was subsequently amended by CB Circular
No. 764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office
building/premises and pawns of a pawnshop must be
insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was
deleted. Obviously, the Central Bank considered it not feasible to
require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering
the above-quoted amendment, there is no statutory duty
imposed on petitioners to insure the pawned jewelry in which
case it was error for the CA to consider it as a factor in concluding
that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that
petitioners failed to exercise the diligence required of them under
the Civil Code.
The diligence with which the law requires the individual at all
times to govern his conduct varies with the nature of the situation
in which he is placed and the importance of the act which he is to
perform.34 Thus, the cases of Austria v. Court of
Appeals,35 Hernandez v. Chairman, Commission on
Audit36 and Cruz v. Gangan37 cited by petitioners in their
pleadings, where the victims of robbery were exonerated from
liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant
with diamonds to be sold on commission basis, but which Abad
failed to subsequently return because of a robbery committed
upon her in 1961. The incident became the subject of a criminal
case filed against several persons. Austria filed an action against
Abad and her husband (Abads) for recovery of the pendant or its
value, but the Abads set up the defense that the robbery
extinguished their obligation. The RTC ruled in favor of Austria, as
the Abads failed to prove robbery; or, if committed, that Maria
Abad was guilty of negligence. The CA, however, reversed the RTC
decision holding that the fact of robbery was duly established and
declared the Abads not responsible for the loss of the jewelry on
account of a fortuitous event. We held that for the Abads to be
relieved from the civil liability of returning the pendant under Art.
1174 of the Civil Code, it would only be sufficient that the
unforeseen event, the robbery, took place without any concurrent
fault on the debtor’s part, and this can be done by preponderance
of evidence; that to be free from liability for reason of fortuitous
event, the debtor must, in addition to the casus itself, be free of
any concurrent or contributory fault or negligence.38
We found in Austria that under the circumstances prevailing at
the time the Decision was promulgated in 1971, the City of Manila
and its suburbs had a high incidence of crimes against persons and
property that rendered travel after nightfall a matter to be
sedulously avoided without suitable precaution and protection;
that the conduct of Maria Abad in returning alone to her house in
the evening carrying jewelry of considerable value would have
been negligence per se and would not exempt her from
responsibility in the case of robbery. However we did not hold
Abad liable for negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not reached the level
of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when
robbery was already prevalent and petitioners in fact had already
foreseen it as they wanted to deposit the pawn with a nearby
bank for safekeeping. Moreover, unlike in Austria, where no
negligence was committed, we found petitioners negligent in
securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special
disbursing officer of the Ternate Beach Project of the Philippine
Tourism in Cavite. In the morning of July 1, 1983, a Friday, he
went to Manila to encash two checks covering the wages of the
employees and the operating expenses of the project. However
for some reason, the processing of the check was delayed and
was completed at about 3 p.m. Nevertheless, he decided to
encash the check because the project employees would be
waiting for their pay the following day; otherwise, the workers
would have to wait until July 5, the earliest time, when the main
office would open. At that time, he had two choices: (1) return to
Ternate, Cavite that same afternoon and arrive early evening; or
(2) take the money with him to his house in Marilao, Bulacan,
spend the night there, and leave for Ternate the following day. He
chose the second option, thinking it was the safer one. Thus, a
little past 3 p.m., he took a passenger jeep bound for Bulacan.
While the jeep was on Epifanio de los Santos Avenue, the jeep
was held up and the money kept by Hernandez was taken, and
the robbers jumped out of the jeep and ran. Hernandez chased
the robbers and caught up with one robber who was
subsequently charged with robbery and pleaded guilty. The other
robber who held the stolen money escaped. The Commission on
Audit found Hernandez negligent because he had not brought the
cash proceeds of the checks to his office in Ternate, Cavite for
safekeeping, which is the normal procedure in the handling of
funds. We held that Hernandez was not negligent in deciding to
encash the check and bringing it home to Marilao, Bulacan instead
of Ternate, Cavite due to the lateness of the hour for the
following reasons: (1) he was moved by unselfish motive for his
co-employees to collect their wages and salaries the following
day, a Saturday, a non-working, because to encash the check on
July 5, the next working day after July 1, would have caused
discomfort to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer destination, Unlike in the Cruz case, the robbery in this case happened in
being nearer, and in view of the comparative hazards in the trips petitioners' pawnshop and they were negligent in not exercising
to the two places, said decision seemed logical at that time. We the precautions justly demanded of a pawnshop.
further held that the fact that two robbers attacked him in broad
daylight in the jeep while it was on a busy highway and in the WHEREFORE, except for the insurance aspect, the Decision of the
presence of other passengers could not be said to be a result of Court of Appeals dated March 31, 2003 and its Resolution dated
his imprudence and negligence. August 8, 2003, are AFFIRMED.
Unlike in Hernandez where the robbery happened in a public Costs against petitioners.
utility, the robbery in this case took place in the pawnshop which
SO ORDERED.
is under the control of petitioners. Petitioners had the means to
screen the persons who were allowed entrance to the premises
and to protect itself from unlawful intrusion. Petitioners had
failed to exercise precautionary measures in ensuring that the
robbers were prevented from entering the pawnshop and for
keeping the vault open for the day, which paved the way for the
robbers to easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of
Technological Education and Skills Development Authority
(TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat
Avenue to Monumento when her handbag was slashed and the
contents were stolen by an unidentified person. Among those
stolen were her wallet and the government-issued cellular phone.
She then reported the incident to the police authorities; however,
the thief was not located, and the cellphone was not recovered.
She also reported the loss to the Regional Director of TESDA, and
she requested that she be freed from accountability for the
cellphone. The Resident Auditor denied her request on the
ground that she lacked the diligence required in the custody of
government property and was ordered to pay the purchase value
in the total amount of P4,238.00. The COA found no sufficient G.R. No. 177921               December 4, 2013
justification to grant the request for relief from accountability. We
reversed the ruling and found that riding the LRT cannot per se be METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S.
denounced as a negligent act more so because Cruz’s mode of DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND
transit was influenced by time and money considerations; that MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA
she boarded the LRT to be able to arrive in Caloocan in time for DYCHIAO, Petitioners,
her 3 pm meeting; that any prudent and rational person under vs.
similar circumstance can reasonably be expected to do the same; ALLIED BANK CORPORATION, Respondent.
that possession of a cellphone should not hinder one from
RESOLUTION
boarding the LRT coach as Cruz did considering that whether she
rode a jeep or bus, the risk of theft would have also been present; PERLAS-BERNABE, J.:
that because of her relatively low position and pay, she was not
expected to have her own vehicle or to ride a taxicab; she did not Assailed in this petition for review on certiorari1 are the
have a government assigned vehicle; that placing the cellphone in Decision2 dated February 12, 2007 and the Resolution3 dated May
a bag away from covetous eyes and holding on to that bag as she 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896
did is ordinarily sufficient care of a cellphone while traveling on which reversed and set aside the Decision 4 dated January 17, 2006
board the LRT; that the records did not show any specific act of of the Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case
negligence on her part and negligence can never be presumed. No. 00-1563, thereby ordering petitioners Metro Concast Steel
Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh
Yan, Spouses Guillermo and Mercedes Dychiao, and Spouses
Vicente and Filomena Duchiao (individual petitioners) to solidarily
pay respondent Allied Bank Corporation (Allied Bank) the to purchase the scrap metal for a total consideration of
aggregate amount of ₱51,064,094.28, with applicable interests 20171016 ₱34,000,000.00, payable as follows:
and penalty charges.
December 13, Trust Receipt No. 96- (a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be
The Facts 1995 37908917 ₱92,919.00 paid in cash and the other ₱2,000,000.00 to be paid in two (2)
post-dated checks of ₱1,000,000.00 each;26 and
On various dates and for different amounts, Metro Concast, a
corporation duly organized and existing under and by virtue of December 13, Trust Receipt No. (b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly
Philippine laws and engaged in the business of manufacturing 1995 96/20258118 ₱224,713.58 installments of ₱3,000,000.00, secured by bank guarantees from
steel,5 through its officers, herein individual petitioners, obtained Bankwise, Inc. (Bankwise) in the form of separate post-dated
several loans from Allied Bank. These loan transactions were The interest rate under Promissory Note No. 96-21301 was checks.27
covered by a promissory note and separate letters of credit/trust pegged at 15.25% per annum (p.a.), with penalty charge of 3% per
receipts, the details of which are as follows: month in case of default; while the twelve (12) trust receipts Unfortunately, Peakstar reneged on all its obligations under the
uniformly provided for an interest rate of 14% p.a. and 1% penalty MoA.1âwphi1 In this regard, petitioners asseverated that:
Date Document Amount charge. By way of security, the individual petitioners executed
(a) their failure to pay their outstanding loan obligations to Allied
several Continuing Guaranty/Comprehensive Surety
Bank must be considered as force majeure ; and
Agreements19 in favor of Allied Bank. Petitioners failed to settle
December 13, Promissory Note No. 96-
their obligations under the aforementioned promissory note and (b) since Allied Bank was the party that accepted the terms and
1996 213016 ₱2,000,000.00
trust receipts, hence, Allied Bank, through counsel, sent them conditions of payment proposed by Peakstar, petitioners must
demand letters,20 all dated December 10, 1998, seeking payment therefore be deemed to have settled their obligations to Allied
November 7, Trust Receipt No. 96- of the total amount of ₱51,064,093.62, but to no avail. Thus, Bank. To bolster their defense, petitioner Jose Dychiao (Jose
1995 2023657 ₱608,603.04 Allied Bank was prompted to file a complaint for collection of sum Dychiao) testified28 during trial that it was Atty. Saw himself who
of money21 (subject complaint) against petitioners before the RTC, drafted the MoA and subsequently received29 the ₱2,000,000.00
Trust Receipt No. 96- docketed as Civil Case No. 00-1563. In their second22 Amended cash and the two (2) Bankwise post-dated checks worth
May 13, 1996 9605228 ₱3,753,777.40 Answer,23 petitioners admitted their indebtedness to Allied Bank ₱1,000,000.00 each from Camiling. However, Atty. Saw turned
but denied liability for the interests and penalties charged, over only the two (2) checks and ₱1,500,000.00 in cash to the wife
claiming to have paid the total sum of ₱65,073,055.73 by way of of Jose Dychiao.30
Trust Receipt No. 96- interest charges for the period covering 1992 to 1997.24
May 24, 1996 9605249 ₱4,602,648.08 Claiming that the subject complaint was falsely and maliciously
They also alleged that the economic reverses suffered by the filed, petitioners prayed for the award of moral damages in the
Trust Receipt No. 97- Philippine economy in 1998 as well as the devaluation of the peso amount of ₱20,000,000.00 in favor of Metro Concast and at least
March 21, 1997 20472410 ₱7,289,757.79 against the US dollar contributed greatly to the downfall of the ₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as
steel industry, directly affecting the business of Metro Concast exemplary damages, ₱1,000,000.00 as attorney’s fees,
and eventually leading to its cessation. Hence, in order to settle ₱500,000.00 for other litigation expenses, including costs of suit.
Trust Receipt No. 96- their debts with Allied Bank, petitioners offered the sale of Metro
June 7, 1996 20328011 ₱17,340,360.73 Concast’s remaining assets, consisting of machineries and The RTC Ruling
equipment, to Allied Bank, which the latter, however, refused.
Instead, Allied Bank advised them to sell the equipment and apply After trial on the merits, the RTC, in a Decision 31 dated January 17,
Trust Receipt No. 95-
the proceeds of the sale to their outstanding obligations. 2006, dismissed the subject complaint, holding that the "causes of
July 26, 1995 20194312 ₱670,709.24
Accordingly, petitioners offered the equipment for sale, but since action sued upon had been paid or otherwise extinguished." It
there were no takers, the equipment was reduced into ferro scrap ruled that since Allied Bank was duly represented by its agent,
Trust Receipt No. 95- Atty. Saw, in all the negotiations and transactions with Peakstar –
or scrap metal over the years. In 2002, Peakstar Oil Corporation
August 31, 1995 20205313 ₱313,797.41 considering that Atty. Saw
(Peakstar), represented by one Crisanta Camiling (Camiling),
expressed interest in buying the scrap metal. During the
(a) drafted the MoA,
November 16, Trust Receipt No. 96- negotiations with Peakstar, petitioners claimed that Atty. Peter
1995 20243914 ₱13,015,109.87 Saw (Atty. Saw), a member of Allied Bank’s legal department, (b) accepted the bank guarantee issued by Bankwise, and
acted as the latter’s agent. Eventually, with the alleged conformity
Trust Receipt No. 96- of Allied Bank, through Atty. Saw, a Memorandum of (c) was apprised of developments regarding the sale and
July 3, 1996 20355215 ₱401,608.89 Agreement25 dated November 8, 2002 (MoA) was drawn between disposition of the scrap metal – then it stands to reason that the
Metro Concast, represented by petitioner Jose Dychiao, and MoA between Metro Concast and Peakstar was binding upon said
Peakstar, through Camiling, under which Peakstar obligated itself bank.
June 20, 1995 Trust Receipt No. 95- ₱750,089.25
The CA Ruling
Allied Bank appealed to the CA which, in a Decision 32 dated
February 12, 2007, reversed and set aside the ruling of the RTC,
ratiocinating that there was "no legal basis in fact and in law to
declare that when Bankwise reneged its guarantee under the
[MoA], herein [petitioners] should be deemed to be discharged
from their obligations lawfully incurred in favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast, as
seller of the ferro scrap, and Peakstar, as the buyer thereof, and
found that the same did not indicate that Allied Bank intervened
or was a party thereto. It also pointed out the fact that the post-
dated checks pursuant to the MoA were issued in favor of Jose
Dychiao. Likewise, the CA found no sufficient evidence on record
showing that Atty. Saw was duly and legally authorized to act for
and on behalf of Allied Bank, opining that the RTC was "indulging
in hypothesis and speculation"34 when it made a contrary
pronouncement. While Atty. Saw received the earnest money
from Peakstar, the receipt was signed by him on behalf of Jose
Dychiao.35
It also added that "[i]n the final analysis, the aforesaid checks and
receipts were signed by [Atty.] Saw either as representative of
[petitioners] or as partner of the latter’s legal counsel, and not in
anyway as representative of [Allied Bank]."36
Consequently, the CA granted the appeal and directed petitioners
to solidarily pay Allied Bank their corresponding obligations under
the aforementioned promissory note and trust receipts, plus
interests, penalty charges and attorney’s fees. Petitioners sought
reconsideration37 which was, however, denied in a
Resolution38 dated May 10, 2007. Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of whether
or not the loan obligations incurred by the petitioners under the
subject promissory note and various trust receipts have already
been extinguished.
The Court’s Ruling
Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of the
thing due, the condonation or remission of the debt, the
confusion or merger of the rights of creditor and debtor,
compensation or novation.
In the present case, petitioners essentially argue that their loan
obligations to Allied Bank had already been extinguished due to
Peakstar’s failure to perform its own obligations to Metro Concast
pursuant to the MoA. Petitioners classify Peakstar’s default as a
form of force majeure in the sense that they have, beyond their
control, lost the funds they expected to have received from the
Peakstar (due to the MoA) which they would, in turn, use to pay
their own loan obligations to Allied Bank. They further state that
Allied Bank was equally bound by Metro Concast’s MoA with
Peakstar since its agent, Atty. Saw, actively represented it during
the negotiations and execution of the said agreement. Petitioners’
arguments are untenable. At the outset, the Court must dispel the
notion that the MoA would have any relevance to the
performance of petitioners’ obligations to Allied Bank. The MoA is
a sale of assets contract, while petitioners’ obligations to Allied
Bank arose from various loan transactions. Absent any showing
that the terms and conditions of the latter transactions have
been, in any way, modified or novated by the terms and
conditions in the MoA, said contracts should be treated separately
and distinctly from each other, such that the existence,
performance or breach of one would not depend on the
existence, performance or breach of the other. In the foregoing
respect, the issue on whether or not Allied Bank expressed its
conformity to the assets sale transaction between Metro Concast
and Peakstar (as evidenced by the MoA) is actually irrelevant to
the issues related to petitioners’ loan obligations to the bank.
Besides, as the CA pointed out, the fact of Allied Bank’s
representation has not been proven in this case and hence,
cannot be deemed as a sustainable defense to exculpate
petitioners from their loan obligations to Allied Bank. Now, anent
petitioners’ reliance on force majeure, suffice it to state that
Peakstar’s breach of its obligations to Metro Concast arising from
the MoA cannot be classified as a fortuitous event under
jurisprudential formulation. As discussed in Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable.1âwphi1 It is therefore, not enough that
the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to
avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. To constitute a fortuitous
event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the
debtor to comply with obligations must be independent of
human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render
it impossible for the debtor to fulfill obligations in a normal
manner; and (d) the obligor must be free from any participation in
the aggravation of the injury or loss.40 (Emphases supplied)
While it may be argued that Peakstar’s breach of the MoA was
unforseen by petitioners, the same us clearly not "impossible"to
foresee or even an event which is independent of human will."
Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied
Bank and thus, negates the former’s force majeure theory
altogether. In any case, as earlier stated, the performance or
breach of the MoA bears no relation to the performance or
breach of the subject loan transactions, they being separate and
distinct sources of obligations. The fact of the matter is that
petitioners’ loan obligations to Allied Bank remain subsisting for
the basic reason that the former has not been able to prove that
the same had already been paid41 or, in any way, extinguished. In
this regard, petitioners’ liability, as adjudged by the CA, must
perforce stand. Considering, however, that Allied Bank’s extra-
judicial demand on petitioners appears to have been made only
on December 10, 1998, the computation of the applicable
interests and penalty charges should be reckoned only from such
date.
WHEREFORE, the petition is DENIED. The Decision dated February
12, 2007 and Resolution dated May 10, 2007 of the Court of
Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with
MODIFICATION reckoning the applicable interests and penalty
charges from the date of the extrajudicial demand or on
December 10, 1998. The rest of the appellate court’s dispositions
stand. SO ORDERED.
G.R. No. L-109937 March 21, 1994
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS,
represented by CANDIDA G. DANS, and the DBP MORTGAGE
REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption
Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court to reverse and set aside the decision of the
Court of Appeals in CA-G.R CV No. 26434 and its resolution
denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son
and daughter-in-law, applied for a loan of P500,000.00 with the
Development Bank of the Philippines (DBP), Basilan Branch. As the
principal mortgagor, Dans, then 76 years of age, was advised by
DBP to obtain a mortgage redemption insurance (MRI) with the
DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by
DBP on August 4, 1987 and released on August 11, 1987. From the
proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the "MRI Application for Insurance"
and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP
service fee of 10 percent, was credited by DBP to the savings
account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was
advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon
notice, relayed this information to the DBP MRI Pool. On
September 23, 1987, the DBP MRI Pool notified DBP that Dans
was not eligible for MRI coverage, being over the acceptance age
limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the
disapproval of her late husband's MRI application. The DBP
offered to refund the premium of P1,476.00 which the deceased
had paid, but Candida Dans refused to accept the same,
demanding payment of the face value of the MRI or an amount
equivalent to the loan. She, likewise, refused to accept an ex
gratia settlement of P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans
as administratrix, filed a complaint with the Regional Trial Court,
Branch I, Basilan, against DBP and the insurance pool for
"Collection of Sum of Money with Damages." Respondent Estate
alleged that Dans became insured by the DBP MRI Pool when
DBP, with full knowledge of Dans' age at the time of application,
required him to apply for MRI, and later collected the insurance
premium thereon. Respondent Estate therefore prayed: (1) that
the sum of P139,500.00, which it paid under protest for the loan,
be reimbursed; (2) that the mortgage debt of the deceased be
declared fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers,
with the former asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the
documents and exhibits submitted by respondent Estate. As a
result of these admissions, the trial court narrowed down the
issues and, without opposition from the parties, found the case
ripe for summary judgment. Consequently, the trial court ordered
the parties to submit their respective position papers and
documentary evidence, which may serve as basis for the
judgment.
On March 10, 1990, the trial court rendered a decision in favor of
respondent Estate and against DBP. The DBP MRI Pool, however,
was absolved from liability, after the trial court found no privity of
contract between it and the deceased. The trial court declared
DBP in estoppel for having led Dans into applying for MRI and
actually collecting the premium and the service fee, despite
knowledge of his age ineligibility. The dispositive portion of the
decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the
plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00
plus legal rate of interest as amortization payment paid under
protest;
2. To consider the mortgage loan of P300,000.00 including all
interest accumulated or otherwise to have been settled, satisfied
or set-off by virtue of the insurance coverage of the late Juan B.
Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of
litigation and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are
hereby dismissed. The Cross-claim of Defendant DBP is likewise
dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated
September 7, 1992, the appellate court affirmed in toto the
decision of the trial court. The DBP's motion for reconsideration
was denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a
"Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the
following declaration:
I hereby declare and agree that all the statements and answers
contained herein are true, complete and correct to the best of my
knowledge and belief and form part of my application for
insurance. It is understood and agreed that no insurance coverage
shall be effected unless and until this application is approved and
the full premium is paid during my continued good health
(Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall
take effect: (1) when the application shall be approved by the
insurance pool; and (2) when the full premium is paid during the
continued good health of the applicant. These two conditions,
being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged
with the DBP MRI Pool. The pool, however, did not approve the
application of Dans. There is also no showing that it accepted the
sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium. There was, as
a result, no perfected contract of insurance; hence, the DBP MRI
Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans,
the borrower, to secure MRI coverage. Instead of allowing Dans to
look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI
Pool for MRI coverage. When Dan's loan was released on August
11, 1987, DBP already deducted from the proceeds thereof the
MRI premium. Four days latter, DBP made Dans fill up and sign his
application for MRI, as well as his health statement. The DBP later
submitted both the application form and health statement to the
DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As
service fee, DBP deducted 10 percent of the premium collected by
it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as
a lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of
applying for said insurance, thereby leading him and his family to
believe that they had already fulfilled all the requirements for the
MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was
never going to be approved. The maximum age for MRI
acceptance is 60 years as clearly and specifically provided in
Article 1 of the Group Mortgage Redemption Insurance Policy
signed in 1984 by all the insurance companies concerned (Exh. "1-
Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent
who acts as such is not personally liable to the party with whom
he contracts, unless he expressly binds himself or exceeds the
limits of his authority without giving such party sufficient notice of
his powers."
The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age (Exh. "1-Pool"). Knowing all
the while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it
accepted Dan's application for MRI by collecting the insurance
premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of
the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits
of the authority conferred by the principal on the agent and he
(third person) has been deceived by the non-disclosure thereof by
the agent, then the latter is liable for damages to him (V
Tolentino, Commentaries and Jurisprudence on the Civil Code of
the Philippines, p. 422 [1992], citing Sentencia [Cuba] of
September 25, 1907). The rule that the agent is liable when he
acts without authority is founded upon the supposition that there
has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority under
which he assumes to act (Francisco, V., Agency 307 [1952], citing
Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure
of the limits of the agency carries with it the implication that a
deception was perpetrated on the unsuspecting client, the
provisions of Articles 19, 20 and 21 of the Civil Code of the
Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due
and observe honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the
insurance policy. To assume that were it not for DBP's
concealment of the limits of its authority, Dans would have
secured an MRI from another insurance company, and therefore
would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute
certainty that Dans could obtain an insurance coverage from
another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the
MRI, and on the twenty-third day from the date of release of his
loan.
One is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved (Civil Code of
the Philippines, Art. 2199). Damages, to be recoverable, must not
only be capable of proof, but must be actually proved with a
reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee
v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative
damages are too remote to be included in an accurate estimate of
damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844
[1918]).
While Dans is not entitled to compensatory damages, he is
entitled to moral damages. No proof of pecuniary loss is required
in the assessment of said kind of damages (Civil Code of
Philippines, Art. 2216). The same may be recovered in acts
referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the
court according to the circumstances of each case (Civil Code of
the Philippines, Art. 2216). Considering that DBP had offered to
pay P30,000.00 to respondent Estate in ex gratia settlement of its
claim and that DBP's non-disclosure of the limits of its authority
amounted to a deception to its client, an award of moral damages
in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the
G.R. No. 112127 July 17, 1995
circumstances (Civil Code of the Philippines, Article 2208 [11]).
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
vs.
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ,
REIMBURSE respondent Estate of Juan B. Dans the amount of
CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE
P1,476.00 with legal interest from the date of the filing of the
LOPEZ, respondents.
complaint until fully paid; and (2) to PAY said Estate the amount
of Fifty Thousand Pesos (P50,000.00) as moral damages and the
amount of Ten Thousand Pesos (P10,000.00) as attorney's fees.
With costs against petitioner. BELLOSILLO, J.:
SO ORDERED. CENTRAL PHILIPPINE UNIVERSITY filed this petition for review
on certiorari of the decision of the Court of Appeals which
reversed that of the Regional Trial Court of Iloilo City directing
petitioner to reconvey to private respondents the property
donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a
member of the Board of Trustees of the Central Philippine College
(now Central Philippine University [CPU]), executed a deed of
donation in favor of the latter of a parcel of land identified as Lot
No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of
Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-
A was issued in the name of the donee CPU with the following
annotations copied from the deed of donation —
1. The land described shall be utilized by the CPU exclusively for
the establishment and use of a medical college with all its
buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third
party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the
said college shall be under obligation to erect a cornerstone
bearing that name. Any net income from the land or any of its
parks shall be put in a fund to be known as the "RAMON LOPEZ
CAMPUS FUND" to be used for improvements of said campus and
erection of a building thereon.1
On 31 May 1989, private respondents, who are the heirs of Don
Ramon Lopez, Sr., filed an action for annulment of donation,
reconveyance and damages against CPU alleging that since 1939
up to the time the action was filed the latter had not complied
with the conditions of the donation. Private respondents also
argued that petitioner had in fact negotiated with the National
Housing Authority (NHA) to exchange the donated property with
another land owned by the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because it
never used the donated property for any other purpose than that
for which it was intended; and, that it did not sell, transfer or
convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to
comply with the conditions of the donation and declared it null
and void. The court a quo further directed petitioner to execute a
deed of the reconveyance of the property in favor of the heirs of
the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June
1993 ruled that the annotations at the back of petitioner's
certificate of title were resolutory conditions breach of which
should terminate the rights of the donee thus making the
donation revocable.
The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a period
within which the condition must be fulfilled, hence, until a period
was fixed for the fulfillment of the condition, petitioner could not
be considered as having failed to comply with its part of the
bargain. Thus, the appellate court rendered its decision reversing
the appealed decision and remanding the case to the court of
origin for the determination of the time within which petitioner
should comply with the first condition annotated in the certificate
of title.
Petitioner now alleges that the Court of Appeals erred: (a) in
holding that the quoted annotations in the certificate of title of
petitioner are onerous obligations and resolutory conditions of
the donation which must be fulfilled non-compliance of which
would render the donation revocable; (b) in holding that the issue
of prescription does not deserve "disquisition;" and, (c) in
remanding the case to the trial court for the fixing of the period
within which petitioner would establish a medical college.2
We find it difficult to sustain the petition. A clear perusal of the
conditions set forth in the deed of donation executed by Don
Ramon Lopez, Sr., gives us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration
which is considered the equivalent of the donation itself, e.g.,
when a donation imposes a burden equivalent to the value of the
donation. A gift of land to the City of Manila requiring the latter to
erect schools, construct a children's playground and open streets
on the land was considered an onerous donation.3 Similarly,
where Don Ramon Lopez donated the subject parcel of land to
petitioner but imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an onerous
consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event
which constitutes the condition. Thus, when a person donates
land to another on the condition that the latter would build upon
the land a school, the condition imposed was not a condition
precedent or a suspensive condition but a resolutory one.4 It is
not correct to say that the schoolhouse had to be constructed
before the donation became effective, that is, before the donee
could become the owner of the land, otherwise, it would be
invading the property rights of the donor. The donation had to be
valid before the fulfillment of the condition.5 If there was no
fulfillment or compliance with the condition, such as what obtains
in the instant case, the donation may now be revoked and all
rights which the donee may have acquired under it shall be
deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of
private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical
school upon the land donated, depended upon the exclusive will
of the donee as to when this condition shall be fulfilled. When
petitioner accepted the donation, it bound itself to comply with
the condition thereof. Since the time within which the condition
should be fulfilled depended upon the exclusive will of the
petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of
donation were sufficient to prevent the statute of limitations from
barring the action of private respondents upon the original
contract which was the deed of donation.6
Moreover, the time from which the cause of action accrued for
the revocation of the donation and recovery of the property
donated cannot be specifically determined in the instant case. A
cause of action arises when that which should have been done is
not done, or that which should not have been done is done.7 In
cases where there is no special provision for such computation,
recourse must be had to the rule that the period must be counted
from the day on which the corresponding action could have been
instituted. It is the legal possibility of bringing the action which
determines the starting point for the computation of the period.
In this case, the starting point begins with the expiration of a
reasonable period and opportunity for petitioner to fulfill what
has been charged upon it by the donor.
The period of time for the establishment of a medical college and
the necessary buildings and improvements on the property
cannot be quantified in a specific number of years because of the
presence of several factors and circumstances involved in the
erection of an educational institution, such as government laws
and regulations pertaining to education, building requirements
and property restrictions which are beyond the control of the
donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was
intended, the general rule provided in Art. 1197 of the Civil Code
applies, which provides that the courts may fix the duration
thereof because the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for
compliance therewith and such period has arrived.8
This general rule however cannot be applied considering the
different set of circumstances existing in the instant case. More
than a reasonable period of fifty (50) years has already been
allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its
favor forever valid. But, unfortunately, it failed to do so. Hence,
there is no more need to fix the duration of a term of the
obligation when such procedure would be a mere technicality and
formality and would serve no purpose than to delay or lead to an
unnecessary and expensive multiplication of suits. 9 Moreover,
under Art. 1191 of the Civil Code, when one of the obligors cannot
comply with what is incumbent upon him, the obligee may seek
rescission and the court shall decree the same unless there is just
cause authorizing the fixing of a period. In the absence of any just
cause for the court to determine the period of the compliance,
there is no more obstacle for the court to decree the rescission
claimed.
Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of a
gratuitous contract should be resolved in favor of the least
transmission of rights and interests. 10 Records are clear and facts
are undisputed that since the execution of the deed of donation
up to the time of filing of the instant action, petitioner has failed
to comply with its obligation as donee. Petitioner has slept on its
obligation for an unreasonable length of time. Hence, it is only
just and equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of the
donor, private respondents herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br.

34, of 31 May 1991 is REINSTATED and AFFIRMED, and the
decision of the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan Psd-
1144 covered by Transfer Certificate of Title No. T-3910-A within
thirty (30) days from the finality of this judgment.

Costs against petitioner.

SO ORDERED. G.R. No. 169694, December 09, 2015

MEGAWORLD PROPERTIES AND HOLDINGS, INC., EMPIRE EAST

LAND HOLDINGS, INC., AND ANDREW L.
TAN, Petitioners, v. MAJESTIC FINANCE AND INVESTMENT CO.,
INC., RHODORA LOPEZ-LIM, AND PAULINA CRUZ, Respondents.

DECISION

BERSAMIN, J.:

This case arises from a dispute on whether either party of a joint

venture agreement to develop property into a residential
subdivision has already performed its obligation as to entitle it to
demand the performance of the other's reciprocal
obligation.chanRoblesvirtualLawlibrary

The Case

Under review is the decision promulgated on April 27,

2005,1 whereby the Court of Appeals (CA) upheld the order issued
on November 5, 2002 by the Regional Trial Court, Branch 67, in
Pasig City (RTC) in Civil Case No. 67813 directing the defendants
(petitioners herein) to perform their obligation to provide round-
the-clock security for the property under development. 2 Also
appealed is the resolution promulgated on September 12, 2005
denying the petitioners' motion for
reconsideration.3chanRoblesvirtualLawlibrary

Antecedents

On September 23, 1994, Megaworld Properties and Holdings, Inc.

(developer) entered into a Joint Venture Agreement (JVA) 4 with
Majestic Finance and Investment Co., Inc. (owner) for the
development of the residential subdivision located in Brgy.
Alingaro, General Trias, Cavite. According to the JVA, the
development of the 215 hectares of land belonging to the owner
(joint venture property) would be for the sole account of the
developer;5 and that upon completion of the development of the
subdivision, the owner would compensate the developer in the
form of saleable residential subdivision lots.6 The JVA further
provided that the developer would advance all the costs for the
relocation and resettlement of the occupants of the joint venture
property, subject to reimbursement by the owner;7 and that the
developer would deposit the initial amount of P10,000,000.00 to
defray the expenses for the relocation and settlement, and the
costs for obtaining from the Government the exemptions and
conversion permits, and the required
clearances.8chanroblesvirtuallawlibrary
On September 24, 1994, the developer and owner agreed,
through the addendum to the JVA,9 to increase the initial deposit
for the settlement of claims and the relocation of the tenants
from P10,000,000.00 to P60,000,000.00.
On October 27, 1994, the developer, by deed of
assignment,10 transferred, conveyed and assigned to Empire East
Land Holdings, Inc. (developer/assignee) all its rights and
obligations under the JVA including the addendum.
On February 29, 2000, the owner filed in the RTC a complaint for
specific performance with damages against the developer, the
developer/assignee, and respondent Andrew Tan, who are now
the petitioners herein. The complaint, docketed as Civil Case No.
67813, was mainly based on the failure of the petitioners to
comply with their obligations under the JVA,11 including the
obligation to maintain a strong security force to safeguard the
entire joint venture property of 215 hectares from illegal entrants
and occupants.
Following the joinder of issues by the petitioners' answer with
counterclaim, and by the respondents' reply with answer to the
counterclaim, the RTC set the pre-trial of the case. At the
conclusion of the pre-trial conference, the presentation of the
owner's evidence was suspended because of the parties'
manifestation that they would settle the case amicably. It appears
that the parties negotiated with each other on how to implement
the JVA and the addendum.
On September 16, 2002, the owner filed in the RTC a
manifestation and motion,12 praying therein that the petitioners
be directed to provide round-the-clock security for the joint
venture property in order to defend and protect it from the
invasion of unauthorized persons. The petitioners opposed the
manifestation and motion,13 pointing out that: (1) the move to
have them provide security in the properties was premature; and
(2) under the principle of reciprocal obligations, the owner could
not compel them to perform their obligations under the JVA if the
owner itself refused to honor its obligations under the JVA and
the addendum.
On November 5, 2002, the RTC issued its first assailed
order,14 directing the developer to provide sufficient round-the-
clock security for the protection of the joint venture property, as
follows:
For consideration is a "Manifestation and Motion" filed by
plaintiff, through counsel, defendants having filed their
Opposition thereto, the incident is now ripe for resolution.
After a careful examination of the records of this case, the Court
believes that the defendants should provide security for the 215
hectares land subject of the joint venture agreement to protect it
from unlawful elements as well as to avoid undue damage which
may be caused by the settling of squatters. As specified in Article
III par. (j) of the joint venture agreement which was entered into
by plaintiffs and defendants, the latter shall at its exclusive
account and sole expense secure the land in question from the
influx of squatters and/or unauthorized settlers, occupants, tillers,
cultivators and the likes from date of execution of this agreement.
WHEREFORE, and as prayed for, the Court hereby directs the
defendants to provide sufficient round the clock security for the
protection of the 215 hectares land subject of the joint venture
agreement during the pendency of this case.
SO ORDERED.
The petitioners sought the reconsideration of the November 5,
2002 order,15 but the RTC denied the motion on May 19,
2003,16 observing that there was no reason to reverse the order in
question considering that the allegations in the motion for
reconsideration, being a mere rehash of those made earlier, had
already been passed upon.
On August 4, 2003, the petitioners instituted a special civil action
for certiorari in the CA,17 claiming therein that the RTC thereby
gravely abused its discretion amounting to lack or excess of
jurisdiction in issuing the order of November 5, 2002, specifying
the following grounds, namely:
THE PUBLIC RESPONDENT GRAVELY ABUSED HIS DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DIRECTING
PETITIONERS TO PROVIDE ROUND THE CLOCK SECURITY GUARDS
ON THE SUBJECT PROPERTIES.
I. THE PUBLIC RESPONDENT ARBITRARILY AND PREMATURELY
DISPOSED OF ONE OF THE RELIEF[S] PRAYED FOR BY PRIVATE
RESPONDENTS IN THEIR COMPLAINT WHEN TRIAL HAS NOT EVEN
STARTED.
II. PUBLIC RESPONDENT ARBITRARILY DISREGARDED THE FACT
THAT THE PARTIES ARE DISCUSSING HOW TO PURSUE THE JVA.
III. PUBLIC RESPONDENT ARBITRARILY DISREGARDED THE
PRINCIPLE OF "RECIPROCAL OBLIGATIONS" UNDER THE CIVIL
CODE.
On April 27, 2005, the CA promulgated its assailed decision
dismissing the petitioner's petition for certiorari,18 ruling thusly:
On the merits of the petition, our examination of the records
shows nothing whimsical or arbitrary in the respondent judge's
order directing the petitioners to provide security over the joint
venture property. Like the respondent judge, we believe that the
obligation of the petitioners under the JVA to provide security in
the area, as spelled out under Article II, par. (c) and Article III,
paragraphs (h) and (j), is well established, thus:
xxxx
These clear and categorical provisions in the JVA -which
petitioners themselves do not question -obviously belie their
contention that the respondent judge's order to provide security
for the property is premature at this stage. The petitioner's
obligation to secure the property under the JVA arose upon the
execution of the Agreement, or as soon as the petitioners
acquired possession of the joint venture property in 1994, and is
therefore already demandable. The settled rule is that "contracts
are the laws between the contracting parties, and if their terms
are clear and leave no room for doubt as to their intentions, the
contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present."
Thus, unless the existence of this particular obligation - i.e., to
secure the joint venture property - is challenged, petitioners are
bound to respect the terms of the Agreement and of his
obligation as the law between them and MAJESTIC.
We stress along this line that the complaint MAJESTIC filed below
is for specific performance and is not for rescission of contract.
The complaint presupposes existing obligations on the part of the
petitioners that MAJESTIC seeks to be carried out in accordance
with the terms of the Agreement. Significantly, MAJESTIC did not
pray in the complaint that petitioners be ordered to secure the
area from the influx of illegal settlers and squatters because
petitioner's obligation in this regard commenced upon the
execution of the JVA and hence, is already an existing obligation.
What it did ask is for the petitioners to maintain a strong security
force at all times over the area, in keeping with their commitment
to secure the area from the influx of illegal settlers and occupant.
To be sure, to "maintain" means "to continue", "to carry on", to
"hold or keep in any particular state or condition" and
presupposes an obligation that already began. Thus, contrary to
petitioner's submissions, the question of whether or not they
have the obligation to provide security in the area is not at all an
issue in the case below. The issue MAJESTIC presented below is
whether or not petitioner should be ordered to maintain a strong
security force within the joint venture property. Hence, in issuing
the assailed orders, the public respondent prejudged no issue that
is yet to be resolved after the parties shall have presented their
evidence.
Our conclusion (that the petitioner's obligation to secure and
protect the joint venture property is a non-issue in the case
below) necessarily explains why the first assailed order -although
not in the form of a preliminary mandatory injunction -is
nonetheless legally justified. As an established and undisputed
interim measure pending the resolution of the case on the merits,
we do not see its enforcement as hindrance to whatever
negotiations the parties may undertake to settle their dispute.
Nor do we find the principle of reciprocal obligations a
justification for petitioner's refusal to perform their commitment
of safeguarding the joint venture property. For, while it is true
that the JVA gives rise to reciprocal obligations from both parties,
these obligations are not necessarily demandable at the same
time. MAJESTIC's initial obligation under the JVA is to deliver or
surrender to the petitioners the possession of the joint venture
property -an obligation it fulfilled upon the execution of the
Agreement. MAJESTIC's obligation under the JVA to deliver to the
petitioners the titles to the joint venture property and to
reimburse them for tenant-related expenses are demandable at
later stages of the contract or upon completion of the
development, and therefore may not be used by the petitioners
as an excuse for not complying with their own currently
demandable obligation.
All told, we believe that securing and protecting the area from
unlawful elements benefits both the developer and the
landowner who are equally keen in safeguarding their interests in
the project. Otherwise stated, incursion by unlawful settlers into
an unsecured and unprotected joint venture property can only
cause great loss and damage to both parties. Reasons of
practicality within legal parameters, rather than grave abuse of
discretion, therefore underlie the respondent judge's challenged
orders.
WHEREFORE, premises considered, we hereby DISMISS the
petition for lack of merit.
SO ORDERED.19 (Emphasis omitted)
On May 26, 2005, the petitioners filed a motion for
reconsideration,20 but the CA denied the motion on September
12, 2005.21chanroblesvirtuallawlibrary
Hence, this appeal by petition for review
on certiorari.chanRoblesvirtualLawlibrary
Issues
The petitioner submits the following issues:
a. Whether or not the petitioners are obligated to
perform their obligations under the JVA, including that
of providing round-the-clock security for the subject
properties, despite respondents' failure or refusal to
acknowledge, or perform their reciprocal obligations
there;
b. Whether or not the RTC gravely abused its discretion in
directing the petitioners to perform their obligations
under the JVA, including that of providing round-the-
clock security for the subject properties, although the
JVA had been suspended due to the parties'
disagreement as to how to implement the same;
c. Whether or not the RTC gravely abused its discretion in
issuing the first and second assailed orders and
prematurely resolving and disposing of one of the
causes of action of the respondents, which was to
provide round-the-clock security for the subject
properties, an issue proposed by the respondents,
even before the termination of the pre-trial;
d. Whether or not the RTC gravely abused its discretion in
issuing the first and second assailed orders in clear
disregard of the mandatory requirements of Rule 58 of
the Rules of Court.22chanroblesvirtuallawlibrary
Ruling of the Court
The appeal is meritorious. The CA erred in upholding the
November 5, 2002 order of the RTC.
The obligations of the parties under the JVA were unquestionably
reciprocal. Reciprocal obligations are those that arise from the
same cause, and in which each party is a debtor and a creditor of
the other at the same time, such that the obligations of one are
dependent upon the obligations of the other. They are to be
performed simultaneously, so that the performance by one is
conditioned upon the simultaneous fulfillment by the other.23 As
the Court has expounded in Consolidated Industrial Gases, Inc. v.
Alabang Medical Center:24chanroblesvirtuallawlibrary
Reciprocal obligations are those which arise from the same cause,
and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously, so that
the performance of one is conditioned upon the simultaneous
fulfillment of the other. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay
by the other begins.
xxxx
In reciprocal obligations, before a party can demand the
performance of the obligation of the other, the former must also
perform its own obligation. For its failure to turn over a complete
project in accordance with the terms and conditions of the
installation contracts, CIGI cannot demand for the payment of the
contract price balance from AMC, which, in turn, cannot legally be
ordered to pay.25chanrobleslaw
The determination of default on the part of either of the parties
depends on the terms of the JVA that clearly categorized the
parties' several obligations into two types.
The first type related to the continuous obligations that would be
continuously performed from the moment of the execution of the
JVA until the parties shall have achieved the purpose of their joint
venture. The continuous obligations under the JVA were as
follows: (1) the developer would secure the joint venture property
from unauthorized occupants;26 (2) the owner would allow the
developer to take possession of the joint venture property;27 (3)
the owner would deliver any and all documents necessary for the
accomplishment of each activity;28 and (4) both the developer and
the owner would pay the real estate
taxes.29chanroblesvirtuallawlibrary
 reasonableness of the squatters and DEVELOPER to Art. II(b) Art. V par. 2
The second type referred to the activity obligations. The following expenses. other elements apply for and Deliver any and all Pay real estate
table shows the activity obligations of the parties under the JVA, Art. III(a) par. 1 secure documents required for taxes
to wit: Advance exemption or the successful Art. II(c) 
expense for conversion development of the Take possession
SEQUENCE OF ACTIVITIES (Article XIV of the JVA) settlement and permit and such Project of the parcels of
relocation other related Art. V par. 2 land
ACTIVITY OWNER DEVELOPER Art. III(a) par. 2 requirements Pay real estate taxes Art. III (j)
OBLIGATION OBLIGATION Deposit P10M needed for the Art. II(f) Secure property
in a joint approval of Assist DEVELOPER secure from invasion of
account of exemption or exemption from CARL squatters and
Signing of JVA. Sign JVA Sign JVA
parties. conversion and other elements
Art. II(b) Art. V par. 2
application of conversion/reclassificatio Art. III(a)
Deliver any and all Pay real estate
the land in n of subject property Advance
documents required for taxes DEVELOPER to Art. II(b) Art. V par. 2
question within Art. III(b) expenses for
the successful Art. IIIa par. 2 relocate and Deliver any and all Pay real estate
a period of one Give DEVELOPER exemption,
development of the Deposit P10M transfer all the documents required for taxes
and a half (1 authority to apply for conversion, re-
Project tenants, settlers, the successful Art. III(c)
1/2) years from exemption, conversion classification
Art. V par. 2 occupants, development of the Take possession
date of and re-classification. expenses.
Pay real estate taxes tillers, Project of the parcels of
execution of this Art. VI Art.III(b) secure
Art. II(g) cultivators of the Art. V par. 2 land
Agreement Must consent on the exemption and
Warrant absolute land to their Pay real estate taxes Art. III(j)
subject to a six reasonableness of the conversion
ownership relocation site, Art. II(d) Secure property
(6) month expenses. permit
and shall Agree to allocate and from invasion of
extension.
endeavor to aggregate a resettlement squatters and
DEVELOPER to Art. II(b) Art. V par. 2
fulfill the same site within the property other elements
negotiate Deliver any and all Pay real estate
and the two subject to mutually Art. III(a) par. 1 DEVELOPER to Art.III(i) Art. III(d)
immediately documents required for taxes
immediately accepted conditions. Advance lay out a Give written conformity Complete
with all tenants, the successful Art. II(c)
preceding Art. VI expense for complete to the development plan comprehensive
settlers, development of the Take possession
paragraphs (b & Must consent on the settlement and Development development
occupants, Project of the parcels of
c) up to the reasonableness of the relocation Plan plan (within 6
tillers, Art. V par. 2 land
extent of 75% expenses. Art. III(a)par. 2 months to one
cultivators of the Pay real estate taxes Art. III (j)
accomplishment Deposit P10M year from the
land in question. Art. II(c) Secure property
thereof within a in a joint execution of the
Allow DEVELOPER to take from invasion of
period of one (1) account of JVA)
possession of subject squatters and
year from date OWNER and
property other elements
of execution of DEVELOPER
Art. III (c) DEVELOPER to Art. II(b) Art. V par. 2
this Agreement. Art. III(c)
To negotiate apply for and Deliver any and all Pay real estate
The remaining Relocate the
with occupants secure all documents required for taxes
25% of the same occupants
necessary the successful Art. II(c)
requirements
development development of the Take possession
DEVELOPER to Art. II(b) Art. V par. 2 shall be fully
permit, Project of the parcels of
pay and settle all Deliver any and all Pay real estate accomplished
performance Art. V par. 2 land
monetary claims documents required for taxes within another 6
bonds, Pay real estate taxes Art. III (j)
of all tenants, the successful Art. II(c) months from
environmental Secure property
settlers, development of the Take possession date of
compliance from invasion of
occupants, Project of the parcels of expiration of the
certificate, squatters and
tillers, Art. V par. 2 land original one-year
license to sell other elements
cultivators of the Pay real estate taxes Art. III (j) period.
and all other Art. III(f)
land. Art. VI Secure property
related Secure
Must consent on the from invasion of
requirement development the approved Art. II(a) Secure property generated should the owner fail to approve the lay-out plan; nor
from the permit, ECC, scheme and Deliver titles to from invasion of would the owner be able to approve if no such plan had been
pertinent License to Sell, thereafter to DEVELOPER squatters and initially laid out by the developer.
Municipal etc. petition, follow- Art. II(a) other elements
Government, up and secure Execute Deed of Art. III(k) In each activity, the obligation of each party was dependent upon
DENR, HLURB the release of Assignment Process titling the obligation of the other. Although their obligations were to be
and other individual titles Art. III(a) of lots performed simultaneously, the performance of an activity
governmental for all lots in the Pay all expenses for obligation was still conditioned upon the fulfillment of the
agencies project in the settlement of claims, continuous obligation, and vice versa. Should either party cease to
concerned respective relocation, application for perform a continuous obligation, the other's subsequent activity
within a period names of the exemption, conversion, obligation would not accrue. Conversely, if an activity obligation
of 2 years from parties form the re-classification. was not performed by either party, the continuous obligation of
date of register of the other would cease to take effect. The performance of the
execution of this deeds. continuous obligation was subject to the resolutory condition that
Agreement. the precedent obligation of the other party, whether continuous
or activity, was fulfilled as it became due. Otherwise, the
Market and Sell Fix selling date Fix selling date continuous obligation would be extinguished.
DEVELOPER Art. II(b) Art. V par. 2 the property
construction Deliver any and all Pay real estate According to Article 1184 of the Civil Code, the condition that
stage/ground documents required for taxes some event happen at a determinate time shall extinguish the
Owner to
breaking to the successful Art. II(c) obligation as soon as the time expires, or if it has become
reimburse and
commence after development of the Take possession indubitable that the event will not take place. Here, the common
pay the
release of DAR Project of the parcels of cause of the parties in entering into the joint venture was the
DEVELOPER
exemption Art. V par. 2 land development of the joint venture property into the residential
permit or Pay real estate taxes Art. III (j) subdivision as to eventually profit therefrom. Consequently, all of
conversion Secure property the obligations under the JVA were subject to the happening of
clearance and from invasion of the complete development of the joint venture property, or if it
The activities under the JVA fell into seven major categories,
approval of squatters and would become indubitable that the completion would not take
specifically: (l)the relocation of the occupants; (2) the completion
other required other elements place, like when an obligation, whether continuous or activity,
of the development plan; (3) the securing of exemption and
permits by Art. III(e) was not performed. Should any of the obligations, whether
conversion permits; (4) the obtention of the development permits
pertinent Mobilize continuous or activity, be not performed, all the
from government agencies; (5) the development of the subject
agencies of the development other remaining obligations would not ripen into demandable
land; (6) the issuance of titles for the subdivided lots; and (7) the
government. work and solely obligations while those already performed would cease to take
selling of the subdivided lots and the reimbursement of the
pay its expenses effect. This is because every single obligation of each party under
advances.
Art. III(f) the JVA rested on the common cause of profiting from the
Develop the developed subdivision.
For the first activity (i.e., the relocation of the occupants), the
property and
developer was obliged to negotiate with the occupants, to
solely pay its It appears that upon the execution of the JVA, the parties were
advance payment for disturbance compensation, and to relocate
expenses on performing their respective obligations until disagreement arose
the occupants to an area within the subject land, while the owner
necessary between them that affected the subsequent performance of their
was obliged to agree to and to allocate the resettlement site
permits accrued obligations. Being reciprocal in nature, their respective
within the property, and to approve the expenses to be incurred
for the process. Should the owner fail to allocate the site for the obligations as the owner and the developer were dependent upon
DEVELOPER to Art. II(b) Art. V par. 2 resettlement, the obligation of the developer to relocate would the performance by the other of its obligations; hence, any claim
secure approval Deliver any and all Pay real estate not be demandable. Conversely, should the developer fail to of delay or non-performance against the other could prosper only
of subdivision documents required for taxes negotiate with the occupants, the owner's obligation to allocate if the complaining party had faithfully complied with its own
plan and the successful Art. II(c) the resettlement site would not become due. correlative obligation.30chanroblesvirtuallawlibrary
technical development of the Take possession
description from Project of the parcels of As to the second activity (i.e., the completion of the development A respected commentator has cogently observed in this
the Bureau of Art. V par. 2 land plan), the developer had the obligation to lay out the plan, but the connection:31chanroblesvirtuallawlibrary
Lands based on Pay real estate taxes Art. III (j) owner needed to conform to the plan before the same was
finalized. Accordingly, the final development plan would not be
§ 135. Same; consequences of simultaneous performance. As a
consequence of the rule of simultaneous performance, if the
party who has not performed his obligation demands
performance from the other, the latter may interpose the defense
of unfulfilled contract (exceptio non adimpleli contraclus) by
virtue of which he cannot be obliged to perform while the other's
obligation remains unfulfilled. Hence, the Spanish Supreme Court
has ruled that the non-performance of one party is justified if
based on the non-performance of the other; that the party who
has failed to perform cannot demand performance from the
other; and that judicial approval is not necessary to release a
party from his obligation, the non-performance of the other being
a sufficient defense against any demand for performance by the
guilty party.
Another consequence of simultaneous performance is the rule
of compensatio morae, that is to say that neither party incurs in
delay if the other does not or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligations, delay by the other begins.
Yet, the record is bereft of the proof to support the lower courts'
unanimous conclusion that the owner had already performed its
correlative obligation under the JVA as to place itself in the
position to demand that the developer should already perform its
obligation of providing the round-the-clock security on the
property. In issuing its order of November 5, 2002, therefore, the
RTC acted whimsically because it did not first ascertain whether or
not the precedent reciprocal obligation of the owner upon which
the demanded obligation of the developer was dependent had
already been performed. Without such showing that the
developer had ceased to perform a continuous obligation to
provide security over the joint venture property despite complete
fulfillment by the owner of all its accrued obligations, the owner
had no right to demand from the developer the round-the-clock
security over the 215 hectares of land.
The CA further gravely erred in characterizing the order for the
petitioners to implement the round-the-clock security provision of
the JVA and the addendum as an established and undisputed
interim measure that could be issued pending the resolution of
the case on the merits.
Apart from the provisional remedies expressly recognized and
made available under Rule 56 to Rule 61 of the Rules of Court, the
Court has sanctioned only the issuance of the status quo
ante order but only to maintain the last, actual, peaceable and
uncontested state of things that preceded the controversy. 32 The
eminent Justice Florenz D. Regalado,33 an authority on remedial
law, has delineated the nature of the status quo ante order, and
distinguished it from the provisional remedy of temporary
restraining order, as follows:
There have been instances when the Supreme Court has issued
a status quo order which, as the very term connotes, is merely
intended to maintain the last, actual, peaceable and uncontested
state of things which preceded the controversy. This was resorted
to when the projected proceedings in the case made the
conservation of the status quo desirable or essential, but the
affected party neither sought such relief or the allegations in his
pleading did not sufficiently make out a case for a temporary
restraining order. The status quo order was thus issued motu
proprio on equitable considerations. Also, unlike a temporary
restraining order or a preliminary injunction, a status quo order is
more in the nature of a cease and desist order, since it neither
directs the doing or undoing of acts as in the case of prohibitory
or mandatory injunctive relief. The further distinction is provided
by the present amendment in the sense that, unlike the amended
rule on restraining orders, a status quo order does not require the
posting of a bond.
The order of November 5, 2002, by directing the developer to
provide sufficient round-the-clock security for the protection of
the joint venture property during the pendency of the case, was
not of the nature of the status quo ante order because the
developer, as averred in the complaint, had not yet provided a
single security watchman to secure the entire 215 hectares of
land for several years.34 Also, the owner stated in the comment to
the petition that the developer had dismissed all the security
guards posted in the property since 1997.35 At the time of the
filing of the complaint for specific performance on February 29,
2000, therefore, the last actual, peaceable and uncontested state
of things preceding the controversy was the absence of such
security, not the installation of the security personnel/measures.
In fact, the failure of the developer to provide the round-the-clock
security itself became the controversy that impelled the owner to
bring the action against the petitioners.
By preliminarily directing the developer to provide sufficient
round-the-clock security for the protection of the joint venture
property during the pendency of the case, the November 5, 2002
order of the RTC did not come under the category of the status
quo ante order that would issue upon equitable consideration, or
even of an injunctive relief that would issue under Rule 58 of
the Rules of Court. Hence, the issuance of the order constituted a
blatant jurisdictional error that needed to be excised. Verily, a
jurisdictional error is one by which the act complained of was
issued by the court without or in excess of jurisdiction.36Without
jurisdiction means that the court acted with absolute want of
jurisdiction. Excess of jurisdiction means that the court has
jurisdiction but has transcended the same or acted without any
statutory authority.37chanroblesvirtuallawlibrary
Although the RTC undoubtedly had jurisdiction to hear and decide
the principal action for specific performance as well as to act on
the motions submitted to it in the course of the proceedings, the
distinction between jurisdiction over the case and jurisdiction to
issue an interlocutory order as an ancillary remedy incident to the
principal action should be discerned. We have frequently declared
that a court may have jurisdiction over the principal action but
may nevertheless act irregularly or in excess of its jurisdiction in
the course of its proceedings by the granting of an auxiliary
remedy.38 In Leung Ben v. O'Brien,39 for instance, this Court has
thus clarified:
It may be observed in this connection that the word "jurisdiction"
as used in attachment cases, has reference not only to the
authority of the court to entertain the principal action but also to
its authority to issue the attachment, as dependent upon the
existence of the statutory ground. (6 C. J., 89.) This distinction
between jurisdiction to issue the attachment as an ancillary
remedy incident to the principal litigation is of importance; as a
court's jurisdiction over the main action may be complete, and yet
it may lack authority to grant an attachment as ancillary to such
action. This distinction between jurisdiction over the ancillary has
been recognized by this court in connection with actions involving
the appointment of a receiver. Thus in Rocha & Co. vs. Crossfield
and Figueras (6 Phil. Rep., 355), a receiver had been appointed
without legal justification. It was held that the order making the
appointment was beyond the jurisdiction of the court; and though
the court admittedly had jurisdiction of the main cause, the order
was vacated by this court upon application a writ of certiorari.
(See Blanco vs. Ambler, 3 Phil. Rep., 358, Blanco vs. Ambler and
McMicking 3 Phil. Rep., 735, Yangco vs. Rohde, 1 Phil. Rep., 404.)
By parity of reasoning it must follow that when a court issues a
writ of attachment for which there is no statutory authority, it is
acting irregularly and in excess of its jurisdiction, in the sense
necessary to justify the Supreme Court in granting relief by the
writ of certiorari.
WHEREFORE, the Court GRANTS the petition for review
on certiorari; REVERSES and SETS ASIDE the decision promulgated
on April 27, 2005 and the resolution promulgated on September
12, 2005; NULLIFIES the orders issued on November 5, 2002 and
May 19, 2003 in Civil Case No. 67813 by the Regional Trial Court,
Branch 67, in Pasig City; DIRECTS the Regional Trial Court, Branch
67, in Pasig City to resume the proceedings in Civil Case No. 67813
with dispatch; and ORDERS the respondents to pay the costs of
suit.

SO ORDERED.
G.R. No. 96053 March 3, 1993
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN
GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.
MELO, J.:
The deed of conveyance executed on May 28, 1975 by Juan
Galicia, Sr., prior to his demise in 1979, and Celerina Labuguin, in
favor of Albrigido Leyva involving the undivided one-half portion
of a piece of land situated at Poblacion, Guimba, Nueva Ecija for
the sum of P50,000.00 under the following terms:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY
acknowledged to have been paid upon the execution of this
agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid
within ten (10) days from and after the execution of this
agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the
VENDORS' indebtedness with the Philippine Veterans Bank which
is hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND
(P27,000.00.) shall be paid within one (1) year from and after the
execution of this instrument. (p. 53, Rollo)
is the subject matter of the present litigation between the heirs of
Juan Galicia, Sr. who assert breach of the conditions as against
private respondent's claim anchored on full payment and
compliance with the stipulations thereof.
The court of origin which tried the suit for specific performance
filed by private respondent on account of the herein petitioners'
reluctance to abide by the covenant, ruled in favor of the vendee
(p. 64, Rollo) while respondent court practically agreed with the
trial court except as to the amount to be paid to petitioners and
the refund to private respondent are concerned (p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed as first
installment was received by Juan Galicia, Sr. According to
petitioners, of the P10,000.00 to be paid within ten days from
execution of the instrument, only P9,707.00 was tendered to, and
received by, them on numerous occasions from May 29, 1975, up
to November 3, 1979. Concerning private respondent's
assumption of the vendors' obligation to the Philippine Veterans
Bank, the vendee paid only the sum of P6,926.41 while the
difference the indebtedness came from Celerina Labuguin (p.
73, Rollo). Moreover, petitioners asserted that not a single
centavo of the P27,000.00 representing the remaining balance
was paid to them. Because of the apprehension that the heirs of
Juan Galicia, Sr. are disavowing the contract inked by their
predecessor, private respondent filed the complaint for specific
performance.
In addressing the issue of whether the conditions of the
instrument were performed by herein private respondent as
vendee, the Honorable Godofredo Rilloraza, Presiding Judge of
Branch 31 of the Regional Trial Court, Third Judicial Region
stationed at Guimba, Nueva Ecija, decided to uphold private
respondent's theory on the basis of constructive fulfillment under
Article 1186 and estoppel through acceptance of piecemeal
payments in line with Article 1235 of the Civil Code.
Anent the P10,000.00 specified as second installment, the lower
court counted against the vendors the candid statement of
Josefina Tayag who sat on the witness stand and made the
admission that the check issued as payment thereof was
nonetheless paid on a staggered basis when the check was
dishonored (TSN, September 1, 1983, pp. 3-4; p. 3, Decision; p.
66, Rollo). Regarding the third condition, the trial court noted that
plaintiff below paid more than P6,000.00 to the Philippine
Veterans Bank but Celerina Labuguin, the sister and co-vendor of
Juan Galicia, Sr. paid P3,778.77 which circumstance was construed
to be a ploy under Article 1186 of the Civil Code that "prematurely
prevented plaintiff from paying the installment fully" and "for the
purpose of withdrawing the title to the lot". The acceptance by
petitioners of the various payments even beyond the periods
agreed upon, was perceived by the lower court as tantamount to
faithful performance of the obligation pursuant to Article 1235 of
the Civil Code. Furthermore, the trial court noted that private
respondent consigned P18,520.00, an amount sufficient to offset
the remaining balance, leaving the sum of P1,315.00 to be
credited to private respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants — heirs of Juan Galicia, to execute the
Deed of Sale of their undivided ONE HALF (1/2) portion of Lot No.
1130, Guimba Cadastre, covered by TCT No. NT-120563, in favor
of plaintiff Albrigido Leyva, with an equal frontage facing the
national road upon finality of judgment; that, in their default, the
Clerk of Court II, is hereby ordered to execute the deed of
conveyance in line with the provisions of Section 10, Rule 39 of
the Rules of Court;
2. Ordering the defendants, heirs of Juan Galicia, jointly and
severally to pay attorney's fees of P6,000.00 and the further sum
of P3,000.00 for actual and compensatory damages;
3. Ordering Celerina Labuguin and the other defendants herein to
surrender to the Court the owner's duplicate of TCT No. NT-
120563, province of Nueva Ecija, for the use of plaintiff in
registering the portion, subject matter of the instant suit;
4. Ordering the withdrawal of the amount of P18,520.00 now
consigned with the Court, and the amount of P17,204.75 be
delivered to the heirs of Juan Galicia as payment of the balance of
the sale of the lot in question, the defendants herein after
deducting the amount of attorney's fees and damages awarded to
the plaintiff hereof and the delivery to the plaintiff of the further
sum of P1,315.25 excess or over payment and, defendants to pay
the cost of the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court,
Justice Dayrit with whom Justices Purisima and Aldecoa, Jr.
concurred, modified the fourth paragraph of the decretal portion
to read:
4. Ordering the withdrawal of the amount of P18,500.00 now
consigned with the Court, and that the amount of P16,870.52 be
delivered to the heirs of Juan Galicia, Sr. as payment to the unpaid
balance of the sale, including the reimbursement of the amount
paid to Philippine Veterans Bank, minus the amount of attorney's
fees and damages awarded in favor of plaintiff. The excess of
P1,649.48 will be returned to plaintiff. The costs against
defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the appellate
court declared:
With respect to the fourth condition stipulated in the contract,
the period indicated therein is deemed modified by the parties
when the heirs of Juan Galicia, Sr. accepted payments without
objection up to November 3, 1979. On the basis of receipts
presented by appellee commencing from August 8, 1975 up to
November 3, 1979, a total amount of P13,908.25 has been paid,
thereby leaving a balance of P13,091.75. Said unpaid balance plus
the amount reimbursable to appellant in the amount of P3,778.77
will leave an unpaid total of P16,870.52. Since appellee consigned
in court the sum of P18,500.00, he is entitled to get the excess of
P1,629.48. Thus, when the heirs of Juan Galicia, Sr. (obligees)
accepted the performance, knowing its incompleteness or
irregularity and without expressing any protest or objection, the
obligation is deemed fully complied with (Article 1235, Civil Code).
(p. 50, Rollo)
Petitioners are of the impression that the decision appealed from,
which agreed with the conclusions of the trial court, is vulnerable
to attack via the recourse before Us on the principal supposition
that the full consideration of the agreement to sell was not paid
by private respondent and, therefore, the contract must be
rescinded.
The suggestion of petitioners that the covenant must be cancelled
in the light of private respondent's so-called breach seems to
overlook petitioners' demeanor who, instead of immediately filing
the case precisely to rescind the instrument because of non-
compliance, allowed private respondent to effect numerous
payments posterior to the grace periods provided in the contract.
This apathy of petitioners who even permitted private respondent
to take the initiative in filing the suit for specific performance
against them, is akin to waiver or abandonment of the right to
rescind normally conferred by Article 1191 of the Civil Code. As
aptly observed by Justice Gutierrez, Jr. in Angeles vs.
Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the
Philippines Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-appellees that when the
defendants-appellants, instead of availing of their alleged right to
rescind, have accepted and received delayed payments of
installments, though the plaintiffs-appellees have been in arrears
beyond the grace period mentioned in paragraph 6 of the
contract, the defendants-appellants have waived, and are now
estopped from exercising their alleged right of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5 CAR (25)
811; 817-818; cited in 4 Padilla, Civil Code Annotated, Seventh Ed.
[1987], pp. 212-213) a similar opinion was expressed to the effect
that:
In a perfected contract of sale of land under an agreed schedule
of payments, while the parties may mutually oblige each other to
compel the specific performance of the monthly amortization
plan, and upon failure of the buyer to make the payment, the
seller has the right to ask for a rescission of the contract under
Art. 1191 of the Civil Code, this shall be deemed waived by
acceptance of posterior payments.
Both the trial and appellate courts were, therefore, correct in
sustaining the claim of private respondent anchored on estoppel
or waiver by acceptance of delayed payments under Article 1235
of the Civil Code in that:
When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with.
considering that the heirs of Juan Galicia, Sr. accommodated
private respondent by accepting the latter's delayed payments
not only beyond the grace periods but also during the pendency
of the case for specific performance (p. 27, Memorandum for
petitioners; p. 166, Rollo). Indeed, the right to rescind is not
absolute and will not be granted where there has been substantial
compliance by partial payments (4 Caguioa, Comments and Cases
on Civil Law, First Ed. [1968] p. 132). By and large, petitioners'
actuation is susceptible of but one construction — that they are
now estopped from reneging from their commitment on account
of acceptance of benefits arising from overdue accounts of private
respondent.
Now, as to the issue of whether payments had in fact been made,
there is no doubt that the second installment was actually paid to
the heirs of Juan Galicia, Sr. due to Josefina Tayag's admission in
judicio that the sum of P10,000.00 was fully liquidated. It is thus
erroneous for petitioners to suppose that "the evidence in the
records do not support this conclusion" (p. 18, Memorandum for
Petitioners; p. 157, Rollo). A contrario, when the court of origin, as
well as the appellate court, emphasized the frank representation
along this line of Josefina Tayag before the trial court (TSN,
September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339,
p. 50, Rollo; p. 3, Decision in Civil Case No. 681-G, p. 66, Rollo),
petitioners chose to remain completely mute even at this stage
despite the opportunity accorded to them, for clarification.
Consequently, the prejudicial aftermath of Josefina Tayag's
spontaneous reaction may no longer be obliterated on the basis
of estoppel (Article 1431, Civil Code; Section 4, Rule 129; Section
2(a), Rule 131, Revised Rules on Evidence).
Insofar as the third item of the contract is concerned, it may be
recalled that respondent court applied Article 1186 of the Civil
Code on constructive fulfillment which petitioners claim should
not have been appreciated because they are the obligees while
the proviso in point speaks of the obligor. But, petitioners must
concede that in a reciprocal obligation like a contract of purchase,
(Ang vs. Court of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at
p. 201), both parties are mutually obligors and also obligees
(4 Padilla, supra, at p. 197), and any of the contracting parties
may, upon non-fulfillment by the other privy of his part of the
prestation, rescind the contract or seek fulfillment (Article 1191,
Civil Code). In short, it is puerile for petitioners to say that they
are the only obligees under the contract since they are also bound
as obligors to respect the stipulation in permitting private
respondent to assume the loan with the Philippine Veterans Bank
which petitioners impeded when they paid the balance of said
loan. As vendors, they are supposed to execute the final deed of
sale upon full payment of the balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of
payment nor consignation of the sum of P18,520.00 which they
acknowledge to have been deposited in court on January 22, 1981
five years after the amount of P27,000.00 had to be paid (p. 23,
Memorandum for Petitioners; p. 162, Rollo). Again this suggestion
ignores the fact that consignation alone produced the effect of
payment in the case at bar because it was established below that
two or more heirs of Juan Galicia, Sr. claimed the same right to
collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in Civil Case
No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did not bother
to refute the evidence on hand that, aside from the P18,520.00
(not P18,500.00 as computed by respondent court) which was
consigned, private respondent also paid the sum of P13,908.25
(Exhibits "F" to "CC"; p. 50, Rollo). These two figures representing
private respondent's payment of the fourth condition amount to
P32,428.25, less the P3,778.77 paid by petitioners to the bank,
will lead us to the sum of P28,649.48 or a refund of P1,649.48 to
private respondent as overpayment of the P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED and the decision
appealed from is hereby AFFIRMED with the slight modification of
Paragraph 4 of the dispositive thereof which is thus amended to
read:
4. ordering the withdrawal of the sum of P18,520.00 consigned
with the Regional Trial Court, and that the amount of P16,870.52
be delivered by private respondent with legal rate of interest until
fully paid to the heirs of Juan Galicia, Sr. as balance of the sale
including reimbursement of the sum paid to the Philippine
Veterans Bank, minus the attorney's fees and damages awarded
in favor of private respondent. The excess of P1,649.48 shall be
returned to private respondent also with legal interest until fully
paid by petitioners. With costs against petitioners.
SO ORDERED.
G.R. No. 193068, February 01, 2017
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. STA.
INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO
CUENCA, MANUEL TINIO, CUENCA INVESTMENT CORPORATION
AND UNIVERSAL HOLDINGS CORPORATION, Respondents.
G.R. No. 193099, February 1, 2017
NATIONAL DEVELOPMENT CORPORATION, Petitioner, v. STA.
INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO M.
CUENCA, MANUEL I. TINIO, CUENCA INVESTMENT
CORPORATION AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.
DECISION
LEONEN, J.:
A condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfilment and a debtor loses the right to make use of
the period when a condition is violated, making the obligation
immediately demandable.1
This resolves the consolidated Petitions for Review filed by the
Development Bank of the Philippines (DBP)2 and the National
Development Corporation (NEDC)3 assailing the Court of Appeals
Decision4 dated March 24, 2010 and Court of Appeals
Resolution5 dated July 21, 2010, which affirmed with
modifications the Decision6 dated September 16, 2003 of Branch
137, Regional Trial Court of Makati City.7
Sometime in 1977, National Galleon Shipping Corporation
(Galleon), "formerly known as Galleon Shipping Corporation, was
organized to operate a liner service between the Philippines and
its ... trading partners."8 Galleon's major stockholders were
respondents Sta. Ines Melale Forest Products Corporation (Sta.
Ines), Cuenca Investment Corporation (Cuenca Investment),
Universal Holdings Corporation (Universal Holdings), Galleon's
President Rodolfo M. Cuenca (Cuenca), Manuel I. Tinio (Tinio),
and the Philippine National Construction Corporation (PNCC).9
Galleon experienced financial difficulties and had to take out
several loans from different sources such as foreign financial
institutions, its shareholders (Sta. Ines, Cuenca Investment,
Universal Holdings, Cuenca, and Tinio), and other entities "with
whom it had ongoing commercial relationships."10
DBP guaranteed Galleon's foreign loans.11 In return, Galleon and
its stockholders Sta. Ines, Cuenca Investment, Universal Holdings,
Cuenca, and Tinio, executed a Deed of Undertaking 12 on October
10, 1979 and obligated themselves to guarantee DBP's potential
liabilities.13
To secure DBP's guarantee, Galleon undertook to secure a first
mortgage on its five new vessels and two second-hand
vessels.14 However, despite the loans extended to it, "[Galleon's]
financial condition did not improve."15
Cuenca, as Galleon's president, wrote to the members of the
Cabinet Standing Committee "for the consideration of a policy
decision to support a liner service."16 Cuenca also wrote then
President Ferdinand Marcos and asked for assistance.17
On July 21, 1981, President Marcos issued Letter of Instructions
No. 115518 addressed to the NDC, DBP, and the Maritime Industry
Authority. Letter of Instructions No. 1155 reads:
TO : Development Bank of the Philippines
National Development Company
Maritime Industry Authority
 
DIRECTING A REHABILITATION PLAN FOR
GALLEON SHIPPING CORPORATION
WHEREAS, Galleon Shipping Corporation is presently in a
distressed state in view of the unfavorable developments in the
liner shipping business;
WHEREAS, the exposure of the Philippine government financial
institutions is substantial;
WHEREAS, it is a policy of government to provide a reliable liner
service between the Philippines and its major trading partners;
WHEREAS, it is a policy to have a Philippine national flag liner
service to compete with other heavily subsidized national shipping
companies of other countries;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, do hereby direct the following:
1. NDC shall acquire 100% of the shareholdings of
Galleon Shipping Corporation from its present owners
for the amount of P46.7 million which is the amount
originally contributed by the present shareholders,
payable after five years with no interest cost.
2. NDC to immediately infuse P30 million into Galleon
Shipping Corporation in lieu of its previously approved
subscription to Philippine National Lines. In addition,
NDC is to provide additional equity to Galleon as may
be required.
3. DBP to advance for a period of three years from date
hereof both the principal and the interest on Galleon's
obligations falling due and to convert such advances
into 12% preferred shares in Galleon Shipping
Corporation.
4. DBP and NDC to negotiate a restructuring of loans
extended by foreign creditors of Galleon.
5. MARINA to provide assistance to Galleon by mandating
a rational liner shipping schedule considering existing
freight volume and to immediately negotiate a
bilateral agreement with the United States in
accordance with UNCTAD resolutions.
These instructions are to take effect immediately. 19
On August 10, 1981,20 pursuant to Letter of Instructions No. 1155,
Galleon's stockholders, represented by Cuenca, and NDC, through
its then Chairman of the Board of Directors, Roberto V. Ongpin
(Ongpin) entered into a Memorandum of Agreement,21 where
NDC and Galleon undertook to prepare and sign a share purchase
agreement covering 100% of Galleon's equity for
P46,740,755.00.22 The purchase price was to be paid after five
years from the execution of the share purchase agreement. 23 The
share purchase agreement also provided for the release of Sta.
Ines, Cuenca, Tinio and Construction Development Corporation of
the Philippines from the personal counter-guarantees they issued
in DBP's favor under the Deed of Undertaking.24
The Memorandum of Agreement reads:
KNOW ALL MEN BY THESE PRESENTS:
This Memorandum of Agreement made and entered into this day
of August, 1981, at Makati, Metro Manila, Philippines, by and
between the stockholders of Galleon Shipping Corporation listed
in Annex A hereof, represented herein by their duly authorized
attorney-in-fact, Mr. Rodolfo M. Cuenca (hereinafter called
"Sellers") and National Development Company, represented
herein by its Chairman of the Board, Hon. Minister Roberto V.
Ongpin (hereinafter called "Buyer").
WITNESSETH: That —
WHEREAS, Sellers and Buyer desire to implement immediately
Letter of Instructions No. 1155, dated July 21, 1981, which directs
that Buyer acquire 100% of the shareholdings of Galleon Shipping
Corporation ("GSC") from Sellers who are the present owners.
WHEREAS, Sellers have consented to allow Buyer to assume
actual control over the management and operations of GSC prior
to the execution of a formal share purchase agreement and the
transfer of all the shareholdings of Sellers to Buyer.
NOW, THEREFORE, the parties agree as follows:
1. Within seven (7) days after the signing hereof, Sellers shall take
all steps necessary to cause five (5) persons designated by Buyer
to be elected directors of GSC, it being understood that Sellers
shall retain the remaining two (2) seats in the GSC board subject
to the condition hereafter stated in clause 7(b).
2. The new board to be created pursuant to clause 1 above shall
elect Antonio L. Carpio as Chairman and Chief Executive Officer
and Rodolfo M. Cuenca as President. All other officers will be
nominated and appointed by Buyer.
3. As soon as possible, but not more than 60 days after the signing
hereof, the parties shall endeavor to prepare and sign a share
purchase agreement covering 100% of the shareholdings of
Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share and
subscription of an additional 100,000,000 common shares of the
par value of P1.00 per share of which P36,740,755.00 has been
paid, but not yet issued.
4. Sellers hereby warrant that P46,740,755[.00] had been actually
paid to Galleon Shipping Corporation, which amount represents
payment of Sellers for 46,740,755 common shares of said
Corporation. This warranty shall be verified by Buyer, the results
of which will determine the final purchase price to be paid to
Sellers. The purchase price directed by LOI 1155 to be paid to
Sellers shall be paid after five (5) years from date of the share
purchase agreement with no interest cost to buyer.
5. As security for the payment of the aforementioned purchase
price, Buyer shall issue to each of the GSC stockholders listed in
Annex A a negotiable promissory note in the amount
corresponding to the respective paid-up capital in GSC of each of
such stockholders and with maturity on the date of the fifth
annual anniversary of the share purchase agreement.
6. Notwithstanding the provisions of clauses 4 and 5 above, upon
the signing of the share purchase agreement, it is understood that
Sellers shall deliver to Buyer all the stock certificates covering
10,000,000 common shares of GSC, and duly and validly endorsed
for transfer, free from any and all Hens and encumbrances
whatsoever. It is likewise understood that Buyer shall at that time
acquire all the subscription rights to 100,000,000 common shares
of which P36,740,755.00 has been paid by Sellers, and shall
assume the obligation to pay the unpaid portion of such
subscription.
7. The stock purchase agreement to be prepared and signed by
the parties within sixty (60) days from date hereof shall contain,
among other things:
(a) standard warranties of seller including, but not limited
to, warranties pertaining to the accuracy of financial and
other statements of GSC; disclosure of liabilities;
payment of all taxes, duties, licenses and fees; non-
encumbrance of corporate assets; valid contracts with
third parties, etc. including an indemnity clause covering
any breach thereof.
(b) provisions that Buyer shall retain 2 representatives of
Sellers in the board of GSC only for as long as Sellers
have not been paid, or have not negotiated or
discounted any of the promissory notes referred to in
clause 5 above.
(c) provisions whereby Construction Development
Corporation of the Philippines, Sta. Ines Melale Forest
Products Corporation, Mr. Rodolfo M. Cuenca and Mr.
Manuel I. Tinio shall be released from counter-
guarantees they have issued in favor of DBP and other
financial institutions in connection with GSC's various
credit accommodations.
 (d) provisions for arbitration as a means of settling disputes
and differences of opinion regarding the stock purchase
agreement.
8. Sellers hereby make a special warranty
that:chanRoblesvirtualLawlibrary
(a) any and all liabilities and obligations as disclosed in the
financial statements of Galleon Shipping Corporation are
valid, regular, normal and incurred in the ordinary course
of business of Galleon Shipping Corporation, and Buyer
will verify this warranty and conduct an audit of Galleon
Shipping Corporation as of March 31 and July 31, 1981;
liabilities that do not fall under the above definition are
to be for the account of the Seller; and
(b) from July 31, 1981 to the date of the election of Buyers'
representatives to the Board of GSC, GSC has not and
shall not enter into any contract and has not and shall
not incur any liability except what is normal and usual in
the ordinary course of shipping business.
9. Valid and duly authorized liabilities of GSC which are
the subject of a meritorious lawsuit, or which have
been arranged and guaranteed by Mr. Rodolfo M.
Cuenca, may be considered by Buyer for priority in the
repayment of accounts, provided that, upon review,
the Buyer shall determine these to be legitimate and
were validly incurred in the ordinary course of GSC's
principal business.
IN WITNESS HEREOF, the parties have signed this Memorandum
of Agreement this day of August 1981, in Makati, Metro Manila.
STOCKHOLDERS
OF
GALLEON
SHIPPING
CORPORATION
By:
(signed)
RODOLFO M.
CUENCA
NATIONAL
DEVELOPMENT
COMPANY
By:
(signed)
ROBERTO V.
ONGPIN25
Acting as Galleon's guarantor, DBP paid off Galleon's debts to its
foreign bank creditor and, on January 25, 1982, pursuant to the
Deed of Undertaking, Galleon executed a mortgage
contract26 over seven of its vessels in favor of DBP.
NDC took over Galleon's operations "even prior to the signing of a
share purchase agreement."27 However, despite NDC's takeover,
the share purchase agreement was never formally executed.28
On February 10, 1982, or barely seven months from the issuance
of Letter of Instructions No. 1155, President Marcos issued Letter
of Instructions No. 1195,29 which reads:
TO : Development Bank
of the Philippines
National
Development
Company
RE : Galleon Shipping
Corporation
WHEREAS, NDC has assumed management of Galleon's
operations pursuant to LOI No. 1155;
WHEREAS, the original terms under which Galleon acquired or
leased the vessels were such that Galleon would be unable to pay
from its cash flows the resulting debt service burden;
WHEREAS, in such a situation the financial exposure of the
Government will continue to increase and therefore the
appropriate steps must be taken to limit and protect the
Government's exposure;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, do hereby direct the following:
1) The DBP and the NDC shall take immediate steps,
including foreclosure of Galleon vessels and other assets,
as may be deemed necessary to limit and protect the
Government's exposure;
2) NDC shall discharge such maritime liens as it may deem
necessary to allow the foreclosed vessels to engage in the
international shipping business;
3) Any provision of LOI No. 1155 inconsistent with this Letter
of Instructions is hereby rescinded.
These instructions are to take effect immediately. 30
On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca
Investment and Universal Holdings filed a Complaint with
Application for the Issuance of a Temporary Restraining Order or
Writ of Preliminary Injunction.31 The Complaint was amended
several times to implead new parties and to include new
claims/counterclaims. 32
In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca Investment,
and Universal Holdings alleged that NDC, "without paying a single
centavo, took over the complete, total, and absolute ownership,
management, control, and operation of defendant [Galleon] and
all its assets, even prior to the formality of signing a share
purchase agreement, which was held in abeyance because the
defendant NDC was verifying and confirming the amounts paid by
plaintiffs to Galleon, and certain liabilities of Galleon to
plaintiffs[.]"33
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings also alleged that NDC tried to delay 'the formal signing of
the share purchase agreement in order to interrupt the running of
the 5-year period to pay ... the purchase of the shares in the
amount of P46,740,755[.00] and the execution of the negotiable
promissory notes to secure payment[.]34
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings claimed that "DBP can no longer go after
[them] for any deficiency judgment [since] NDC had been
subrogated [in their place] as borrower[s], hence the Deed of
Undertaking between [Sta. Ines, Cuenca Investment, Universal
Holdings, Cuenca, and Tinio and DBP] had been extinguished and
novated[.]"35
Meanwhile, on December 8, 1986, Proclamation No. 50 created
the Asset Privatization Trust.36 The Asset Privatization Trust was
tasked to "take title to and possession of, conserve, provisionally
manage and dispose of, assets which have been identified for
privatization or disposition and transferred to the TI-List for [that]
purpose."37
Under Administrative Order No. 14 issued by then President
Corazon C. Aquino, certain assets of DBP, which included
Galleon's loan accounts, "were identified for transfer to the
National Government."38
On February 27, 1987, a Deed of Transfer was executed providing
for the transfer of the Galleon loan account from DBP to the
National Government.39 The Asset Privatization Trust was
"constituted as [the National Government's] trustee over the
transferred accounts and assets[.]"40
On September 16, 2003, the Regional Trial Court upheld the
validity of Letter of Instructions No. 1155 and the Memorandum
of Agreement executed by NDC and Galleon's stockholders,
pursuant to Letter of Instructions No. 1155.41
The Regional Trial Court also held that Letter of Instructions No.
1195 did not supersede or impliedly repeal Letter of Instructions
No. 1155, and assuming that it did impliedly repeal Letter of
Instructions No. 1155, it would be void and unconstitutional for
violating the non-impairment clause.42
As regards NDC's argument that Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings had no basis to compel it to
pay Galleon's shares of stocks because no share purchase
agreement was executed, the Regional Trial Court held that the
NDC was in estoppel since it prevented the execution of the share
purchase agreement and had admitted to being Galleon's
owner.43
The Regional Trial Court also ruled that Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings' liability to DBP under
the Deed of Undertaking had been extinguished due to novation,
with NDC replacing them and PNCC as debtors.44 The dispositive
of the Regional Trial Court's Decision reads:
WHEREFORE, judgment is hereby rendered (1) ordering
defendants National Development Corporation and National
Galleon Shipping Corporation, jointly and severally, to pay
plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, the amounts of P15,150,000.00
and US$2.3 million, representing the amount of advances made
by plaintiffs in behalf of defendant Galleon, plus legal interest at
the rate of 6% per annum from the date of filing of this case on 22
April 1985 up to full payment;
(2) ordering defendants National Development Corporation and
National Galleon Shipping Corporation, jointly and severally, to
pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the amount of
P46,740,755.00, representing the price of the shares of stock of
plaintiffs and defendant PNCC in defendant Galleon, plus legal
interest at the rate of 6% per annum from the date of filing of this
case on 22 April 1985 up to full payment;
(3) ordering defendants National Development Corporation and
National Galleon Shipping Corporation, jointly and severally, to
pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, attorney's fees
equivalent to 10% of the amount due; and costs of suit; and
(4) ordering defendants National Development Corporation,
Development Bank of the Philippines and National Galleon
Shipping Corporation, jointly and severally, to pay each plaintiff
and defendant Philippine National Construction Corporation,
P10,000.00 as moral damages; and P10,000.00 as exemplary
damages.
SO ORDERED.45
On February 23, 2003, the Regional Trial Court issued an
Order46 partially reconsidering and modifying the September 16,
2003 Decision by categorically declaring Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings free from liability
under the mortgage contract with DBP and the deficiency claim of
DBP.47 The Regional Trial Court also deleted the award of US$2.3
million to Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings since they failed to Include the same in their
fourth amended complaint.48 The dispositive portion of the
Regional Trial Court Order, as amended, reads:
WHEREFORE, judgment is hereby rendered (1) ordering
defendants National Development Corporation and National
Galleon Shipping Corporation, jointly and severally, to pay
plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, the amount of P15,150,000.00
representing the amount of advances made by plaintiffs in behalf
of defendant NGSC, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April 1985 up to
full payment;
(2) ordering defendants National Development Corporation and
National Galleon Shipping Corporation, jointly and severally, to
pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the amount of
P46,740,755.00, representing the price of the shares of stock of
plaintiffs and defendant PNCC in defendant NGSC, plus legal
interest at the rate of 6% per annum from the date of filing of this
case on 22 April 1985 up to full payment;
(3) ordering defendants National Development Corporation and
National Galleon Shipping Corporation, jointly and severally, to
pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, attorney's fees
equivalent to 10% of the amount due; and costs of suit;
(4) ordering defendants National Development Corporation and
National Galleon Shipping Corporation, jointly and severally, to
pay to each plaintiff and defendant Philippine National
Construction Corporation, P10,000.00 as moral damages; and
P10,000.00 as exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation and
defendant Philippine National Construction Corporation to be no
longer liable to defendants National Development Corporation,
Development Bank of the Philippines and Asset Privatization Trust
under the deed of undertaking, pledge, mortgages, and other
accessory contracts between the parties; and consequently,
permanently enjoining defendant DBP or APT from filing a
deficiency claim against plaintiffs and defendant PNCC.
SO ORDERED.49
On March 9, 2004 and March 16, 2004, DBP and NDC filed their
respective notices of appeal to the Court of Appeals.50
In its assailed Decision dated March 24, 2010, the Court of
Appeals upheld the Regional Trial Court's findings that the
Memorandum of Agreement between NDC and Cuenca
(representing Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings) was a perfected contract, which bound the
parties,51 thus:
Although the Supreme Court ruled in the Poliand case that LOI No.
1155 is a mere administrative issuance and, as such, cannot be a
valid source of obligation, the defendant-appellant NDC cannot
escape its liabilities to the plaintiffs-appellees considering that the
Memorandum of Agreement that it executed with the plaintiffs-
appellees created certain rights and obligations between the
parties which may be enforced by the parties against each other.
The situation in the Poliand case is different because Poliand was
not a party to the Memorandum of Agreement.52
The Court of Appeals ruled that NDC is estopped from claiming
that there was no agreement between it and Cuenca since the
agreement had already been partially executed after NDC took
over the control and management of Galleon.53
The Court of Appeals also rejected NDC's argument that it should
not be held liable for the payment of Galleon's shares.54 The Court
of Appeals held that NDC "voluntarily prevented the execution of
a share purchase agreement when it reneged on its various
obligations under the Memorandum of Agreement."55
The Court of Appeals likewise affirmed the Regional Trial Court's
ruling that novation took place when NDC agreed to be
substituted in place of Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings in the counter-guarantees
they issued in favor of DBP.56
The Court of Appeals ruled that DBP was privy to the
Memorandum of Agreement between NDC and Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings, since Ongpin
was concurrently Governor of DBP and chairman of the NDC
Board at the time the Memorandum of Agreement was signed.57
The Court of Appeals further held that DBF was no longer the real
party-in-interest as the loan accounts of Galleon were transferred
to the Asset Privatization Trust.58
The fallo of the Court of Appeals Decision reads:
WHEREFORE, in view of the foregoing premises, the assailed
Decision, as well as, assailed Order, appealed from is
hereby AFFIRMED with MODIFICATIONS such that, as modified,
the dispositive portion thereof shall now read as follows:
"WHEREFORE, judgment is hereby rendered (1) ordering
defendants National Development Corporation and National
Galleon Shipping Corporation jointly and severally, to pay
plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, the amount of P15,150,000.00
representing the amount of advances made by plaintiffs in behalf
of defendant NGSC, plus interest at the rate of twelve percent
(12%) per annum from the date of filing of this case on 22 April
1985 until instant Decision becomes final and executory,
thereafter the said amount shall earn an interest at the rate of
twelve (12%) percent per annum from such finality until its
satisfaction;
(2) ordering the defendants National Development Corporation
and National Galleon Shipping [C]orporation, jointly and severally,
to pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the amount of
P46,740,755.00, representing the price of the shares of stock of
plaintiffs and defendant PNCC in defendant NGSC, plus interest at
the rate of twelve percent (12%) per annum from the date of filing
of this case on 22 April 1985 until instant Decision becomes final
and executory, thereafter the said amount shall earn an interest
at the rate of twelve percent (12%) per annum from such finality
until its satisfaction;
(3) ordering the defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and severally,
to pay plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, attorney's fees
equivalent to 10% of the amount due; and costs of suit;
(4) ordering the defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and severally,
to pay to each plaintiffs and defendant Philippine National
Construction Corporation, P10,000.00 as moral damages; and
P10,000.00 as exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation and
defendant Philippine National Construction Corporation to be no
longer liable to defendants National Development Corporation,
Development Bank of the Philippines and Asset Privatization Trust
under the deed of undertaking, pledge, mortgages, and other
accessory contracts between the parties; and consequently,
permanently enjoining defendant DBP or APT from filing a
deficiency claim against plaintiffs and defendant PNCC.
SO ORDERED.59 (Emphasis and underscoring in the original)
On September 16, 2010, NDC appealed the Court of Appeals
Decision to this Court. In its Petition for Review,60 NDC maintains
that the Memorandum of Agreement does not bind it, since
Ongpin was not equipped with authority from the NDC Board to
sign the Memorandum of Agreement on NDC's behalf. 61 NDC also
denies that it took over the control and management of Galleon
or that it "prevented the execution of the [s]hare [p]urchase
[a]greement[.]"62
NDC asserts that even assuming that the Memorandum of
Agreement was binding, what was agreed upon was that the
parties shall execute a share purchase agreement within a certain
period of time.63 The Memorandum of Agreement was only a
preliminary agreement between Cuenca and Ongpin for NDC's
"intended purchase of Galleon's equity[,] pursuant to [Letter of
Instructions No.] 1155."64 The Memorandum of Agreement cannot
"be considered as the executing agreement or document for the
purchase of the shares."65
On September 13, 2010, DBP filed its Petition for Review 66 before
this Court. DBP insisted that novation did not take place because:
(a) there was no second binding contract designed to replace the
Deed of Undertaking; (b) it did not give its consent to the
substitution of debtors under the Memorandum of Agreement;
and (c) there was no agreement that unequivocally declared
novation by substitution of debtors.67
The issues raised for the resolution of this Court are as follows:
a) Whether the Memorandum of Agreement obligates NDC
to purchase Galleon's shares of stocks and pay the
advances made by respondents in Galleon's favor;68
b) Whether the Memorandum of Agreement novated the
Deed of Undertaking executed between DBP and
respondents;69 and
c) Whether the computation of legal interest should be at
the rate of 6% per annum, instead of the 12% per annum
pegged by the Court of Appeals.70
I
When the "terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its
stipulations shall control."71
Bautista v. Court of Appeals72 instructs that where the language of
a contract is plain and unambiguous, the contract must be taken
at its face value, thus:
The rule is that where the language of a contract is plain and
unambiguous, its meaning should be determined without
reference to extrinsic facts or aids. The intention of the parties
must be gathered from that language, and from that language
alone. Stated differently, where the language of a written contract
is clear and unambiguous, the contract must be taken to mean
that which, on its face, it purports to mean, unless some good
reason can be assigned to show that the words used should be
understood in a different sense. Courts cannot make for the
parties better or more equitable agreements than they
themselves have been satisfied to make, or rewrite contracts
because they operate harshly or inequitably as to one of the
parties, or alter them for the benefit of one party and to the
detriment of the other, or by construction, relieve one of the
parties from terms which he voluntarily consented to, or impose
on him those which he did not.73
It is not disputed that NDC and respondents Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings executed a
Memorandum of Agreement pursuant to the directives of Letter
of Instructions No. 1155.
Under the Memorandum of Agreement, NDC, as the Buyer,
undertook to:
a) implement Letter of Instructions No. 1155 and acquire
100% of Galleon's shareholdings;
 b) assume actual control over Galleon's management and
operations prior to the execution of a formal share
purchase agreement and prior to the transfer to NDC of
Galleon's shareholdings;
c) designate five persons to sit in Galleon's Board of
Directors;
d) pay Galleon's stockholders the share purchase price after
five years from the date of the share purchase
agreement;
e) issue each Galleon stockholder a negotiable promissory
note with maturity on the date of the fifth annual
anniversary of the share purchase agreement;
f) verify Galleon's special warranty on its liabilities and
obligations by conducting an audit; and
g) consider for priority in the repayment of accounts,
Galleon's valid and duly authorized liabilities which are
the subject of meritorious lawsuit or which have been
arranged and guaranteed by Cuenca.
While respondents, Galleon's stockholders, as the Sellers,
undertook to:
a) implement Letter of Instructions No. 1155 by allowing
NDC to purchase 100% of their shareholdings;
b) consent for NDC to assume actual control over Galleon's
management and operations prior to the execution of a
formal share purchase agreement and prior to the
transfer to NDC of Galleon's shareholdings;
c) elect NDC's designated five persons to Galleon's Board of
Directors;
d) warrant that P46,740,755.00 had been actually paid to
Galleon, representing payment of 46,740,755 common
shares to Galleon;
e) deliver to NDC, upon signing of the share purchase
agreement, 10,000,000 common shares of Galleon, duly
and validly endorsed for transfer, free from any and all
liens and encumbrances whatsoever; and
f) make special warranties under clause 8.
As parties to the Memorandum of Agreement, NDC and
respondents jointly undertook to:
a) immediately implement Letter of Instructions No. 1155;
b) endeavor to prepare and sign a share purchase
agreement covering 100% of Galleon's shareholdings not
more than 60 days after the signing of the Memorandum
of Agreement; and
c) incorporate the conditions listed down in clause 7 in the
share purchase agreement.
The law is categorical that "various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken
jointly."74Fernandez v. Court of Appeals75 further emphasizes that
"[t]he important task in contract interpretation is always the
ascertainment of the intention of the contracting parties and that
task is of course to be discharged by looking to the words they
used to project that intention in their contract, all the words not
just a particular word or two, and words in context not words
standing alone."76
The Court of Appeals found that the Memorandum of Agreement
between NDC and Galleon was a perfected contract for NDC to
purchase 100% of Galleon's shareholdings. However, a careful
reading of the Memorandum of Agreement shows that what the
parties agreed to was the execution of a share purchase
agreement to effect the transfer of 100% of Galleon's
shareholdings to NDC, as seen in clause 3:
3. As soon as possible, but not more than 60 days after the signing
hereof, the parties shall endeavor to prepare and sign a share
purchase agreement covering 100% of the shareholdings of
Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share and
subscription of an additional 100,000,000 common shares of the
par value of P1.00 per share of which P36,740,755.00 has been
paid, but not yet issued.
The second paragraph of clause 4 likewise makes the execution of
a share purchase agreement a condition before the purchase
price can be paid to respondents, since the payment of the
purchase price becomes due only after five years from the date of
execution of the share purchase agreement:
4. Sellers hereby warrant that P46,740,755[.00] had been actually
paid to Galleon Shipping Corporation, which amount represents
payment of Sellers for 46,740,755 common shares of said
Corporation. This warranty shall be verified by Buyer, the results
of which will determine the final purchase price to be paid to
Sellers.
The purchase price directed by LOI 1155 to be paid to Sellers shall
be paid after five (5) years from date of the share purchase
agreement with no interest cost to buyer. (Emphasis supplied)
NDC asserts that the Memorandum of Agreement was only a
preliminary agreement between Galleon, represented by Cuenca,
and NDC, represented by Ongpin, for the intended purchase of
Galleon's equity pursuant to Letter of Instructions No.
1155,77 thus:
It merely prescribed the manner, terms and conditions of said
purchase. In fact, the [Memorandum of Agreement] provided for
a time frame for the execution of the share purchase agreement
which is within sixty (60) days from the signing thereof. By no
means can it be considered as the executing agreement or
document for the purchase of the shares.78
NDC's assertion that the Memorandum of Agreement was merely
a preliminary agreement that was separate and distinct from the
share purchase agreement, finds support in clause 7 of the
Memorandum of Agreement, which lists down the terms and
conditions to be included in the share purchase agreement as
follows:
7. The stock purchase agreement to be prepared and signed by
the parties within sixty (60) days from date hereof shall contain,
among other things:
(a) standard warranties of seller including, but not limited
to, warranties pertaining to the accuracy of financial and
other statements of GSC; disclosure of liabilities;
payment of all taxes, duties, licenses and fees; non-
encumbrance of corporate assets; valid contracts with
third parties, etc. including an indemnity clause covering
any breach thereof.
(b) provisions that Buyer shall retain 2 representatives of
Sellers in the board of GSC only for as long as Sellers
have not been paid, or have not negotiated or
discounted any of the promissory notes referred to in
clause 5 above.
(c) provisions whereby Construction Development
Corporation of the Philippines, Sta. Ines Melale Forest
Products Corporation, Mr. Rodolfo M. Cuenca and Mr.
Manuel I. Tinio shall be released from counter-
 guarantees they have issued in favor of DBP and other
financial institutions in connection with GSC's various
credit accommodations.
(d) provisions for arbitration as a means of settling disputes
and differences of opinion regarding the stock purchase
agreement.
Under clause 7 of the Memorandum of Agreement, NDC and
respondents agreed to include in the still-to-be-executed share
purchase agreement, provisions on: (a) standard warranties,
including warranties on the accuracy of Galleon's financials,
disclosure of liabilities, etc; (b) the retention of Galleon's
representatives in Galleon's board of directors prior to the
payment of the share purchase price; (c) the release of
respondents from the counter-guarantees they made in favor of
DBP and other financial institutions in connection with Galleon's
various credit accommodations; and (d) arbitration as a means of
settling disputes and differences of opinion regarding the stock
purchase agreement.
Taking the provisions of the Memorandum of Agreement as a
whole, it is clear that while there was an intention to follow the
directives of Letter of Instructions No. 1155, the transfer of shares
from respondents to NDC was to be effected only with the
execution of the share purchase agreement, the terms and
conditions of which were laid out in the Memorandum of
Agreement.
NDC and the respondents undertook to prepare and sign a share
purchase agreement over 100% of respondents' shares in Galleon
not more than sixty days after the signing of the Memorandum of
Agreement:
3. As soon as possible, but not more than 60 days after the signing
hereof, the parties shall endeavor to prepare and sign a share
purchase agreement covering 100% of the shareholdings of
Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share and
subscription of an additional 100,000,000 common shares of the
par value of P1.00 per share of which P36,740,755.00 has been
paid, but not yet issued.
The execution of a share purchase agreement was a condition
precedent to the transfer of Galleon's shares to NDC. However,
the Court of Appeals found that the NDC prevented its execution
by deliberately delaying its review of Galleon's financial accounts:
From the foregoing, it is evident that the period for the payment
of the purchase price is entirely dependent on the execution of a
share purchase agreement by the parties. The evidence on record,
however, show that the defendant-appellant NDC itself
voluntarily prevented the execution of a share purchase
agreement when it reneged on its various obligations under the
Memorandum of Agreement. The evidence on record show that
the share purchase agreement was not formally executed because
then Minister Roberto Ongpin claimed that the accounts of
defendant Galleon had to be reviewed and cleared up before the
share purchase agreement is signed. While defendant Galleon
made its financial records available to defendant-appellant NDC
for their review, the latter never made any serious effort to
review the financial accounts of the defendant Galleon, hence,
effectively preventing the execution of the share purchase
agreement. Consequently, the condition for the running of the
period for the payment of the purchase price of the shares of
stocks in defendant Galleon by the defendant-appellant NDC, i.e.,
the execution of the Share Purchase Agreement, was deemed
fulfilled as it was the defendant-appellant NDC itself which
prevented it from happening. Under Article 1186 of the Civil Code,
a "condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfilment." This applies in the instant
case.79 (Emphasis supplied)
The Regional Trial Court likewise found that respondent Cuenca,
as Galleon's representative, initiated moves for the preparation
and execution of the share purchase agreement and NDC's
takeover of Galleon.80 Nonetheless, despite Cuenca's efforts, the
share purchase agreement was never formally executed:
Assuming that the share purchase agreement was a condition for
the effectivity of the Memorandum of Agreement (dated 10
August 1981), said condition is deemed fulfilled by virtue of Art.
1186 of the Civil Code, which provides that "the condition shall be
deemed fulfilled when the obligor voluntarily prevents its
fulfillment." Plaintiff Cuenca, as representative of the former
shareholders of defendant Galleon, in order to clear up the
accounts preparatory to the execution of the share purchase
agreement, created a team to prepare a statement of defendant
Galleon's outstanding accounts which statement of account was
intended to be included as part of the annexes of the said share
purchase agreement. Another team with representatives from
both parties, that is, the former stockholders of defendant
Galleon and defendant NDC, had to be created for a smoother
turnover. However, despite said efforts done by plaintiff Cuenca
the share purchase agreement was not formally
executed.81 (Emphasis in the original)
NDC denies that it caused the delay in the execution of the share
purchase agreement and argues that it was Cuenca who caused
the delay for insisting on the payment first of the advances made
in Galleon's favor before executing the share purchase agreement
and relinquishing control over Galleon. 82
NDC's bare denials cannot succeed in light of the preponderance
of evidence submitted by respondents.
In his Affidavit83 dated June 17, 1999, Cuenca narrated the
preparations the Galleon stockholders undertook for the
execution of the share purchase agreement with NDC:
What happened to the share purchase
168. Q : agreement referred to in the Memorandum of
Agreement dated August 1981 (Exhibit "J")?
The share purchase agreement was never
drawn up despite persistent attempts by
  A : myself to see it prepared and executed. In
fact, we continually negotiated with NDC and
DBP throughout 1982 and 1983 on the matter.
169. Q : Why was it never executed?
Minister Ongpin kept claiming that the
  A : accounts had to be cleared up before any
formal agreement could be signed.
What steps, if any, did the parties take to
170. Q : clear up the accounts preparatory to the
signing of the share purchase agreement?
During the transition period, prior to the
signing of the share purchase agreement, I
created a team to prepare a statement of
Galleon's outstanding accounts which we
intended to include as part of the annexes of
the share purchase agreement. Another team
with representatives from both parties, i.e.,
  A : the former stockholders of Galleon and NDC,
had to be created for a smoother turn-over. In
short, we did all that was possible and
required of us under the Memorandum of
Agreement. We negotiated with NDC in good
faith for years but NDC kept stonewalling the
execution of the share purchase
agreement.84 (Emphasis supplied)
On April 26, 1982, Antonio L. Carpio, NDC's General
Manager,85 sent Ongpin a Memorandum,86 where Carpio
acknowledged reviewing Galleon's outstanding accounts
submitted by Cuenca.87 This supports Cuenca's statement that
they submitted a statement of Galleon's outstanding accounts for
NDC's review, as per Ongpin's request, a fact not denied by NDC.
Upon receiving Galleon's outstanding accounts, NDC and Sta. Ines,
Cuenca, Tinio, Cuenca Investment and Universal Holdings should
have initiated the execution of the share purchase agreement.
However, the share purchase agreement was never executed,
through no fault of Galleon's stockholders.
In clause 4 of the Memorandum of Agreement, NDC as the buyer
was to verify the warranty of the Galleon shareholders that
P46,740,755.00 was paid for Galleon's 46,740,755 common shares
with par value of P1.00 per share. The results of the verification
would have determined the final purchase price to be paid to the
Galleon shareholders. Nonetheless, despite the verification still to
be done, both parties agreed to execute the share purchase
agreement as soon as possible but not more than sixty days from
the signing of the Memorandum of Agreement.
We uphold the Court of Appeals' finding that the failure to
execute the share purchase agreement was brought about by
NDC's delay in reviewing the financial accounts submitted by
Galleon's stockholders. The Memorandum of Agreement was
executed on August 10, 1981, giving the parties no more than
sixty days or up to October 9, 1981, to prepare and sign the share
purchase agreement. However, it was only on April 26, 1982, or
more than eight months after the Memorandum of Agreement
was signed, did NDC's General Director submit his
recommendation on Galleon's outstanding account. Even then,
there was no clear intention to execute a share purchase
agreement as compliance with the Memorandum of Agreement.
Article 1186 of the Civil Code is categorical that a "condition shall
be deemed fulfilled when the obligor voluntarily prevents its
fulfilment." Considering NDC's delay, the execution of the share
purchase agreement should be considered fulfilled with NDC as
the new owner of 100% of Galleon's shares of stocks.
The due execution of the share purchase agreement is further
bolstered by Article 1198(4) of the Civil Code, which states that
the debtor loses the right to make use of the period when a
condition is violated, making the obligation immediately
demandable:
Article 1198. The debtor shall lose every right to make use of the
period:
(1) When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised;
(3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives new
ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (Emphasis supplied)
Well-settled is the rule that findings of fact made by a trial court
and the Court of Appeals are accorded the highest degree of
respect by this Court, and, absent a clear disregard of the
evidence before it that can otherwise affect the results of the
case, those findings should not be ignored.88
II
The Regional Trial Court found that the advances made by
respondents in Galleon's behalf covered legitimate expenses in
the ordinary course of business,89 making NDC liable under clause
9 of the Memorandum of Agreement, which states:
9. Valid and duly authorized liabilities of GSC which are the
subject of a meritorious lawsuit, or which have been arranged and
guaranteed by Mr. Rodolfo M. Cuenca, may be considered by
Buyer for priority in the repayment of accounts, provided that,
upon review, the Buyer shall determine these to be legitimate and
were validly incurred in the ordinary course of GSC's principal
business.
NDC's liability for the advances made in Galleon's behalf was
upheld by the Court of Appeals, which held that the advances
made were valid and authorized liabilities incurred by Galleon in
the course of its business, thus:
In the instant case, the advances being claimed by [respondents]
are in the nature of guarantee fees in consideration for the
personal undertakings of the [respondents] to secure the
potential liabilities of defendant-appellant DBP in favor of
defendant Galleon's foreign creditors, advances to cover
payments of interest, security and management fees arising out
of a mortgage contract, charter line payments, bare boat hire
payments, fuel and ship franchise payments, salaries and wages
and advertising expenses[.]90
Ordinary and necessary business expenses are those that are
"directly attributable to, the development, management,
operation and/or conduct of the trade, business or exercise of a
profession[.]"91
In Carpio's Memorandum to Ongpin dated April 26, 1982, he
recommended that the guarantee fees being claimed by Galleon's
stockholders should not be paid. Carpio also questioned the
P1,400,000.00 interest being charged by Sta. Ines from the ]
P6,650,000.00 cash advances it made in Galleon's behalf. Carpio
likewise questioned the charge of P600,000.00 being claimed as
Galleon's share for the Construction Development Corporation of
the Philippine’s basketball team with the Philippine Basketball
Association.92
We see no reason to disturb the findings of fact made by the trial
court and the Court of Appeals considering that the same are duly
supported by substantial evidence.
III
Novation is a mode of extinguishing an obligation by "[c]hanging
[its] object or principal conditions[,] [substituting the person of
the debtor [or] [s]ubrogating a third person in the rights of the
creditor."93 While novation, "which consists in substituting a new
debtor in the place of the original one may be made even without
the knowledge or against the will of the latter, [it must be with]
the consent of the creditor."94
Testate Estate of Mota v. Serra95 instructs that for novation to
have legal effect, the creditor must expressly consent to the
substitution of the new debtor:
It should be noted that in order to give novation its legal effect,
the law requires that the creditor should consent to the
substitution of a new debtor. This consent must be given
expressly for the reason that, since novation extinguishes the
personality of the first debtor who is to be substituted by new
one, it implies on the part of the creditor a waiver of the right that
he had before the novation, which waiver must be express under
the principle that renuntiatio non præsumitur, recognized by the
law in declaring that a waiver of right may not be performed
unless the will to waive is indisputably shown by him who holds
the right.96 (Emphasis supplied)
The Court of Appeals erred when it ruled that DBP was privy to
the Memorandum of Agreement since Ongpin was concurrently
Governor of DBP and chairman of NDC Board of Directors at the
time the Memorandum of Agreement was signed.97
The general rule is that, "[i]n the absence of an authority from the
board of directors, no person, not even the officers of the
corporation, can validly bind the corporation."98 A corporation is a
juridical person, separate and distinct from its stockholders and
members, having "powers, attributes and properties expressly
authorized by law or incident to its existence."99
Section 23100 of the Corporation Code provides that "the
corporate powers of all corporations . . . shall be exercised, all
business conducted and all property of such corporations [shall]
be controlled and held by the board of directors[.]"
People's Aircargo and Warehousing Co. Inc. v. Court of
Appeals101 explains that under Section 23 of the Corporation Code,
the power and responsibility to bind a corporation can be
delegated to its officers, committees, or agents. Such delegated
authority is derived from law, corporate bylaws, or authorization
from the board:
Under this provision, the power and the responsibility to decide
whether the corporation should enter into a contract that will
bind the corporation is lodged in the board, subject to the articles
of incorporation, bylaws, or relevant provisions of law. However,
just as a natural person may authorize another to do certain acts
for and on his behalf, the board of directors may validly delegate
some of its functions and powers to officers, committees or
agents. The authority of such individuals to bind the corporation is
generally derived from law, corporate bylaws or authorization
from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz.:
"A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that
[the] authority to do so has been conferred upon him, and this
includes powers which have been intentionally conferred, and
also such powers as, in the usual course of the particular business,
are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing
with the officer or agent to believe that it has
conferred."102 (Emphasis supplied)
Aside from Ongpin being the concurrent head of DBP and NDC at
the time the Memorandum of Agreement was executed, there
was no proof presented that Ongpin was duly authorized by the
DBP to give consent to the substitution by NDC as a co-guarantor
of Galleon's debts. Ongpin is not DBP, therefore, it is wrong to
assume that DBP impliedly gave its consent to the substitution
simply by virtue of the personality of its Governor.
Novation is never presumed. The animus novandi, whether partial
or total, "must appear by express agreement of the parties, or by
their acts which are too clear and unequivocal to be mistaken." 103
There was no such animus novandi in the case at bar between
DBP and respondents, thus, respondents have not been
discharged as Galleon's co-guarantors under the Deed of
Undertaking and they remain liable to DBP.
IV
On the issue of attorney's fees and moral and exemplary damages
awarded to Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings, the Court of Appeals upheld the findings of
the Regional Trial Court for being just, reasonable, and supported
by the evidence on record.104
We see no reason to disturb the findings of the lower courts.
However, on the issue of compensatory interest as damages,
where the Regional Trial Court imposed an interest rate of six
percent (6%) per annum on the advances made and the payment
due for the shares of stock,105 the Court of Appeals modified the
Regional Trial Court's ruling insofar as the interest rate to be
imposed was concerned.106 The Court of Appeals ruled that the
advances made by Sta. Ines, Cuenca, Tinio, Cuenca Investment,
and Universal Holdings and the payment due them for the Galleon
shares of stocks were loans or forbearances of money that should
earn interest of 12% from the date the case was
filed.107 Furthermore, the Court of Appeals held that these
amounts should likewise earn an additional 12% interest per
annum from finality until its satisfaction.108
Estores v. Spouses Supangan 109 defined forbearance as an
arrangement other than a loan where a person agrees to the
temporary use of his money, goods, or credits subject to the
fulfilment of certain conditions.110
In this case, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings advanced money in Galleon's favor and agreed
to turn over management and control of Galleon to NDC even
before receiving payment for their shares of stocks. They were
deprived of the use of their money in both cases for the periods
pending fulfillment of the agreed conditions. When those
conditions were not met, they became entitled not only to the
return of their advances and payment of their shares of stocks,
but also to the compensation for the use of their money and
property. The unwarranted withholding of the money, which
rightfully pertains to Sta. Ines, Cuenca, Tinio, Cuenca Investment,
and Universal Holdings, amounts to forbearance of money.
Sunga-Chan v. Court of Appeals,111 citing Eastern Shipping Lines,
Inc. v. Court of Appeals,112 reiterated the rule on application of
interest:
Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416 shall
apply only to loans or forbearance of money, goods, or credits, as
well as to judgments involving such loan or forbearance of money,
goods, or credit, while the 6% per annum under Art. 2209 of the
Civil Code applies "when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint
was filed until the [adjudged] amount is fully paid." In either
instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition "that
the courts are vested with discretion, depending on the equities
of each case, on the award of interest."
Otherwise formulated, the norm to be followed in the future on
the rates and application thereof is:
I. When an obligation, regardless of its source, is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed,
as follows:chanRoblesvirtualLawlibrary
1. When the obligation breached consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil
Code.
...
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.113 (Emphasis supplied, citations omitted)
On May 16, 2013, the Monetary Board of the Bangko Sentral ng
Pilipinas issued Resolution No. 796, which revised the interest
rate to be imposed for the loan or forbearance of any money,
goods, or credits. This was implemented by Bangko Sentral ng
Pilipinas Circular No. 799,114 Series of 2013, which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May
2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual
of Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
115
Nacar v. Gallery Frames, et al.  then modified the guidelines laid
down in Eastern Shipping Lines to embody Bangko Sentral ng
Pilipinas Circular No. 799, thus:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand
can be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to
run only from the date the judgment of the court is
made (at which time the quantification of damages
may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of These amounts shall earn interest at the rate of 6% per annum
money becomes final and executory, the rate of legal from the finality of this Decision until its satisfaction.
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such SO ORDERED.
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance
of credit.
And, in addition to the above, judgments that have become final
and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest
fixed therein.116
Applying these guidelines, the Court of Appeals' ruling must be
modified to reflect the ruling in Nacar. The award of the advances
made by Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings in Galleon's favor and payment for their shares
of stocks in Galleon shall earn an interest rate of 12% per annum
from the date of filing of this case on April 22, 1985117 until June
30, 2013. After June 30, 2013, these amounts shall earn interest at
six percent (6%) per annum until the Decision becomes final and
executory. An interest of six percent (6%) per annum shall be
imposed on such amounts from the finality of the Decision until
its satisfaction.
Finally, DBP's claims for damages are denied since it failed to
support its claims of malicious prosecution and a deliberate act of
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings to cause loss or injury to DBP.
WHEREFORE, the March 24, 2010 Decision and July 21, 2010
Resolution of the Court of Appeals in CA-G.R. CV No. 85385
are AFFIRMED with the following MODIFICATIONS:
(1) Sta. Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment Corporation,
Universal Holdings Corporation, and the Philippine National
Construction Corporation are declared LIABLE to the National
Development Corporation, the Development Bank of the
Philippines, and the Asset Privatization Trust under the deed of
undertaking, pledge, mortgages, and other accessory contracts
among the parties; and
(2) The award of the advances made by Sta. Ines Melale Forest
Products Corporation, Rodolfo M. Cuenca, Manuel L. Tinio,
Cuenca Investment Corporation, and Universal Holdings
Corporation in Galleon's favour, as well as the award of the
payment for their shares of stocks in Galleon, shall earn an
interest rate of 12% per annum from the date of the filing of this
case on April 22, 1985 until June 30, 2013, after which, they shall
earn interest at the rate of 6% per annum until the Decision
becomes final and executory.

G.R. No. 108346       July 11, 2001
Spouses MARIANO Z. VELARDE and AVELINA D.
VELARDE, petitioners,
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE
RAYMUNDO, respondents.
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like failure to pay
the price in the manner prescribed by the contract, entitled the
injured party to rescind the obligation. Rescission abrogates the
contract from its inception and requires a mutual restitution of
benefits received.
The Case
Before us is a Petition for Review on Certiorari1 questioning the
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 32991
dated October 9, 1992, as well as its Resolution3 dated December
29, 1992 denying petitioner's motion for reconsideration.4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is hereby
ANNULLED and SET ASIDE and the Decision dated November 14,
1990 dismissing the [C]omplaint is RESINSTATED. The bonds
posted by plaintiffs-appellees and defendants-appellants are
hereby RELEASED."5
The Facts
The factual antecedents of the case, as found by the CA, are as
follows:
"x x x. David Raymundo [herein private respondent] is the
absolute and registered owner of a parcel of land, together with
the house and other improvements thereon, located at 1918
Kamias St., Dasmariñas Village, Makati and covered by TCT No.
142177. Defendant George Raymundo [herein private petitioners]
is David's father who negotiated with plaintiffs Avelina and
Mariano Velarde [herein petitioners] for the sale of said property,
which was, however, under lease (Exh. '6', p. 232, Record of Civil
Case No. 15952).
"On August 8, 1986, a Deed of Sale with Assumption of Mortgage
(Exh. 'A'; Exh. '1', pp. 11-12, Record) was executed by defendant
David Raymundo, as vendor, in favor of plaintiff Avelina Velarde,
as vendee, with the following terms and conditions:
'x x x      x x x      x x x
'That for and in consideration of the amount of EIGHT HUNDRED
THOUSAND PESOS (P800,000.00), Philippine currency, receipt of
which in full is hereby acknowledged by the VENDOR from the
VENDEE, to his entire and complete satisfaction, by these presents
the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND
DELIVERS, freely and voluntarily, with full warranty of a legal and
valid title as provided by law, unto the VENDEE, her heirs,
successors and assigns, the parcel of land mentioned and
described above, together with the house and other
improvements thereon.
'That the aforesaid parcel of land, together with the house and
other improvements thereon, were mortgaged by the VENDOR to
the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila to
secure the payment of a loan of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, as
evidenced by a Real Estate Mortgage signed and executed by the
VENDOR in favor of the said Bank of the Philippine Islands, on
_____ and which Real Estate Mortgage was ratified before Notary
Public for Makati, _____, as Doc. No. ______, Page No. _____,
Book No. ___, Series of 1986 of his Notarial Register.
'That as part of the consideration of this sale, the VENDEE hereby
assumes to pay the mortgage obligations on the property herein
sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND
PESOS (P1,800,000.00), Philippine currency, in favor of Bank of
Philippine Islands, in the name of the VENDOR, and further agrees
to strictly and faithfully comply with all the terms and conditions
appearing in the Real Estate Mortgage signed and executed by the
VENDOR in favor of BPI, including interests and other charges for
late payment levied by the Bank, as if the same were originally
signed and executed by the VENDEE.
'It is further agreed and understood by the parties herein that the
capital gains tax and documentary stamps on the sale shall be for
the account of the VENDOR; whereas, the registration fees and
transfer tax thereon shall be the account of the VENDEE.' (Exh. 'A',
pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff
Avelina Velarde, with the consent of her husband, Mariano,
executed an Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x      x x x      x x x
'Whereas, as per deed of Sale with Assumption of Mortgage, I
paid Mr. David A. Raymundo the sum of EIGHT HUNDRED
THOUSAND PESOS (P800,000.00), Philippine currency, and
assume the mortgage obligations on the property with the Bank
of the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in accordance with the terms and conditions of the
Deed of Real Estate Mortgage dated _____, signed and executed
by Mr. David A. Raymundo with the said Bank, acknowledged
before Notary Public for Makati, _____, as Doc. No. _____, Page
No. _____, Book No. _____, Series of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of the
mortgage obligations on the property is not yet approved by the
mortgagee Bank, I have agreed to pay the mortgage obligations
on the property with the Bank in the name of Mr. David A.
Raymundo, in accordance with the terms and conditions of the
said Deed of Real Estate Mortgage, including all interests and
other charges for late payment.
'WHEREAS, this undertaking is being executed in favor of Mr.
David A. Raymundo, for purposes of attesting and confirming our
private understanding concerning the said mortgage obligations
to be assumed.
'NOW, THEREFORE, for and in consideration of the foregoing
premises, and the assumption of the mortgage obligations of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, with the bank of the Philippine Islands, I, Mrs,
Avelina D, Velarde with the consent of my husband, Mariano Z.
Velardo, do hereby bind and obligate myself, my heirs, successors
and assigns, to strictly and faithfully comply with the following
terms and conditions:
'1. That until such time as my assumption of the mortgage
obligations on the property purchased is approved by the
mortgagee bank, the Bank of the Philippine Islands, I shall
continue to pay the said loan in accordance with the terms and
conditions of the Deed of Real Estate Mortgage in the name of
Mr. David A. Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and conditions of
the said Deed of Real Estate Mortgage, I hereby agree that my
downpayment of P800,000.00, plus all payments made with the
Bank of the Philippine Islands on the mortgage loan, shall be
forfeited in favor of Mr. David A. Raymundo, as and by way of
liquidated damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A. Raymundo shall
resume total and complete ownership and possession of the
property sold by way of Deed of Sale with Assumption of
Mortgage, and the same shall be deemed automatically cancelled
and be of no further force or effect, in the same manner as it (the)
same had never been executed or entered into.
'3. That I am executing the Undertaking for purposes of binding
myself, my heirs, successors and assigns, to strictly and faithfully
comply with the terms and conditions of the mortgage obligations
with the Bank of the Philippine Islands, and the covenants,
stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned
and identified above, [does] hereby confirm and agree to the
undertakings of the Vendee pertinent to the assumption of the
mortgage obligations by the Vendee with the Bank of the
Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and
David Raymundo.
"It appears that the negotiated terms for the payment of the
balance of P1.8 million was from the proceeds of a loan that
plaintiffs were to secure from a bank with defendant's help.
Defendants had a standing approved credit line with the Bank of
the Philippine Islands (BPI). The parties agreed to avail of this,
subject to BPI's approval of an application for assumption of
mortgage by plaintiffs. Pending BPI's approval o[f] the application,
plaintiffs were to continue paying the monthly interests of the
loan secured by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly
interest on the loan secured by the aforementioned mortgage for
three (3) months as follows: September 19, 1986 at P27,225.00;
October 20, 1986 at P23,000.00; and November 19, 1986 at
P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record).
"On December 15, 1986, plaintiffs were advised that the
Application for Assumption of Mortgage with BPI, was not
approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not to
make any further payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs
informing the latter that their non-payment to the mortgage bank
constitute[d] non-performance of their obligation (Exh. '3', p. 220,
Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel,
responded, as follows:
'This is to advise you, therefore, that our client is willing to pay the
balance in cash not later than January 21, 1987 provided: (a) you
deliver actual possession of the property to her not later than
January 15, 1987 for her immediate occupancy; (b) you cause the
re- lease of title and mortgage from the Bank of P.I. and make the
title available and free from any liens and encumbrances; and (c)
you execute an absolute deed of sale in her favor free from any
liens or encumbrances not later than January 21, 1987.' (Exhs. 'k',
'4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale of the subject
property allegedly due to the latter's failure to comply with the
terms and conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking (Exh. '5', pp. 225-226, Record)."6
Consequently, petitioners filed on February 9, 1987 a Complaint
against private respondents for specific performance, nullity of
cancellation, writ of possession and damages. This was docketed
as Civil Case No. 15952 at the Regional Trial Court of Makati,
Branch 149. The case was tried and heard by then Judge Consuelo
Ynares-Santiago (now an associate justice of this Court), who
dismissed the Complaint in a Decision dated November 14,
1990.7 Thereafter, petitioners filed a Motion for Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the
Court of Appeals and Judge Salvador S. A. Abad Santos was
assigned to the sala she vacated. In an Order dated May 15,
1991,9 Judge Abad Santos granted petitioner's Motion for
Reconsideration and directed the parties to proceed with the sale.
He instructed petitioners to pay the balance of P1.8 million to
private respondents who, in turn, were ordered to execute a deed
of absolute sale and to surrender possession of the disputed
property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and reinstated
then Judge Ynares-Santiago's earlier Decision dismissing
petitioners' Complaint. Upholding the validity of the rescission
made by private respondents, the CA explained its ruling in this
wise:
"In the Deed of Sale with Assumption of Mortgage, it was
stipulated that 'as part of the consideration of this sale, the
VENDEE (Velarde)' would assume to pay the mortgage obligation
on the subject property in the amount of P 1.8 million in favor of
BPI in the name of the Vendor (Raymundo). Since the price to be
paid by the Vendee Velarde includes the downpayment of
P800,000.00 and the balance of Pl.8 million, and the balance of
Pl.8 million cannot be paid in cash, Vendee Velarde, as part of the
consideration of the sale, had to assume the mortgage obligation
on the subject property. In other words, the assumption of the
mortgage obligation is part of the obligation of Velarde, as
vendee, under the contract. Velarde further agreed 'to strictly and
faithfully comply with all the terms and conditions appearing in
the Real Estate Mortgage signed and executed by the VENDOR in
favor of BPI x x x as if the same were originally signed and
executed by the Vendee. (p. 2, thereof, p. 12, Record). This was
reiterated by Velarde in the document entitled 'Undertaking'
wherein the latter agreed to continue paying said loan in
accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Raymundo. Moreover, it was
stipulated that in the event of violation by Velarde of any terms
and conditions of said deed of real estate mortgage, the
downpayment of P800,000.00 plus all payments made with BPI or
the mortgage loan would be forfeited and the [D]eed of [S]ale
with [A]ssumption of [M]ortgage would thereby be Cancelled
automatically and of no force and effect (pars. 2 & 3, thereof, pp
13-14, Record).
"From these 2 documents, it is therefore clear that part of the
consideration of the sale was the assumption by Velarde of the
mortgage obligation of Raymundo in the amount of Pl.8 million.
This would mean that Velarde had to make payments to BPI under
the [D]eed of [R]eal [E]state [M]ortgage the name of Raymundo.
The application with BPI for the approval of the assumption of
mortgage would mean that, in case of approval, payment of the
mortgage obligation will now be in the name of Velarde. And in
the event said application is disapproved, Velarde had to pay in
full. This is alleged and admitted in Paragraph 5 of the Complaint.
Mariano Velarde likewise admitted this fact during the hearing on
September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also
pp. 16-26, t.s.n., October 8, 1989). This being the case, the non-
payment of the mortgage obligation would result in a violation of
the contract. And, upon Velarde's failure to pay the agreed price,
the[n] Raymundo may choose either of two (2) actions - (1)
demand fulfillment of the contract, or (2) demand its rescission
(Article 1191, Civil Code).
"The disapproval by BPI of the application for assumption of
mortgage cannot be used as an excuse for Velarde's non-payment
of the balance of the purchase price. As borne out by the
evidence, Velarde had to pay in full in case of BPI's disapproval of
the application for assumption of mortgage. What Velarde should
have done was to pay the balance of P1.8 million. Instead, Velarde
sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which
was strongly given weight by the lower court in reversing the
decision rendered by then Judge Ynares-Santiago. In said letter,
Velarde registered their willingness to pay the balance in cash but
enumerated 3 new conditions which, to the mind of this Court,
would constitute a new undertaking or new agreement which is
subject to the consent or approval of Raymundo. These 3
conditions were not among those previously agreed upon by
Velarde and Raymundo. These are mere offers or, at most, an
attempt to novate. But then again, there can be no novation
because there was no agreement of all the parties to the new
contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of the mortgage
obligation, the Deed of Sale with Assumption of Mortgage would
be deemed 'automatically cancelled and of no further force and
effect, as if the same had never been executed or entered into.'
While it is true that even if the contract expressly provided for
automatic rescission upon failure to pay the price, the vendee
may still pay, he may do so only for as long as no demand for
rescission of the contract has been made upon him either
judicially or by a notarial act (Article 1592, Civil Code). In the case
at bar, Raymundo sent Velarde notarial notice dated January 8,
1987 of cancellation/rescission of the contract due to the latter's
failure to comply with their obligation. The rescission was justified
in view of Velarde's failure to pay the price (balance) which is
substantial and fundamental as to defeat the object of the parties
in making the agreement. As adverted to above, the agreement of
the parties involved a reciprocal obligation wherein the obligation
of one is a resolutory condition of the obligation of the other, the
non-fulfillment of which entitles the other party to rescind the
contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment
of the mortgage obligation by appellees Velarde would create a
right to demand payment or to rescind the contract, or to
criminal prosecution (Edca Publishing & Distribution Corporation
vs. Santos, 184 SCRA 614). Upon appellee's failure, therefore, to
pay the balance, the contract was properly rescinded (Ruiz vs. IAC,
184 SCRA 720). Consequently, appellees Velarde having violated
the contract, they have lost their right to its enforcement and
hence, cannot avail of the action for specific performance
(Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10
11
Hence, this appeal.  In a contract of sale, the seller obligates itself to transfer the
The Issues
Petitioners, in their Memorandum,12 interpose the following
assignment of errors:
"I.
The Court of Appeals erred in holding that the non-payment of
the mortgage obligation resulted in a breach of the contract.
"II
The Court of Appeals erred in holding that the rescission
(resolution) of the contract by private respondents was justified.
"III
The Court of Appeals erred in holding that petitioners' January 7,
1987 letter gave three 'new conditions' constituting mere offers or
an attempt to novate necessitating a new agreement between the
parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private respondents'
mortgage obligation did not constitute a breach of contract,
considering that their request to assume the obligation had been
disapproved by the mortgagee bank. Accordingly, payment of the
monthly amortizations ceased to be their obligation and, instead,
it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage
obligations; they also failed to pay the balance of the purchase
price. As admitted by both parties, their agreement mandated
that petitioners should pay the purchase price balance of P1.8
million to private respondents in case the request to assume the
mortgage would be disapproved. Thus, on December 15, 1986,
when petitioners received notice of the bank's disapproval of their
application to assume respondents' mortgage, they should have
paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private
respondents offering to make such payment only upon the
fulfillment of certain conditions not originally agreed upon in the
contract of sale. Such conditional offer to pay cannot take the
place of actual payment as would discharge the obligation of a
buyer under a contract of sale.
ownership of and deliver a determinate things, and the buyer to
pay therefor a price certain in money or its equivalent.13
Private respondents had already performed their obligation
through the execution of the Deed of Sale, which effectively
transferred ownership of the property to petitioner through
constructive delivery. Prior physical delivery or possession is not
legally required, and the execution of the Deed of Sale is deemed
equivalent to delivery.14
Petitioners, on the other hand, did not perform their correlative
obligation of paying the contract price in the manner agreed
upon. Worse, they wanted private respondents to perform
obligations beyond those stipulated in the contract before
fulfilling their own obligation to pay the full purchase price.
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by
private respondents was not justified, inasmuch as the former had
signified their willingness to pay the balance of the purchase price
only a little over a month from the time they were notified of the
disapproval of their application for assumption of mortgage.
Petitioners also aver that the breach of the contract was not
substantial as would warrant a rescission. They cite several
cases15 in which this Court declared that rescission of a contract
would not be permitted for a slight or casual breach. Finally, they
argue that they have substantially performed their obligation in
good faith, considering that they have already made the initial
payment of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was
not so much their nonpayment of the mortgage obligations, as
their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents'
right to rescind the contract finds basis in Article 1191 of the Civil
Code, which explicitly provides as follows:
"Art. 1191. -- The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible."
The right of rescission of a party to an obligation under Article
1191 of the Civil Code is predicated on a breach of faith by the
other party who violates the reciprocity between them.16 The
breach contemplated in the said provision is the obligor's failure
to comply with an existing obligation.17 When the obligor cannot
comply with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the court to
determine the period of compliance, the court shall decree the
rescission.18
In the present case, private respondents validly exercised their
right to rescind the contract, because of the failure of petitioners
to comply with their obligation to pay the balance of the purchase
price. Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that consequently
gave rise to private respondent's right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the balance of
the purchase price one month after it became due; however, this
was not equivalent to actual payment as would constitute a
faithful compliance of their reciprocal obligation. Moreover, the
offer to pay was conditioned on the performance by private
respondents of additional burdens that had not been agreed upon
in the original contract. Thus, it cannot be said that the breach
committed by petitioners was merely slight or casual as would
preclude the exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases19 they cited,
because the factual circumstances in those cases are not
analogous to those in the present one. In Song Fo there was, on
the part of the buyer, only a delay of twenty (20) days to pay for
the goods delivered. Moreover, the buyer's offer to pay was
unconditional and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in paying
the balance of 1,000 which was actually paid.
In Tan, the alleged breach was private respondent's delay of only
a few days, which was for the purpose of clearing the title to the
property; there was no reference whatsoever to the nonpayment
of the contract price.
In the instant case, the breach committed did not merely consist
of a slight delay in payment or an irregularity; such breach would
not normally defeat the intention of the parties to the contract.
Here, petitioners not only failed to pay the P1.8 million balance,
but they also imposed upon private respondents new obligations
as preconditions to the performance of their own obligation. In
effect, the qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable under the
contract of sale. Hence, private respondents were left with the
legal option of seeking rescission to protect their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the
nonperformance of a reciprocal obligation, not a violation of the
terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated
in the contract does not apply. Instead, Civil Code provisions shall
govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article
1191 of the Civil Code, mutual restitution is required to bring back
the parties to their original situation prior to the inception of the
contract. Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments in the amounts of P27,225,
P23,000 and P23,925 (totaling P874,150.00) advanced by
petitioners should be returned by private respondents, lest the
latter unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the
contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore.20 To
rescind is to declare a contract void at its inception and to put an
end to it as though it never was. It is not merely to terminate it
and release the parties from further obligations to each other, but
to abrogate it from the beginning and restore the parties to their
relative positions as if no contract has been made.21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer
necessary to discuss the third issue raised by petitioners. Suffice it
to say that the three conditions appearing on the January 7, 1987
letter of petitioners to private respondents were not part of the
original contract. By that time, it was already incumbent upon the
former to pay the balance of the sale price. They had no right to
demand preconditions to the fulfillment of their obligation, which
had become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with
the MODIFICATION that private respondents are ordered to
return to petitioners the amount of P874,150, which the latter
paid as a consequence of the rescinded contract, with legal
interest thereon from January 8, 1987, the date of rescission. No
pronouncement as to costs.
SO ORDERED.
 Respondents-spouses Gil and Fernandina Galang obtained a loan shall comply with and abide by the terms and conditions of the
from Fortune Savings & Loan Association for P173,800.00 to mortgage document dated Feb. 27, 1989 and identified as Doc.
purchase a house and lot located at Pulang Lupa, Las Piñas, with No. 82, Page 18, Book VII, S. of 1989 of Notary Public for Quezon
an area of 150 square meters covered by Transfer Certificate of City Marites Sto. Tomas Alonzo, as if the Vendees are the original
Title (TCT) No. T-8505 in the names of respondents-spouses. To signatories.
secure payment, a real estate mortgage was constituted on the
said house and lot in favor of Fortune Savings & Loan Association. Petitioners immediately took possession and occupied the house
In early 1990, NHMFC purchased the mortgage loan of and lot.
respondents-spouses from Fortune Savings & Loan Association
Petitioners made the following payments to the NHMFC:
for P173,800.00.
Date Amount Receip
Respondent Fernandina Galang authorized4 her attorney-in-fact,
Adelina R. Timbang, to sell the subject house and lot.
July 9, 1990 P 14,312.47 D-5039
Petitioner Leticia Cannu agreed to buy the property
March 12, 1991 8,000.00 D-7294
for P120,000.00 and to assume the balance of the mortgage
obligations with the NHMFC and with CERF Realty5 (the Developer February 4, 1992 10,000.00 D-9991
of the property).
March 31, 1993 6,000.00 E-5637
Of the P120,000.00, the following payments were made by
petitioners: April 19, 1993 10,000.00 E-5824

Date Amount Paid April 27, 1993 7,000.00 E-6183

[G.R. NO. 139523 : May 26, 2005]
SPS. FELIPE AND LETICIA CANNU, Petitioners, v. SPS. GIL AND
FERNANDINA GALANG AND NATIONAL HOME MORTGAGE
FINANCE CORPORATION, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari which seeks to set
aside the decision1 of the Court of Appeals dated 30 September
1998 which affirmed with modification the decision of Branch 135
of the Regional Trial Court (RTC) of Makati City, dismissing the
complaint for Specific Performance and Damages filed by
petitioners, and its Resolution2 dated 22 July 1999 denying
petitioners' motion for reconsideration.
A complaint3 for Specific Performance and Damages was filed by
petitioners-spouses Felipe and Leticia Cannu against respondents-
spouses Gil and Fernandina Galang and the National Home
Mortgage Finance Corporation (NHMFC) before Branch 135 of the
RTC of Makati, on 24 June 1993. The case was docketed as Civil
Case No. 93-2069.
The facts that gave rise to the aforesaid complaint are as follows:
6
July 19, 1990 P40,000.00
March 13, 1991 15,000.007
April 6, 1991 15,000.008
9
November 28, 1991 5,000.00
Total P75,000.00
Thus, leaving a balance of P45,000.00.
A Deed of Sale with Assumption of Mortgage Obligation10 dated
20 August 1990 was made and entered into by and between
spouses Fernandina and Gil Galang (vendors) and spouses Leticia
and Felipe Cannu (vendees) over the house and lot in question
which contains, inter alia, the following:
NOW, THEREFORE, for and in consideration of the sum of TWO
HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine
Currency, receipt of which is hereby acknowledged by the
Vendors and the assumption of the mortgage obligation, the
Vendors hereby sell, cede and transfer unto the Vendees, their
heirs, assigns and successor in interest the above-described
property together with the existing improvement thereon.
It is a special condition of this contract that the Vendees shall
assume and continue with the payment of the amortization with
the National Home Mortgage Finance Corporation Inc. in the
outstanding balance of P_______________, as of __________ and
  P 55,312.47  
Petitioners paid the "equity" or second mortgage to CERF Realty. 17
Despite requests from Adelina R. Timbang and Fernandina Galang
to pay the balance of P45,000.00 or in the alternative to vacate
the property in question, petitioners refused to do so.
In a letter18 dated 29 March 1993, petitioner Leticia Cannu
informed Mr. Fermin T. Arzaga, Vice President, Fund Management
Group of the NHMFC, that the ownership rights over the land
covered by TCT No. T-8505 in the names of respondents-spouses
had been ceded and transferred to her and her husband per Deed
of Sale with Assumption of Mortgage, and that they were
obligated to assume the mortgage and pay the remaining unpaid
loan balance. Petitioners' formal assumption of mortgage was not
approved by the NHMFC.19
Because the Cannus failed to fully comply with their obligations,
respondent Fernandina Galang, on 21 May 1993,
paid P233,957.64 as full payment of her remaining mortgage loan
with NHMFC.20
Petitioners opposed the release of TCT No. T-8505 in favor of
respondents-spouses insisting that the subject property had
already been sold to them. Consequently, the NHMFC held in
abeyance the release of said TCT.
Thereupon, a Complaint for Specific Performance and Damages
was filed asking, among other things, that petitioners (plaintiffs
therein) be declared the owners of the property involved subject
to reimbursements of the amount made by respondents-spouses
(defendants therein) in preterminating the mortgage loan with
NHMFC.
Respondent NHMFC filed its Answer.21 It claimed that petitioners
have no cause of action against it because they have not
submitted the formal requirements to be considered assignees
and successors-in-interest of the property under litigation.
22
In their Answer,  respondents-spouses alleged that because of
petitioners-spouses' failure to fully pay the consideration and to
update the monthly amortizations with the NHMFC, they paid in
full the existing obligations with NHMFC as an initial step in the
rescission and annulment of the Deed of Sale with Assumption of
Mortgage. In their counterclaim, they maintain that the acts of
petitioners in not fully complying with their obligations give rise to
rescission of the Deed of Sale with Assumption of Mortgage with
the corresponding damages.
After trial, the lower court rendered its decision ratiocinating:
On the basis of the evidence on record, testimonial and
documentary, this Court is of the view that plaintiffs have no
cause of action either against the spouses Galang or the NHMFC.
Plaintiffs have admitted on record they failed to pay the amount
of P45,000.00 the balance due to the Galangs in consideration of
the Deed of Sale With Assumption of Mortgage Obligation (Exhs.
"C" and "3"). Consequently, this is a breach of contract and
evidently a failure to comply with obligation arising from
contracts. . . In this case, NHMFC has not been duly informed due
to lack of formal requirements to acknowledge plaintiffs as legal
assignees, or legitimate tranferees and, therefore, successors-in-
interest to the property, plaintiffs should have no legal personality
to claim any right to the same property.23
The decretal portion of the decision reads:
Premises considered, the foregoing complaint has not been
proven even by preponderance of evidence, and, as such,
plaintiffs have no cause of action against the defendants herein.
The above-entitled case is ordered dismissed for lack of merit.
Judgment is hereby rendered by way of counterclaim, in favor of
defendants and against plaintiffs, to wit:
1. Ordering the Deed of Sale With Assumption of Mortgage
Obligation (Exhs. "C" and "3") rescinded and hereby declared the
same as nullified without prejudice for defendants-spouses
Galang to return the partial payments made by plaintiffs; and the
plaintiffs are ordered, on the other hand, to return the physical
and legal possession of the subject property to spouses Galang by
way of mutual restitution;
2. To pay defendants spouses Galang and NHMFC, each the
amount of P10,000.00 as litigation expenses, jointly and severally;
3. To pay attorney's fees to defendants in the amount of
P20,000.00, jointly and severally; andcralawlibrary
4. The costs of suit.
5. No moral and exemplary damages awarded.24
A Motion for Reconsideration25 was filed, but same was denied.
Petitioners appealed the decision of the RTC to the Court of
Appeals. On 30 September 1998, the Court of Appeals disposed of
the appeal as follows:
Obligations arising from contract have the force of law between
the contracting parties and should be complied in good faith. The
terms of a written contract are binding on the parties thereto.
Plaintiffs-appellants therefore are under obligation to pay
defendants-appellees spouses Galang the sum of P250,000.00,
and to assume the mortgage.
Records show that upon the execution of the Contract of Sale or
on July 19, 1990 plaintiffs-appellants paid defendants-appellees
spouses Galang the amount of only P40,000.00.
The next payment was made by plaintiffs-appellants on March 13,
1991 or eight (8) months after the execution of the contract.
Plaintiffs-appellants paid the amount of P5,000.00.
The next payment was made on April 6, 1991 for P15,000.00 and
on November 28, 1991, for another P15,000.00.
From 1991 until the present, no other payments were made by
plaintiffs-appellants to defendants-appellees spouses Galang.
Out of the P250,000.00 purchase price which was supposed to be
paid on the day of the execution of contract in July, 1990
plaintiffs-appellants have paid, in the span of eight (8) years, from
1990 to present, the amount of only P75,000.00. Plaintiffs-
appellants should have paid the P250,000.00 at the time of the
execution of contract in 1990. Eight (8) years have already lapsed
and plaintiffs-appellants have not yet complied with their
obligation.
We consider this breach to be substantial.
The tender made by plaintiffs-appellants after the filing of this
case, of the Managerial Check in the amount of P278,957.00
dated January 24, 1994 cannot be considered as an effective
mode of payment.
Performance or payment may be effected not by tender of
payment alone but by both tender and consignation. It is
consignation which is essential in order to extinguish plaintiffs-
appellants obligation to pay the balance of the purchase price.
In addition, plaintiffs-appellants failed to comply with their
obligation to pay the monthly amortizations due on the mortgage.
In the span of three (3) years from 1990 to 1993, plaintiffs-
appellants made only six payments. The payments made by
plaintiffs-appellants are not even sufficient to answer for the
arrearages, interests and penalty charges.
On account of these circumstances, the rescission of the Contract
of Sale is warranted and justified.
...
WHEREFORE, foregoing considered, the appealed decision is
hereby AFFIRMED with modification. Defendants-appellees
spouses Galang are hereby ordered to return the partial payments
made by plaintiff-appellants in the amount of P135,000.00.
No pronouncement as to cost.26
The motion for reconsideration27 filed by petitioners was denied
by the Court of Appeals in a Resolution28 dated 22 July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of errors:
1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD
THAT PETITIONERS' BREACH OF THE OBLIGATION WAS
SUBSTANTIAL.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IN EFFECT
IT HELD THAT THERE WAS NO SUBSTANTIAL COMPLIANCE WITH
THE OBLIGATION TO PAY THE MONTHLY AMORTIZATION WITH
NHMFC.
3. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED
TO CONSIDER THE OTHER FACTS AND CIRCUMSTANCES THAT
MILITATE AGAINST RESCISSION.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED
TO CONSIDER THAT THE ACTION FOR RESCISSION IS SUBSIDIARY. 29
Before discussing the errors allegedly committed by the Court of
Appeals, it must be stated a priori that the latter made a
misappreciation of evidence regarding the consideration of the
property in litigation when it relied solely on the Deed of Sale with
Assumption of Mortgage executed by the respondents-spouses
Galang and petitioners-spouses Cannu.
As above-quoted, the consideration for the house and lot stated
in the Deed of Sale with Assumption of Mortgage is P250,000.00,
plus the assumption of the balance of the mortgage loan with
NHMFC. However, after going over the record of the case, more
particularly the Answer of respondents-spouses, the evidence
shows the consideration therefor is P120,000.00, plus the
payment of the outstanding loan mortgage with NHMFC, and of
the "equity" or second mortgage with CERF Realty (Developer of
the property).30
Nowhere in the complaint and answer of the petitioners-spouses
Cannu and respondents-spouses Galang shows that the
consideration is "P250,000.00." In fact, what is clear is that of
the P120,000.00 to be paid to the latter, only P75,000.00 was paid
to Adelina Timbang, the spouses Galang's attorney-in-fact. This
debunks the provision in the Deed of Sale with Assumption of
Mortgage that the amount of P250,000.00 has been received by
petitioners.
Inasmuch as the Deed of Sale with Assumption of Mortgage failed
to express the true intent and agreement of the parties regarding
its consideration, the same should not be fully relied upon. The
foregoing facts lead us to hold that the case on hand falls within
one of the recognized exceptions to the parole evidence rule.
Under the Rules of Court, a party may present evidence to modify,
explain or add to the terms of the written agreement if he puts in
issue in his pleading, among others, its failure to express the true
intent and agreement of the parties thereto.31
In the case at bar, when respondents-spouses enumerated in
their Answer the terms and conditions for the sale of the property
under litigation, which is different from that stated in the Deed of
Sale with Assumption with Mortgage, they already put in issue the
matter of consideration. Since there is a difference as to what the
true consideration is, this Court has admitted evidence aliunde to
explain such inconsistency. Thus, the Court has looked into the
pleadings and testimonies of the parties to thresh out the
discrepancy and to clarify the intent of the parties.
As regards the computation32 of petitioners as to the breakdown
of the P250,000.00 consideration, we find the same to be self-
serving and unsupported by evidence.
On the first assigned error, petitioners argue that the Court erred
when it ruled that their breach of the obligation was substantial.
Settled is the rule that rescission or, more accurately,
resolution,33 of a party to an obligation under Article 119134 is
predicated on a breach of faith by the other party that violates
the reciprocity between them.35 Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual breach of the
contract. Rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties
in making the agreement.36 The question of whether a breach of
contract is substantial depends upon the attending
circumstances37 and not merely on the percentage of the amount
not paid.
In the case at bar, we find petitioners' failure to pay the remaining
balance of P45,000.00 to be substantial. Even
assuming arguendo that only said amount was left out of the
supposed consideration of P250,000.00, or eighteen (18%)
percent thereof, this percentage is still substantial. Taken
together with the fact that the last payment made was on 28
November 1991, eighteen months before the respondent
Fernandina Galang paid the outstanding balance of the mortgage
loan with NHMFC, the intention of petitioners to renege on their
obligation is utterly clear.
Citing Massive Construction, Inc. v. Intermediate Appellate
Court,38 petitioners ask that they be granted additional time to
complete their obligation. Under the facts of the case, to give
petitioners additional time to comply with their obligation will be
putting premium on their blatant non-compliance of their
obligation. They had all the time to do what was required of them
(i.e., pay the P45,000.00 balance and to properly assume the
mortgage loan with the NHMFC), but still they failed to comply.
Despite demands for them to pay the balance, no payments were
made.39
The fact that petitioners tendered a Manager's Check to
respondents-spouses Galang in the amount of P278,957.00 seven
months after the filing of this case is of no moment. Tender of
payment does not by itself produce legal payment, unless it is
completed by consignation.40 Their failure to fulfill their obligation
gave the respondents-spouses Galang the right to rescission.
Anent the second assigned error, we find that petitioners were
not religious in paying the amortization with the NHMFC. As
admitted by them, in the span of three years from 1990 to 1993,
their payments covered only thirty months.41 This, indeed,
constitutes another breach or violation of the Deed of Sale with
Assumption of Mortgage. On top of this, there was no formal
assumption of the mortgage obligation with NHMFC because of
the lack of approval by the NHMFC42 on account of petitioners'
non-submission of requirements in order to be considered as
assignees/successors-in-interest over the property covered by the
mortgage obligation.43
On the third assigned error, petitioners claim there was no clear
evidence to show that respondents-spouses Galang demanded
from them a strict and/or faithful compliance of the Deed of Sale
with Assumption of Mortgage.
We do not agree.
There is sufficient evidence showing that demands were made
from petitioners to comply with their obligation. Adelina R.
Timbang, attorney-in-fact of respondents-spouses, per instruction
of respondent Fernandina Galang, made constant follow-ups after
the last payment made on 28 November 1991, but petitioners did
not pay.44 Respondent Fernandina Galang stated in her
Answer45 that upon her arrival from America in October 1992, she
demanded from petitioners the complete compliance of their
obligation by paying the full amount of the consideration
(P120,000.00) or in the alternative to vacate the property in
question, but still, petitioners refused to fulfill their obligations
under the Deed of Sale with Assumption of Mortgage. Sometime
in March 1993, due to the fact that full payment has not been
paid and that the monthly amortizations with the NHMFC have
not been fully updated, she made her intentions clear with
petitioner Leticia Cannu that she will rescind or annul the Deed of
Sale with Assumption of Mortgage.
We likewise rule that there was no waiver on the part of
petitioners to demand the rescission of the Deed of Sale with
Assumption of Mortgage. The fact that respondents-spouses
accepted, through their attorney-in-fact, payments in installments
does not constitute waiver on their part to exercise their right to
rescind the Deed of Sale with Assumption of Mortgage. Adelina
Timbang merely accepted the installment payments as an
accommodation to petitioners since they kept on promising they
would pay. However, after the lapse of considerable time (18
months from last payment) and the purchase price was not yet
fully paid, respondents-spouses exercised their right of rescission
when they paid the outstanding balance of the mortgage loan
with NHMFC. It was only after petitioners stopped paying that
respondents-spouses moved to exercise their right of rescission.
Petitioners cite the case of Angeles v. Calasanz46 to support their
claim that respondents-spouses waived their right to rescind. We
cannot apply this case since it is not on all fours with the case
before us. First, in Angeles, the breach was only slight and casual
which is not true in the case before us. Second, in Angeles, the
buyer had already paid more than the principal obligation, while
in the instant case, the buyers (petitioners) did not pay
P45,000.00 of the P120,000.00 they were obligated to pay.
We find petitioners' statement that there is no evidence of
prejudice or damage to justify rescission in favor of respondents-
spouses to be unfounded. The damage suffered by respondents-
spouses is the effect of petitioners' failure to fully comply with
their obligation, that is, their failure to pay the remaining
P45,000.00 and to update the amortizations on the mortgage loan
with the NHMFC. Petitioners have in their possession the property
under litigation. Having parted with their house and lot,
respondents-spouses should be fully compensated for it, not only
monetarily, but also as to the terms and conditions agreed upon
by the parties. This did not happen in the case before us.
Citing Seva v. Berwin & Co., Inc.,47 petitioners argue that no
rescission should be decreed because there is no evidence on
record that respondent Fernandina Galang is ready, willing and
able to comply with her own obligation to restore to them the
total payments they made. They added that no allegation to that
effect is contained in respondents-spouses' Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall squarely with the
case on hand. In the former, the failure of one party to perform
his obligation was the fault of the other party, while in the case on
hand, failure on the part of petitioners to perform their obligation
was due to their own fault.
Second, what is stated in the book of Justice Edgardo L. Paras is
"[i]t (referring to the right to rescind or resolve) can be demanded
only if the plaintiff is ready, willing and able to comply with his
own obligation, and the other is not." In other words, if one party
has complied or fulfilled his obligation, and the other has not,
then the former can exercise his right to rescind. In this case,
respondents-spouses complied with their obligation when they
gave the possession of the property in question to petitioners.
Thus, they have the right to ask for the rescission of the Deed of
Sale with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on Article 1383
of the Civil Code, maintain that the Court of Appeals erred when it
failed to consider that the action for rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission applies to
contracts enumerated in Articles 138148 of the Civil Code. The
contract involved in the case before us is not one of those
mentioned therein. The provision that applies in the case at bar is
Article 1191.
In the concurring opinion of Justice Jose B.L. Reyes in Universal
Food Corp. v. Court of Appeals,49 rescission under Article 1191 was
distinguished from rescission under Article 1381. Justice J.B.L.
Reyes said:
. . . The rescission on account of breach of stipulations is not
predicated on injury to economic interests of the party plaintiff
but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing anywhere that
the action for rescission thereunder is subordinated to anything
other than the culpable breach of his obligations by the
defendant. This rescission is a principal action retaliatory in
character, it being unjust that a party be held bound to fulfill his
promises when the other violates his. As expressed in the old
Latin aphorism: "Non servanti fidem, non est fides servanda."
Hence, the reparation of damages for the breach is purely
secondary.
On the contrary, in the rescission by reason of lesion or economic
prejudice, the cause of action is subordinated to the existence of
that prejudice, because it is the raison d être as well as the
measure of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383
and 1384. But the operation of these two articles is limited to the
cases of rescission for lesion enumerated in Article 1381 of the
Civil Code of the Philippines, and does not apply to cases under
Article 1191.
From the foregoing, it is clear that rescission ("resolution" in the
Old Civil Code) under Article 1191 is a principal action, while
rescission under Article 1383 is a subsidiary action. The former is
based on breach by the other party that violates the reciprocity
between the parties, while the latter is not.
In the case at bar, the reciprocity between the parties was
violated when petitioners failed to fully pay the balance of
P45,000.00 to respondents-spouses and their failure to update
their amortizations with the NHMFC.
Petitioners maintain that inasmuch as respondents-spouses
Galang were not granted the right to unilaterally rescind the sale
under the Deed of Sale with Assumption of Mortgage, they should
have first asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage loan with the
NHMFC. They claim that such payment is a unilateral act of
rescission which violates existing jurisprudence.
In Tan v. Court of Appeals,50 this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones
in case one of the obligors should not comply with what is
incumbent upon him is clear from a reading of the Civil Code
provisions. However, it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially;
it cannot be exercised solely on a party's own judgment that the
other has committed a breach of the obligation. Where there is
nothing in the contract empowering the petitioner to rescind it
without resort to the courts, the petitioner's action in unilaterally
terminating the contract in this case is unjustified.
It is evident that the contract under consideration does not
contain a provision authorizing its extrajudicial rescission in case
one of the parties fails to comply with what is incumbent upon
him. This being the case, respondents-spouses should have asked
for judicial intervention to obtain a judicial declaration of
rescission. Be that as it may, and considering that respondents-
spouses' Answer (with affirmative defenses) with Counterclaim
seeks for the rescission of the Deed of Sale with Assumption of
Mortgage, it behooves the court to settle the matter once and for
all than to have the case re-litigated again on an issue already
heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously breached
the contract, we, therefore, declare the same is rescinded in favor
of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution
of the Deed of Sale with Assumption of Mortgage, it is the duty of
the court to require the parties to surrender whatever they may
have received from the other. The parties should be restored to
their original situation.51
The record shows petitioners paid respondents-spouses the
amount of P75,000.00 out of the P120,000.00 agreed upon. They
also made payments to NHMFC amounting to P55,312.47. As to
the petitioners' alleged payment to CERF Realty of P46,616.70,
except for petitioner Leticia Cannu's bare allegation, we find the
same not to be supported by competent evidence. As a general
rule, one who pleads payment has the burden of proving
it.52 However, since it has been admitted in respondents-spouses'
Answer that petitioners shall assume the second mortgage with
CERF Realty in the amount of P35,000.00, and that Adelina
Timbang, respondents-spouses' very own witness, testified53 that
same has been paid, it is but proper to return this amount to
petitioners. The three amounts total P165,312.47 - - the sum to
be returned to petitioners.
WHEREFORE, premises considered, the decision of the Court of
Appeals is hereby AFFIRMED with MODIFICATION. Spouses Gil and
Fernandina Galang are hereby ordered to return the partial
payments made by petitioners in the amount of P165,312.47.
With costs.
SO ORDERED.
G.R. No. 202205               March 6, 2013
FOREST HILLS GOLF & COUNTRY CLUB, Petitioner,
vs.
VERTEX SALES AND TRADING, INC., Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari, 1 filed under
Rule 45 of the Rules of Court, assailing the decision2 dated
February 22, 2012 and the resolution3dated May 31, 2012 of the
Court of Appeals (CA) in CA-G.R. CV No. 89296.
The Facts
Petitioner Forest Hills Golf & Country Club (Forest Hills) is a
domestic non-profit stock corporation that operates and
maintains a golf and country club facility in Antipolo City. Forest
Hills was created as a result of a joint venture agreement between
Kings Properties Corporation (Kings) and Fil-Estate Golf and
Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned
the shares of stock of Forest Hills, holding 40% and 60% of the
shares, respectively.
In August 1997, FEGDI sold to RS Asuncion Construction
Corporation (RSACC) one (1) Class "C" common share of Forest
Hills for ₱1.1 million. Prior to the full payment of the purchase
price, RSACC transferred its interests over FEGDI's Class "C"
common share to respondent Vertex Sales and Trading, Inc.
(Vertex).4 RSACC advised FEGDI of the transfer and FEGDI, in turn,
requested Forest Hills to recognize Vertex as a shareholder. Forest
Hills acceded to the request, and Vertex was able to enjoy
membership privileges in the golf and country club.
Despite the sale of FEGDI's Class "C" common share to Vertex, the
share remained in the name of FEGDI, prompting Vertex to
demand for the issuance of a stock certificate in its name.5 As its
demand went unheeded, Vertex filed a complaint 6 for rescission
with damages against defendants Forest Hills, FEGDI, and Fil-
Estate Land, Inc. (FELI) – the developer of the Forest Hills golf
course. Vertex averred that the defendants defaulted in their
obligation as sellers when they failed and refused to issue the
stock certificate covering the Class "C" common share. It prayed
for the rescission of the sale and the return of the sums it paid; it
also claimed payment of actual damages for the defendants’
unjustified refusal to issue the stock certificate.
Forest Hills denied transacting business with Vertex and claimed
that it was not a party to the sale of the share; FELI claimed the
same defense. While admitting that no stock certificate was
issued, FEGDI alleged that Vertex nonetheless was recognized as a
stockholder of Forest Hills and, as such, it exercised rights and
privileges of one. FEGDI added that during the pendency of
Vertex's action for rescission, a stock certificate was issued in
Vertex's name,7 but Vertex refused to accept it.
The RTC Ruling
In its March 1, 2007 decision,8 the Regional Trial Court (RTC)
dismissed Vertex's complaint after finding that the failure to issue
a stock certificate did not constitute a violation of the essential
terms of the contract of sale that would warrant its rescission. The
RTC noted that the sale was already consummated
notwithstanding the non-issuance of the stock certificate. The
issuance of a stock certificate is a collateral matter in the
consummated sale of the share; the stock certificate is not
essential to the creation of the relation of a shareholder. Hence,
the RTC ruled that the non-issuance of the stock certificate is a
mere casual breach that would not entitle Vertex to rescind the
sale.9
The CA Ruling
Vertex appealed the RTC's dismissal of its complaint. In its
February 22, 2012 decision,10 the CA reversed the RTC. It declared
that "in the sale of shares of stock, physical delivery of a stock
certificate is one of the essential requisites for the transfer of
ownership of the stocks purchased."11 It based its ruling on
Section 63 of the Corporation Code,12 which requires for a valid
transfer of stock –
(1) the delivery of the stock certificate;
(2) the endorsement of the stock certificate by the owner or his
attorney-in-fact or other persons legally authorized to make the
transfer; and
(3) to be valid against third parties, the transfer must be recorded
in the books of the corporation.
Without the issuance of the stock certificate and despite Vertex’s
full payment of the purchase price, the share cannot be
considered as having been validly transferred. Hence, the CA
rescinded the sale of the share and ordered the defendants to
return the amount paid by Vertex by reason of the sale. The
dispositive portion reads:
WHEREFORE, in view of the foregoing premises, the appeal is
hereby GRANTED and the March 1, 2007 Decision of the Regional
Trial Court, Branch 161, Pasig City in Civil Case No. 68791 is
hereby REVERSED AND SET ASIDE. Accordingly, the sale of x x x
one (1) Class "C" Common Share of Forest Hills Golf and Country
Club is hereby rescinded and defendants-appellees are hereby
ordered to return to Vertex Sales and Trading, Inc. the amount it
paid by reason of the said sale.13 (emphasis ours)
The CA denied Forest Hills' motion for reconsideration in its
resolution of May 31, 2012.14
The Parties’ Arguments
Forest Hills filed the present petition for review on certiorari to
assail the CA rulings. It argues that rescission should be allowed
only for substantial breaches that would defeat the very object of
the parties making the agreement.
The delay in the issuance of the stock certificate could not be
considered as a substantial breach, considering that Vertex was
recognized as, and enjoyed the privileges of, a stockholder.
Forest Hills also objects to the CA ruling that required it to return
the amount paid by Vertex for the share of stock. It claims that it
was not a party to the contract of sale; hence, it did not receive
any amount from Vertex which it would be obliged to return on
account of the rescission of the contract.
In its comment to the petition,15 Vertex disagrees and claims that
its compliance with its obligation to pay the price and the other
fees called into action the defendants’ compliance with their
reciprocal obligation to deliver the stock certificate, but the
defendants failed to discharge this obligation. The defendants’
three (3)-year delay in issuing the stock certificate justified the
rescission of the sale of the share of stock. On account of the
rescission, Vertex claims that mutual restitution should take place.
It argues that Forest Hills should be held solidarily liable with
FEGDI and FELI, since the delay was caused by Forest Hills’ refusal
to issue the share of FEGDI, from whom Vertex acquired its share.
The Court’s Ruling
The assailed CA rulings (a) declared the rescission of the sale of
one (1) Class "C" common share of Forest Hills to Vertex and (b)
ordered the return by Forest Hills, FEGDI, and FELI to Vertex of the
amount the latter paid by reason of the sale. While Forest Hills
argues that the ruling rescinding the sale of the share is
erroneous, its ultimate prayer was for the reversal and setting
Payee
aside of the ruling holding it liable to return the amount paid by
Vertex for the sale.16
Forest Hills, FEGDI, and FELI’s liability with regard to the amount Court of Appeals in CA-G.R. CV No. 89296 are hereby MODIFIED.
to be returned. The records, however, show that the following Petitioner Forest Hills Golf & Country Club is ABSOLVED from
amounts were paid by Vertex to Forest Hills, FEGDI, and FELI by liability for any amount paid by Vertex Sales and Trading, Inc. by
reason of the sale: reason of the rescinded sale of one (1) Class "C" common share of
Forest Hills Golf & Country Club.
Date of
Purpose Amount Paid SO ORDERED.
Payment

The Court finds Forest Hills’ prayer justified. FEGDI February Purchase ₱780,000.0019
9, 1999 price for one
Ruling on rescission of sale is a (1) Class "C"
settled matter common
share
At the outset, we declare that the question of rescission of the
sale of the share is a settled matter that the Court can no longer
review in this petition. While Forest Hills questioned and FEGDI February Transfer fee P 60,000.0020
presented its arguments against the CA ruling rescinding the sale 9, 1999
of the share in its petition, it is not the proper party to appeal this
ruling. Fores February Membership P 150,000.0021
t Hills 23, 1999 fee
As correctly pointed out by Forest Hills, it was not a party to the
sale even though the subject of the sale was its share of stock.
The corporation whose shares of stock are the subject of a FELI September Documentary P 6,300.0022
transfer transaction (through sale, assignment, donation, or any 25, 2000 Stamps
other mode of conveyance) need not be a party to the
transaction, as may be inferred from the terms of Section 63 of FEGDI September Notarial fees P 200.0023
the Corporation Code. However, to bind the corporation as well as 25, 2000
third parties, it is necessary that the transfer is recorded in the
books of the corporation. In the present case, the parties to the A necessary consequence of rescission is restitution: the parties to
sale of the share were FEGDI as the seller and Vertex as the buyer a rescinded contract must be brought back to their original
(after it succeeded RSACC). As party to the sale, FEGDI is the one situation prior to the inception of the contract; hence, they must
who may appeal the ruling rescinding the sale. The remedy of return what they received pursuant to the contract.24 Not being a
appeal is available to a party who has "a present interest in the party to the rescinded contract, however, Forest Hills is under no
subject matter of the litigation and is aggrieved or prejudiced by obligation to return the amount paid by Vertex by reason of the
the judgment. A party, in turn, is deemed aggrieved or sale. Indeed, Vertex failed to present sufficient evidence showing
prejudiced when his interest, recognized by law in the subject that Forest Hills received the purchase price for the share or any
matter of the lawsuit, is injuriously affected by the judgment, other fee paid on account of the sale (other than the membership
order or decree."17 The rescission of the sale does not in any way fee which we will deal with after) to make Forest Hills jointly or
prejudice Forest Hills in such a manner that its interest in the solidarily liable with FEGDI for restitution.
subject matter – the share of stock – is injuriously affected. Thus,
Forest Hills is in no position to appeal the ruling rescinding the Although Forest Hills received ₱150,000.00 from Vertex as
sale of the share. Since FEGDI, as party to the sale, filed no appeal membership fee, it should be allowed to retain this amount. For
against its rescission, we consider as final the CA’s ruling on this three years prior to the rescission of the sale, the nominees of
matter. Vertex enjoyed membership privileges and used the golf course
and the amenities of Forest Hills.25 We consider the amount paid
Ruling on return of amounts paid by as sufficient consideration for the privileges enjoyed by Vertex's
reason of the sale modified nominees as members of Forest Hills.

The CA’s ruling ordering the "return to [Vertex] the amount it paid WHEREFORE, in view of the foregoing, the Court PARTIALLY
by reason of the sale"18 did not specify in detail what the amount GRANTS the petition for review on certiorari. The decision dated
to be returned consists of and it did not also state the extent of February 22, 2012 and the resolution dated May 31, 2012 of the

G.R. NO. 188986 : March 20, 2013
GALILEO A. MAGLASANG, doing business under the name GL
Enterprises, Petitioner, v. NORTHWESTERN INC.,
UNIVERSITY, Respondent.
DECISION
SERENO, C.J.:
Before this Court is a Rule 45 Petition, seeking a review of the 27
July 2009 Court of Appeals (CA) Decision in CA-G.R. CV No.
88989,1 which modified the Regional Trial Court (RTC) Decision of
8 January 2007 in Civil Case No. Q-04-53660.2 The CA held that
petitioner substantially breached its contracts with respondent for
the installation of an integrated bridge system (IBS).
3 DISCOUNT
The antecedent .facts are as follows: chanroblesvirtualawlibrary
On 10 June 2004, respondent Northwestern University
(Northwestern), an educational institution offering maritime-
related courses, engaged the services of a Quezon City-based
firm, petitioner GL Enterprises, to install a new IBS in Laoag City.
The installation of an IBS, used as the students' training
laboratory, was required by the Commission on Higher Education
(CHED) before a school could offer maritime transportation
programs.4chanroblesvirtualawlibrary
Since its IBS was already obsolete, respondent required petitioner
to supply and install specific components in order to form the
most modern IBS that would be acceptable to CHED and would be
compliant with the standards of the International Maritime
Organization (IMO). For this purpose, the parties executed two
contracts.
The first contract partly reads:5chanroblesvirtualawlibrary
That in consideration of the payment herein mentioned to be
made by the First Party (defendant), the Second Party agrees to
furnish, supply, install and integrate the most modern xxx
INTEGRATED BRIDGE SYSTEM located at Northwestern University
MOCK BOAT in accordance with the general conditions, plans and 2. GMDSS SIMULATION ROOM
specifications of this contract.
xxx
SUPPLY & INSTALLATION OF THE
TOTAL COST: PhP 270,000.00
FOLLOWING:chanroblesvirtualawlibrary
(Emphasis in the original)
INTEGRATED BRIDGE SYSTEM
Common to both contracts are the following provisions: (1) the
A. 2-RADAR SYSTEM IBS and its components must be compliant with the IMO and
CHED standard and with manuals for simulators/major
B. OVERHEAD CONSOLE MONITORING SYSTEM equipment; (2) the contracts may be terminated if one party
commits a substantial breach of its undertaking; and (3) any
C. ENGINE TELEGRAPH SYSTEM dispute under the agreement shall first be settled mutually
between the parties, and if settlement is not obtained, resort shall
D. ENGINE CONTROL SYSTEM
be sought in the courts of law.
E. WEATHER CONTROL SYSTEM
Subsequently, Northwestern paid P1 million as down payment to
F. ECDIS SYSTEM GL Enterprises. The former then assumed possession of
Northwestern's old IBS as trade-in payment for its service. Thus,
G. STEERING WHEEL SYSTEM the balance of the contract price remained at P1.97
million.7chanroblesvirtualawlibrary
H. BRIDGE CONSOLE
Two months after the execution of the contracts, GL Enterprises
TOTAL COST: Php 3,800,000.00 technicians delivered various materials to the project site.
However, when they started installing the components,
respondent halted the operations. GL Enterprises then asked for
LESS: OLD MARITIME
an explanation.8chanroblesvirtualawlibrary
EQUIPMENT TRADE-IN VALUE 1,000,000.00
Northwestern justified the work stoppage upon its finding that
100,000.00 the delivered equipment were substandard.9 It explained further
that GL Enterprises violated the terms and conditions of the
contracts, since the delivered components (1) were old; (2) did
PROJECT COST (MATERIALS &
not have instruction manuals and warranty certificates; (3)
INSTALLATION) PhP 2,700,000.00
contained indications of being reconditioned machines; and (4)
did not meet the IMO and CHED standards. Thus, Northwestern
(Emphasis in the original) demanded compliance with the agreement and suggested that GL
Enterprises meet with the former's representatives to iron out the
The second contract essentially contains the same terms and situation.
conditions as follows:6chanroblesvirtualawlibrary
Instead of heeding this suggestion, GL Enterprises filed on 8
That in consideration of the payment herein mentioned to be September 2004 a Complaint10 for breach of contract and prayed
made by the First Party (defendant), the Second Party agrees to for the following sums: P1.97 million, representing the amount
furnish, supply, install & integrate the most modern INTEGRATED that it would have earned, had Northwestern not stopped it from
BRIDGE SYSTEM located at Northwestern University MOCK BOAT performing its tasks under the two contracts; at least P100,000 as
in accordance with the general conditions, plans and moral damages; at least P100,000 by way of exemplary damages;
specifications of this contract. at least P100,000 as attorney's fees and litigation expenses; and
cost of suit. Petitioner alleged that Northwestern breached the
SUPPLY & INSTALLATION OF THE contracts by ordering the work stoppage and thus preventing the
FOLLOWING:chanroblesvirtualawlibrary installation of the materials for the IBS.
1. ARPA RADAR SIMULATION ROOM
Northwestern denied the allegation. In its defense, it asserted
that since the equipment delivered were not in accordance with
the specifications provided by the contracts, all succeeding works
would be futile and would entail unnecessary expenses. Hence, it
prayed for the rescission of the contracts and made a compulsory
counterclaim for actual, moral, and exemplary damages, and
attorney's fees.
The RTC held both parties at fault. It found that Northwestern
unduly halted the operations, even if the contracts called for a
completed project to be evaluated by the CHED. In turn, the
breach committed by GL Enterprises consisted of the delivery of
substandard equipment that were not compliant with IMO and
CHED standards as required by the agreement.
Invoking the equitable principle that "each party must bear its
own loss," the trial court treated the contracts as impossible of
performance without the fault of either party or as having been
dissolved by mutual consent. Consequently, it ordered mutual
restitution, which would thereby restore the parties to their
original positions as follows:11chanroblesvirtualawlibrary
Accordingly, plaintiff is hereby ordered to restore to the
defendant all the equipment obtained by reason of the First
Contract and refund the downpayment of P1,000,000.00 to the
defendant; and for the defendant to return to the plaintiff the
equipment and materials it withheld by reason of the non-
continuance of the installation and integration project. In the
event that restoration of the old equipment taken from
defendant's premises is no longer possible, plaintiff is hereby
ordered to pay the appraised value of defendant's old equipment
at P1,000,000.00. Likewise, in the event that restoration of the
equipment and materials delivered by the plaintiff to the
defendant is no longer possible, defendant is hereby ordered to
pay its appraised value at P1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and return all
the equipment obtained by reason of the Second Contract, or if
restoration or return is not possible, plaintiff is ordered to pay the
value thereof to the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each of them
pointing a finger at the other party as the violator of the
contracts, the appellate court ultimately determined that GL
Enterprises was the one guilty of substantial breach and liable for
attorney's fees.
The CA appreciated that since the parties essentially sought to
have an IBS compliant with the CHED and IMO standards, it was
GL Enterprises' delivery of defective equipment that materially
and substantially breached the contracts. Although the contracts
contemplated a completed project to be evaluated by CHED,
Northwestern could not just sit idly by when it was apparent that
the components delivered were substandard.
The CA held that Northwestern only exercised ordinary prudence
to prevent the inevitable rejection of the IBS delivered by GL
Enterprises. Likewise, the appellate court disregarded petitioner's
excuse that the equipment delivered might not have been the
components intended to be installed, for it would be contrary to
human experience to deliver equipment from Quezon City to
Laoag City with no intention to use it.
This time, applying Article 1191 of the Civil Code, the CA declared
the rescission of the contracts. It then proceeded to affirm the
RTC's order of mutual restitution. Additionally, the appellate court
granted P50,000 to Northwestern by way of attorney's fees.
Before this Court, petitioner rehashes all the arguments he had
raised in the courts a quo.12 He maintains his prayer for actual
damages equivalent to the amount that he would have earned,
had respondent not stopped him from performing his tasks under
the two contracts; moral and exemplary damages; attorney's fees;
litigation expenses; and cost of suit.
Hence, the pertinent issue to be resolved in the instant appeal is
whether the CA gravely erred in (1) finding substantial breach on
the part of GL Enterprises; (2) refusing petitioner's claims for
damages, and (3) awarding attorney's fees to Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering restitution,
the courts a quo, however, differed on the basis thereof. The RTC
applied the equitable principle of mutual fault, while the CA
applied Article 1191 on rescission.
The power to rescind the obligations of the injured party is
implied in reciprocal obligations, such as in this case. On this
score, the CA correctly applied Article 1191, which provides
thus:chanroblesvirtualawlibrary
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
The two contracts require no less than substantial breach before
they can be rescinded. Since the contracts do not provide for a
definition of substantial breach that would terminate the rights
and obligations of the parties, we apply the definition found in our
jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike
slight or casual breaches of contract, are fundamental breaches
that defeat the object of the parties in entering into an
agreement, since the law is not concerned with
trifles.14chanroblesvirtualawlibrary
The question of whether a breach of contract is substantial
depends upon the attending
circumstances.15chanroblesvirtualawlibrary
In the case at bar, the parties explicitly agreed that the materials
to be delivered must be compliant with the CHED and IMO
standards and must be complete with manuals. Aside from these
clear provisions in the contracts, the courts a quo similarly found
that the intent of the parties was to replace the old IBS in order to
obtain CHED accreditation for Northwestern's maritime-related
courses.
According to CHED Memorandum Order (CMO) No. 10, Series of
1999, as amended by CMO No. 13, Series of 2005, any simulator
used for simulator-based training shall be capable of simulating
the operating capabilities of the shipboard equipment concerned.
The simulation must be achieved at a level of physical realism
appropriate for training objectives; include the capabilities,
limitations and possible errors of such equipment; and provide an
interface through which a trainee can interact with the
equipment, and the simulated environment.
Given these conditions, it was thus incumbent upon GL
Enterprises to supply the components that would create an IBS
that would effectively facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its
responsibility. As contained in the findings of the CA and the RTC,
petitioner supplied substandard equipment when it delivered
components that (1) were old; (2) did not have instruction
manuals and warranty certificates; (3) bore indications of being
reconditioned machines; and, all told, (4) might not have met the
IMO and CHED standards. Highlighting the defects of the
delivered materials, the CA quoted respondent's testimonial
evidence as follows:16chanroblesvirtualawlibrary
Q: In particular which of these equipment of CHED requirements
were not complied with?
A: The Radar Ma'am, because they delivered only 10-inch PPI, that
is the monitor of the Radar. That is 16-inch and the gyrocompass
with two (2) repeaters and the history card. The gyrocompass -
there is no marker, there is no model, there is no serial number,
no gimbal, no gyroscope and a bulb to work it properly to point
the true North because it is very important to the Cadets to learn
where is the true North being indicated by the Master
Gyrocompass.
xxx
Q: Mr. Witness, one of the defects you noted down in this history
card is that the master gyrocompass had no gimbals, gyroscope
and balls and was replaced with an ordinary electric motor. So
what is the Implication of this?
A: Because those gimbals, balls and the gyroscope it let the
gyrocompass to work so it will point the true North but they being
replaced with the ordinary motor used for toys so it will not
indicate the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must, to learn
into school where is the true North and what is that equipment to
be used on board.
Q: One of the defects is that the steering wheel was that of an
ordinary automobile. And what is the implication of this?
A: Because. on board Ma am, we are using the real steering wheel
and the cadets will be implicated if they will notice that the ship
have the same steering wheel as the car so it is not advisable for
them.
Q:. And another one is that the gyrocompass repeater was only
refurbished and it has no serial number. What is wrong with that?
A: It should be original Ma am because this gyro repeater, it must
to repeat also the true North being indicated by the Master Gyro
Compass so it will not work properly, I don t know it will work
properly. (Underscoring supplied)
Evidently, the materials delivered were less likely to pass the
CHED standards, because the navigation system to be installed
might not accurately point to the true north; and the steering
wheel delivered was one that came from an automobile, instead
of one used in ships. Logically, by no stretch of the imagination
could these form part of the most modern IBS compliant with the
IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not refute that the
equipment it delivered was substandard. However, it reiterates its
rejected excuse that Northwestern should have made an
assessment only after the completion of the IBS.17 Thus, petitioner
stresses that it was Northwestern that breached the agreement
when the latter halted the installation of the materials for the IBS, With respect to attorney's fees, Article 2208 of the Civil Code
even if the parties had contemplated a completed project to be allows the grant thereof when the court deems it just and
evaluated by CHED. However, as aptly considered by the CA, equitable that attorney's fees should be recovered. An award of
respondent could not just "sit still and wait for such day that its attorney's fees is proper if one was forced to litigate and incur
accreditation may not be granted by CHED due to the apparent expenses to protect one's rights and interest by reason of an
substandard equipment installed in the bridge system."18 The unjustified act or omission on the part of the party from whom
appellate court correctly emphasized that, by that time, both the award is sought.23chanroblesvirtualawlibrary
parties would have incurred more costs for nothing.
Since we affirm the CA's finding that it was not Northwestern but
Additionally, GL Enterprises reasons that, based on the contracts, GL Enterprises that breached the contracts without justification, it
the materials that were hauled all the way from Quezon City to follows that the appellate court correctly awarded attorney's fees
Laoag City under the custody of the four designated installers to respondent. Notably, this litigation could have altogether been
might not have been the components to be used.19 Without avoided if petitioner heeded respondent's suggestion to amicably
belaboring the point, we affirm the conclusion of the CA and the settle; or, better yet, if in the first place petitioner delivered the
RTC that the excuse is untenable for being contrary to human right materials as required by the contracts.
experience.20chanroblesvirtualawlibrary
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court
Given that petitioner, without justification, supplied substandard of Appeals in CA-G.R. CV No. 88989 is hereby AFFIRMED.
components for the new IBS, it is thus clear that its violation was
SO ORDERED.
not merely incidental, but directly related to the essence of the
agreement pertaining to the installation of an IBS compliant with
the CHED and IMO standards.
Consequently, the CA correctly found substantial breach on the
part of petitioner.
In contrast, Northwestern's breach, if any, was characterized by
the appellate court as slight or casual.21 By way of negative
definition, a breach is considered casual if it does not
fundamentally defeat the object of the parties in entering into an
agreement. Furthermore, for there to be a breach to begin with,
there must be a "failure, without legal excuse, to perform any
promise which forms the whole or part of the
contract."22chanroblesvirtualawlibrary
Here, as discussed, the stoppage of the installation was justified.
The action of Northwestern constituted a legal excuse to prevent
the highly possible rejection of the IBS. Hence, just as the CA
concluded, we find that Northwestern exercised ordinary
prudence to avert a possible wastage of time, effort, resources
and also of the P2.9 million representing the value of the new IBS.
Actual Damages, Moral and Exemplary Damages, and Attorney's
Fees
As between the parties, substantial breach can clearly be
attributed to GL Enterprises. Consequently, it is not the injured
party who can claim damages under Article 1170 of the Civil Code.
For this reason, we concur in the result of the CA's Decision
denying petitioner actual damages in the form of lost earnings, as
well as moral and exemplary damages.

G.R. No. 207133, March 09, 2015
SWIRE REALTY DEVELOPMENT
CORPORATION, Petitioner, v. JAYNE YU, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure which seeks to reverse and set aside
the Decision 1 dated January 24, 2013 and Resolution 2 dated April
30, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty Development
Corporation entered into a Contract to Sell on July 25, 1995
covering one residential condominium unit, specifically Unit 3007
of the Palace of Makati, located at P. Burgos corner Caceres Sts.,
Makati City, with an area of 137.30 square meters for the total
contract price of P7,519,371.80, payable in equal monthly
installments until September 24, 1997. Respondent likewise
purchased a parking slot in the same condominium building for
P600,000.00.
On September 24, 1997, respondent paid the full purchase price
of P7,519,371.80 for the unit while making a down payment of
P20,000.00 for the parking lot. However, notwithstanding full
payment of the contract price, petitioner failed to complete and
deliver the subject unit on time. This prompted respondent to file
a Complaint for Rescission of Contract with Damages before the
Housing and Land Use Regulatory Board (HLURB) Expanded
National Capital Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a
Decision 3 dismissing respondent’s complaint. It ruled that
rescission is not permitted for slight or casual breach of the
contract but only for such breaches as are substantial and
fundamental as to defeat the object of the parties in making the
agreement. It disposed of the case as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered ordering [petitioner] the following: Wherefore, the decision of the Office below is set aside and a new
decision is rendered as follows:
1. To finish the subject unit as pointed out in the
inspection Report 1. Declaring the contract to sell as rescinded and
directing [petitioner] to refund to [respondent] the
2. To pay [respondent] the following: amount of P7,519,371.80 at 6% per annum from the
time of extrajudicial demand on January 05, 2001:
a. the amount of P100,000 as compensatory
subject to computation and payment of the correct
damages for the minor irreversible defects
filing fee;ChanRoblesVirtualawlibrary
in her unit [respondent], or, in the
alternative, conduct the necessary repairs 2. Directing [petitioner] to pay respondent attorney’s fees
on the subject unit to conform to the in the amount of
intended specifications; P20,000.00;ChanRoblesVirtualawlibrary
b. moral damages of P20,000.00 3. Directing [petitioner] to pay an administrative fine of
P10,000.00 for violation of Section 20, in relation to
c. Attorney’s fees of P20,000.00
Section 38 of P.D. 957:
On the other hand, [respondent] is hereby directed to
SO ORDERED. 6cralawred
immediately update her account insofar as the parking slot is
cralawlawlibrary
concerned, without interest, surcharges or penalties charged
therein.
Petitioner moved for reconsideration, but the same was denied by
All other claims and counterclaims are hereby dismissed for lack the HLURB Board of Commissioners in a Resolution 7 dated June
of merit. 14, 2007.
IT IS SO ORDERED. 4cralawlawlibrary Unfazed, petitioner appealed to the Office of the President (OP)
on August 7, 2007.
Respondent then elevated the matter to the HLURB Board of
In a Decision 8 dated November 21, 2007, the OP, through then
Commissioners.
Deputy Executive Secretary Manuel Gaite, dismissed petitioner’s
appeal on the ground that it failed to promptly file its appeal
In a Decision 5 dated March 30, 2006, the HLURB Board of
before the OP. It held:chanRoblesvirtualLawlibrary
Commissioners reversed and set aside the ruling of the HLURB
ENCRFO and ordered the rescission of the Contract to Sell, Records show that [petitioner] received its copy of the 30 March
ratiocinating:chanRoblesvirtualLawlibrary 2006 HLURB Decision on 17 April 2006 and instead of filing an
appeal, it opted first to file a Motion for Reconsideration on 28
We find merit in the appeal. The report on the ocular inspection
April 2006 or eleven (11) days thereafter. The said motion
conducted on the subject condominium project and subject unit
interrupted the 15-day period to appeal.
shows that the amenities under the approved plan have not yet
been provided as of May 3, 2002, and that the subject unit has
On 23 July 2007, [petitioner] received the HLURB Resolution dated
not been delivered to [respondent] as of August 28, 2002, which
14 June 2007 denying the Motion for Reconsideration.
is beyond the period of development of December 1999 under
the license to sell. The delay in the completion of the project as
Based on the ruling in United Overseas Bank Philippines, Inc. v.
well as of the delay in the delivery of the unit are breaches of
Ching (486 SCRA 655), the period to appeal decisions of the
statutory and contractual obligations which entitles [respondent]
HLURB Board of Commissioners to the Office of the President is
to rescind the contract, demand a refund and payment of
15 days from receipt thereof pursuant to Section 15 of P.D. No.
damages.
957 and Section 2 of P.D. No. 1344 which are special laws that
provide an exception to Section 1 of Administrative Order No. 18.
The delay in the completion of the project in accordance with the
license to sell also renders [petitioner] liable for the payment of
administrative fine.
Corollary thereto, par. 2, Section 1 of Administrative Order No. 18,
Series of 1987 provides that:
The time during which a motion for reconsideration has been
pending with the Ministry/Agency concerned shall
be deducted from the period of appeal. But where such a motion
for reconsideration has been filed during office hours of the last
day of the period herein provided, the appeal must be made
within the day following receipt of the denial of said motion by
the appealing party.  (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from receipt
on 23 July 2007 of HLURB Resolution dated 14 June 2007, or until
27 July 2007 to file the Notice of Appeal before this Office.
However, [petitioner] filed its appeal only on 7 August 2007 or
eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal filed
as the records clearly show that the said appeal was filed out of
time.
WHEREFORE, premises considered, [petitioner]’s appeal is
hereby DISMISSED, and the HLURB Decision dated 30 March 2006
and HLURB Resolution dated 14 June 2007 are hereby AFFIRMED.
SO ORDERED. 9cralawlawlibrary
Immediately thereafter, petitioner filed a motion for
reconsideration against said decision.
In a Resolution 10 dated February 17, 2009, the OP, through then
Executive Secretary Eduardo Ermita, granted petitioner’s motion
and set aside Deputy Executive Secretary Gaite’s decision. It held
that after a careful and thorough evaluation and study of the
records of the case, the OP was more inclined to agree with the
earlier decision of the HLURB ENCRFO as it was more in accord
with facts, law and jurisprudence relevant to the case.
Thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Motion for
Reconsideration is hereby GRANTED. The Decision and Resolution
of the HLURB Third Division Board of Commissioners, dated March
30, 2006 and June 14, 2007, respectively, are hereby SET ASIDE,
and the HLURB ENCRFO Decision dated October 19, 2004 is
hereby REINSTATED.
SO ORDERED. 11cralawred
cralawlawlibrary
Respondent sought reconsideration of said resolution, however,
the same was denied by the OP in a Resolution 12 dated August 18,
2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted respondent’s
appeal and reversed and set aside the Order of the OP.
The fallo of its decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, the Petition is hereby GRANTED. The
assailed Resolution dated 17 February 2009 and Order dated 18
August 2011 of the Office of the President, in O.P. Case No. 07-H-
283, are hereby REVERSED and SET ASIDE. Accordingly, the
Decision dated 30 March 2006 and Resolution dated 14 June 2007
of the HLURB Board of Commissioners in HLURB Case No. REM-A-
050127-0014, are REINSTATED.
SO ORDERED.cralawlawlibrary 13cralawred
cralawlawlibrary
Petitioner moved for reconsideration, however, the CA denied the
same in a Resolution dated April 30, 2013.
Hence, the present petition wherein petitioner raises the
following grounds to support its
petition:chanRoblesvirtualLawlibrary
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE LEGAL
PRECEPTS THAT:
1. TECHNICAL RULES ARE NOT BINDING UPON
ADMINISTRATIVE AGENCIES; and
2. RESCISSION WILL BE ORDERED ONLY WHERE THE
BREACH COMPLAINED OF IS SUBSTANTIAL AS TO
DEFEAT THE OBJECT OF THE PARTIES IN ENTERING
INTO THE AGREEMENT. 14
cralawlawlibrary
In essence, the issues are: (1) whether petitioner’s appeal was
timely filed before the OP; and (2) whether rescission of the
contract is proper in the instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB Board of
Commissioners to the Office of the President has long been
settled in the case of SGMC Realty Corporation v. Office of the
President,  15 as reiterated in the cases of Maxima Realty
Management and Development Corporation v. Parkway Real
Estate Development Corporation 16 and United Overseas Bank
Philippines, Inc. v. Ching. 17cralawred
In the aforementioned cases, we ruled that the period to appeal
decisions of the HLURB Board of Commissioners is fifteen (15)
days from receipt thereof pursuant to Section 15 18 of PD No.
957 19 and Section 2 20 of PD No. 1344 21 which are special laws
that provide an exception to Section 1 of Administrative Order No.
18. Thus, in the SGMC Realty Corporation v. Office of the
President case, the Court explained:chanRoblesvirtualLawlibrary
As pointed out by public respondent, the aforecited
administrative order allows aggrieved party to file its appeal with
the Office of the President within thirty (30) days from receipt of
the decision complained of. Nonetheless, such thirty-day period is
subject to the qualification that there are no other statutory
periods of appeal applicable. If there are special laws governing
particular cases which provide for a shorter or longer
reglementary period, the same shall prevail over the thirty-day
period provided for in the administrative order. This is in line with
the rule in statutory construction that an administrative rule or
regulation, in order to be valid, must not contradict but conform
to the provisions of the enabling law.
We note that indeed there are special laws that mandate a
shorter period of fifteen (15) days within which to appeal a case
to public respondent. First, Section 15 of Presidential Decree No.
957 provides that the decisions of the National Housing Authority
(NHA) shall become final and executory after the lapse of fifteen
(15) days from the date of receipt of the decision. Second, Section
2 of Presidential Decree No. 1344 states that decisions of the
National Housing Authority shall become final and executory after
the lapse of fifteen (15) days from the date of its receipt. The
latter decree provides that the decisions of the NHA is appealable
only to the Office of the President. Further, we note that the
regulatory functions of NHA relating to housing and land
development has been transferred to Human Settlements
Regulatory Commission, now known as HLURB.  x x
x 22cralawlawlibrary
Records show that petitioner received a copy of the HLURB Board
of Commissioners’ decision on April 17, 2006. Correspondingly, it
had fifteen days from April 17, 2006 within which to file its appeal
or until May 2, 2006. However, on April 28, 2006, or eleven days
after receipt of the HLURB Board of Commissioner’s decision, it
filed a Motion for Reconsideration, instead of an appeal.
Concomitantly, Section 1 of Administrative Order No.
18 23 provides that the time during which a motion for
reconsideration has been pending with the ministry or agency
concerned shall be deducted from the period for appeal.
Petitioner received the HLURB Board Resolution denying its
Motion for Reconsideration on July 23, 2007 and filed its appeal
only on August 7, 2007. Consequently therefore, petitioner had
only four days from July 23, 2007, or until July 27, 2007, within
which to file its appeal to the OP as the filing of the motion for
reconsideration merely suspended the running of the 15-day
period. However, records reveal that petitioner only appealed to
the OP on August 7, 2007, or eleven days late. Ergo, the HLURB
Board of Commissioners’ decision had become final and executory
on account of the fact that petitioner did not promptly appeal
with the OP.
In like manner, we find no cogent reason to exempt petitioner
from the effects of its failure to comply with the rules.
In an avuncular case, we have held that while the dismissal of an
appeal on purely technical grounds is concededly frowned upon, it
bears emphasizing that the procedural requirements of the rules
on appeal are not harmless and trivial technicalities that litigants
can just discard and disregard at will. Neither being a natural right
nor a part of due process, the rule is settled that the right to
appeal is merely a statutory privilege which may be exercised only
in the manner and in accordance with the provisions of the
law. 24cralawred
Time and again, we have held that rules of procedure exist for a
noble purpose, and to disregard such rules, in the guise of liberal
construction, would be to defeat such purpose. Procedural rules
are not to be disdained as mere technicalities. They may not be
ignored to suit the convenience of a party. 25 The reason for the
liberal application of the rules before quasi-judicial agencies
cannot be used to perpetuate injustice and hamper the just
resolution of the case. Neither is the rule on liberal construction a
license to disregard the rules of procedure. 26cralawred
Thus, while there may be exceptions for the relaxation of
technical rules principally geared to attain the ends of justice,
petitioner’s fatuous belief that it had a fresh 15-day period to
elevate an appeal with the OP is not the kind of exceptional
circumstance that merits relaxation.
Second, Article 1191 of the Civil Code sanctions the right to
rescind the obligation in the event that specific performance
becomes impossible, to wit:chanRoblesvirtualLawlibrary
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.cralawlawlibrary
Basic is the rule that the right of rescission of a party to an
obligation under Article 1191 of the Civil Code is predicated on a
breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision is
the obligor’s failure to comply with an existing obligation. When
the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause
for the court to determine the period of compliance, the court
shall decree the rescission. 27cralawred
In the instant case, the CA aptly found that the completion date of
the condominium unit was November 1998 pursuant to License
No. 97-12-3202 dated November 2, 1997 but was extended to
December 1999 as per License to Sell No. 99-05-3401 dated May
8, 1999. However, at the time of the ocular inspection conducted
by the HLURB ENCRFO, the unit was not yet completely finished
as the kitchen cabinets and fixtures were not yet installed and the
agreed amenities were not yet available. Said inspection report
states:chanRoblesvirtualLawlibrary
1. The unit of the [respondent] is Unit 3007, which was
labeled as P2-07, at the Palace of Makati, located at
the corner of P. Burgos Street and Caceres Street,
Poblacion, Makati City. Based on the approved plans,
the said unit is at the 26th Floor.
2. During the time of inspection, the said unit appears to
be completed except for the installation of kitchen
cabinets and fixtures.
3. Complainant pinpointed to the undersigned the
deficiencies as follows:
a. The delivered unit has high density fiber
(HDF) floorings instead of narra wood
parquet.
b. The [petitioners] have also installed
baseboards as borders instead of pink
porrino granite boarders.
c. Walls are newly painted by the respondent
and the alleged obvious signs of cladding
could not be determined.
d. Window opening at the master bedroom
conforms to the approved plans. As a result
it leaves a 3 inches (sic) gap between the
glass window and partitioning of the
master’s bedroom.
e. It was verified and confirmed that a square
column replaced the round column, based
on the approved plans.
f. At the time of inspection, amenities such as
swimming pool and change room are seen
at the 31st floor only. These amenities are
reflected on the 27th floor plan of the
approved condominium plans. Health spa
for men and women, Shiatsu Massage
Room, Two-Level Sky Palace Restaurant and
Hall for games and entertainments, replete
with billiard tables, a bar, indoor golf with
spectacular deck and karaoke rooms were
not yet provided by the [petitioner].
g. The [master’s] bedroom door bore sign of
poor quality of workmanship as seen below.
h. The stairs have been installed in such
manner acceptable to the undersigned.
i. Bathrooms and powder room have been
installed in such manner acceptable to the
undersigned. 28
cralawlawlibrary
From the foregoing, it is evident that the report on the ocular
inspection conducted on the subject condominium project and
subject unit shows that the amenities under the approved plan
have not yet been provided as of May 3, 2002, and that the
subject unit has not been delivered to respondent as of August
28, 2002, which is beyond the period of development of
December 1999 under the license to sell. Incontrovertibly,
petitioner had incurred delay in the performance of its obligation
amounting to breach of contract as it failed to finish and deliver
the unit to respondent within the stipulated period. The delay in
the completion of the project as well as of the delay in the
delivery of the unit are breaches of statutory and contractual
obligations which entitle respondent to rescind the contract,
demand a refund and payment of damages.

WHEREFORE, premises considered, the instant petition is DENIED.

The Decision dated January 24, 2013 and Resolution dated April
30, 2013 of the Court of Appeals in CA-G.R. SP No. 121175 are
hereby AFFIRMED, with MODIFICATION that moral damages be
awarded in the amount of P20,000.00

SO ORDERED.

G.R. No. 185592, June 15, 2015
GEORGE C. FONG, Petitioner, v. JOSE V. DUEÑAS, Respondent.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the challenge
to the September 16, 2008 decision 2 and the December 8, 2008
resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 88396.
These assailed CA rulings annulled the June 27, 2006 decision 4 and
October 30, 2006 order5 of the Regional Trial Court of Makati,
Branch 64 (trial court), which directed respondent Jose V. Dueñas
(Dueñas) to pay Five Million Pesos (P5 Million) to petitioner
George C. Fong (Fong), and imposed a six percent (6%) annual
interest on this amount.
Factual Antecedents
Dueñas is engaged in the bakery, food manufacturing, and
retailing business, which are all operated under his two
companies, D.C. DANTON, Inc. (Danton) and Bakcom Food
Industries, Inc. (Bakcom). He was an old acquaintance of Fong as
they were former schoolmates at the De La Salle
University.6chanrobleslaw
Sometime in November 1996, Dueñas and Fong entered into
a verbal joint venture contract where they agreed to engage in
the food business and to incorporate a holding company under
the name Alliance Holdings, Inc. (Alliance or the proposed
corporation). Its capitalization would be Sixty Five Million Pesos
(P65 Million), to which they would contribute in equal
parts.7chanrobleslaw
The parties agreed that Fong would contribute Thirty Two Million
and Five Hundred Thousand Pesos (P32.5 Million) in cash while
Dueñas would contribute all his Danton and Bakcom shares which
he valued at P32.5 Million.8 Fong required Dueñas to submit the
financial documents supporting the valuation of these shares.
On November 25, 1996, Fong started remitting in tranches his
share in the proposed corporation’s capital. He made the
remittances under the impression that his contribution would be
applied as his subscription to fifty percent (50%) of Alliance’s total
shareholdings. On the other hand, Dueñas started processing the
Boboli9 international license that they would use in their food
business. Fong’s cash contributions are summarized
below.10cralawred
Date Amount
November 25, 1996 P1,980,475.20
January 14, 1997 P1,000,000.00
February 8, 1997 P500,000.00
March 7, 1997 P100,000.00
April 28, 1997 P500,000.00
June 13, 1997 P919,524.80
Total P5,000,000.00
On June 13, 1997, Fong sent a letter to Dueñas informing him of
his decision to limit his total contribution from P32.5 Million to
P5 Million. This letter reads:chanRoblesvirtualLawlibrary
June 13, 1997
Mr. Jose Dueñas
c/o Camira Industries
Re: Proposed JV in Bakcom, D.C. Danton and Boboli
Dear Jojit,
Enclosed is our check for P919,534.80 representing our additional
advances to subject company in process of incorporation. This
will make our total advances to date amounting to P5 million.
Since we agreed in principal late last year to pursue subject
matter, the delays in implementing the joint venture have caused
us to rethink our position. First, we were faced with the ‘personal’
factor which was explained to you one time. This has caused us to
turn down a number of business opportunities. Secondly, since
last year, the operation of Century 21 has been taking more time
from us than anticipated. That is why we decided to relinquish our
original plan to manage and operate ‘Boboli’ knowing this
limitation. For us, it does not make sense anymore to go for a
significant shareholding when we cannot be hands on and
participate actively as originally planned. For your information, we
will probably be giving up our subway franchise too.
Together with our business advisers and legal counsel, we came
to a decision to hold our commitment (from advances to
investment) at P5 million only for now from the original plan of
P32.5 million, if this is acceptable to you.
We know that our decision will somewhat upset the overall plans.
But it will probably be more problematic for us in the long run if
we continue full speed. We have put our money down in trust
and good faith despite the much delayed financials. We continue
to believe in your game plan and capabilities to achieve the
desired goals for subject undertaking. Please permit us instead to
be just a modest silent investor now with a take out plan when
time and price is right.
Thank you for your kind understanding and consideration.
With best regards.
(Signed) George Fong11
Fong observed that despite his P5 Million contribution, Dueñas
still failed to give him the financial documents on the valuation
of the Danton and Bakcom shares. Thus, except for Dueñas’
representations, Fong had nothing to rely on to ensure that these
shares were really valued at P32.5 Million. Moreover, Dueñas
failed to incorporate and register Alliance with the Securities
and Exchange Commission (SEC).12chanrobleslaw
These circumstances convinced Fong that Dueñas would no longer
honor his obligations in their joint venture agreement.13 Thus, on
October 30, 1997, Fong wrote Dueñas informing him of his
decision to cancel the joint venture agreement. He also asked for
the refund of the P5 Million that he advanced.14In response,
Dueñas admitted that he could not immediately return the
money since he used it to defray the business expenses of
Danton and Bakcom.15chanrobleslaw
To meet Fong’s demand, Dueñas proposed several schemes for
payment of the P5 Million.16 However, Fong did not accept any of
these proposed schemes. On March 25, 1998, Fong wrote a final
letter of demand17 informing Dueñas that he would file a judicial
action against him should he still fail to pay after receipt of this
written demand.
Since Dueñas did not pay, Fong filed a complaint against him for
collection of a sum of money and damages18 on April 24, 1998.
The Trial Court’s Ruling
In its June 27, 2006 decision, the trial court ruled in favor of Fong
and held that a careful examination of the complaint shows that
although it was labeled as an action for collection of a sum of
money, it was actually an action for rescission.19chanrobleslaw
The trial court noted that Dueñas’ failure to furnish Fong with the
financial documents on the valuation of the Danton and Bakcom
shares, as well as the almost one year delay in the incorporation
of Alliance, caused Fong to rescind the joint venture
agreement.20 According to the trial court, these are adequate and
acceptable reasons for rescission.
The trial court also held that Dueñas erroneously invested Fong’s
cash contributions in his two companies, Danton and Bakcom. The
signed receipts,21 presented as evidence, expressly provided
that each remittance should be applied as advance subscription
to Fong’s shareholding in Alliance. Thus, Dueñas’ investment of
the money in Danton and Bakcom was clearly unauthorized and
contrary to the parties’ agreement.
Since Dueñas was unjustly enriched by Fong’s advance capital
contributions, the trial court ordered him to return the money
amounting to P5 Million and to pay ten percent (10%) of this
amount in attorney’s fees, as well as the cost of the
suit.22chanrobleslaw
Fong filed a partial motion for reconsideration from the trial
court’s June 27, 2006 decision and asked for the imposition of a
six percent (6%) annual interest, computed from the date of
extrajudicial demand until full payment of the award. The trial
court granted this prayer in its October 30, 2006
order.23chanrobleslaw
The CA’s Ruling
Dueñas responded to the trial court’s ruling through an appeal
with the CA, which granted the appeal and annulled the trial
court’s ruling.
The CA ruled that Fong’s June 13, 1997 letter evidenced his
intention to convert his cash contributions from “advances” to the
proposed corporation’s shares, to mere “investments.” Thus,
contrary to the trial court’s ruling, Dueñas correctly invested
Fong’s P5 Million contribution to Bakcom and Danton. This did not
deviate from the parties’ original agreement as eventually, the
shares of these two companies would form part of Alliance’s
capital.24chanrobleslaw
Lastly, the CA held that the June 13, 1997 letter showed that Fong
knew all along that he could not immediately ask for the return of
his P5 Million investment. Thus, whether the action filed was a
complaint for collection of a sum of money, or rescission, it must
still fail.25chanrobleslaw
The Petition
Fong submits that the CA erred when it ruled that his June 13,
1997 letter showed his intent to convert his contributions from
advance subscriptions to Alliance’s shares, to investments in
Dueñas’ two companies. Contrary to the CA’s findings, the
receipts and the letter expressly mentioned that his contributions
should all be treated as his share subscription to
Alliance.26chanrobleslaw
Also, Fong argues that Dueñas’ unjustified retention of the P5
Million and its appropriation to his (Dueñas’) own business,
amounted to unjust enrichment; and that he contributed to fund
Alliance’s capital and incorporation, not to pay for Danton and
Bakcom’s business expenses.27chanrobleslaw
The Case for Dueñas
Dueñas contends that he could no longer refund the P5 Million
since he had already applied it to his two companies; that this is
proper since Danton and Bakcom’s shares would also form part of
his capital contribution to Alliance.28chanrobleslaw
Moreover, the incorporation did not push through because Fong
unilaterally rescinded the joint venture agreement by limiting his
investment from P32.5 Million to P5 Million.29 Thus, it was Fong
who first breached the contract, not he. Consequently, Fong’s
failure to comply with his undertaking disqualified him from
seeking the agreement’s rescission.30chanrobleslaw
The Court’s Ruling
We resolve to GRANT the petition.
At the outset, the Court notes that the parties’ joint venture
agreement to incorporate a company that would hold the shares
of Danton and Bakcom and that would serve as the business
vehicle for their food enterprise, is a valid agreement. The failure
to reduce the agreement to writing does not affect its validity or
enforceability as there is no law or regulation which provides that
an agreement to incorporate must be in writing.
With this as premise, we now address the related issues raised by
the parties.
The body rather than the title of the complaint determines the
nature of the action.
A well-settled rule in procedural law is that the allegations in the
body of the pleading or the complaint, and not its title, determine
the nature of an action.31chanrobleslaw
An examination of Fong’s complaint shows that although it was
labeled as an action for a sum of money and damages, it was
actually a complaint for rescission. The following allegations in
the complaint support this finding:chanRoblesvirtualLawlibrary
9. Notwithstanding the aforesaid remittances, defendant failed
for an unreasonable length of time to submit a valuation of the
equipment of D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant
failed to accomplish the organization and incorporation of the
proposed holding company, contrary to his representation to
promptly do so.
xxxx
17. Considering that the incorporation of the proposed holding
company failed to materialize, despite the lapse of one year and
four months from the time of subscription, plaintiff has the right
to revoke his pre-incorporation subscription. Such revocation
entitles plaintiff to a refund of the amount of P5,000,000.00 he
remitted to defendant, representing advances made in favor of
defendant to be considered as payment on plaintiff’s subscription
to the proposed holding company upon its incorporation, plus
interest from receipt by defendant of said amount until fully paid.
[Emphasis supplied.]
Fong’s allegations primarily pertained to his cancellation of their
verbal agreement because Dueñas failed to perform his
obligations to provide verifiable documents on the valuation of
the Danton’s and Bakcom’s shares, and to incorporate the
proposed corporation. These allegations clearly show that what
Fong sought was the joint venture agreement’s rescission.
As a contractual remedy, rescission is available when one of the
parties substantially fails to do what he has obligated himself to
perform.32 It aims to address the breach of faith and the violation
of reciprocity between two parties in a contract.33 Under Article
1191 of the Civil Code, the right of rescission is inherent in
reciprocal obligations, viz:chanRoblesvirtualLawlibrary
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is
incumbent upon him. [Emphasis supplied.]
Dueñas submits that Fong’s prayer for the return of his cash
contribution supports his claim that Fong’s complaint is an action
for collection of a sum of money. However, Dueñas failed to
appreciate that the ultimate effect of rescission is to restore the
parties to their original status before they entered in a contract.
As the Court ruled in Unlad Resources v. Dragon:34cralawred
Rescission has the effect of “unmaking a contract, or its undoing
from the beginning, and not merely its termination.” Hence,
rescission creates the obligation to return the object of the
contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an
end to it as though it never was. It is not merely to terminate it
and release the parties from further obligations to each other, but
to abrogate it from the beginning and restore the parties to their
relative positions as if no contract has been made.
Accordingly, when a decree for rescission is handed down, it is
the duty of the court to require both parties to surrender that
which they have respectively received and to place each other as
far as practicable in his original situation.35 [Emphasis supplied.]
In this light, we rule that Fong’s prayer for the return of his
contribution did not automatically convert the action to a
complaint for a sum of money. The mutual restitution of the
parties’ original contributions is only a necessary consequence of
their agreement’s rescission.
Rescission under Art. 1191 is applicable in the present case
Reciprocal obligations are those which arise from the same cause,
in which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent on the obligation of the
other.36chanrobleslaw
Fong and Dueñas’ execution of a joint venture agreement created
between them reciprocal obligations that must be performed in
order to fully consummate the contract and achieve the purpose
for which it was entered into.
Both parties verbally agreed to incorporate a company that would
hold the shares of Danton and Bakcom and which, in turn, would
be the platform for their food business. Fong obligated himself to
contribute half of the capital or P32.5 Million in cash. On the
other hand, Dueñas bound himself to shoulder the other half by
contributing his Danton and Bakcom shares, which were allegedly
also valued at P32.5 Million. Aside from this, Dueñas undertook to
process Alliance’s incorporation and registration with the SEC.
When the proposed company remained unincorporated by
October 30, 1997, Fong cancelled the joint venture agreement
and demanded the return of his P5 Million contribution.
For his part, Dueñas explained that he could not immediately
return the P5 Million since he had invested it in his two
companies. He found nothing irregular in this as eventually, the
Danton and Bakcom shares would form part of Alliance’s capital.
Dueñas’ assertion is erroneous.
The parties never agreed that Fong would invest his money in
Danton and Bakcom. Contrary to Dueñas’ submission, Fong’s
understanding was that his money would be applied to his
shareholdings in Alliance. As shown in Fong’s June 13, 1997 letter,
this fact remained to be true even after he limited his contribution
to P5 Million, viz:chanRoblesvirtualLawlibrary
Dear Jojit,
Enclosed is our check for P919,534.80 representing our additional
advances to subject company in process of incorporation. This
will make our total advances to date amounting to P5
million.37 [Emphasis supplied.]
Moreover, under the Corporation Code, before a stock
corporation may be incorporated and registered, it is required
that at least twenty five percent (25%) of its authorized capital
stock as stated in the articles of incorporation, be first subscribed
at the time of incorporation, and at least twenty five percent
(25%) of the total subscription, be paid upon
subscription.38chanrobleslaw
To prove compliance with this requirement, the SEC requires the
incorporators to submit a treasurer’s affidavit and a certificate of
bank deposit, showing the existence of an amount compliant with
the prescribed capital subscription.39chanrobleslaw
In this light, we conclude that Fong’s cash contributions play an
indispensable part in Alliance’s incorporation. The process
necessarily requires the money not only to fund Alliance’s
registration with the SEC but also its initial capital subscription.
This is evident in the receipts which Dueñas himself executed, one
of which provides:chanRoblesvirtualLawlibrary
I, JOSE V. DUEÑAS, hereby acknowledge the receipt on January
14, 1997 of the amount of One Million Pesos (Php 1,000,000.00)
Check No. 118 118 7014 Metro Bank, Pasong Tamo branch dated
January 13, 1997 from Mr. George Fong, which amount shall
constitute an advance of the contribution or investment of Mr.
Fong in the joint venture which he and I are in the process of
organizing. Specifically, this amount will be considered as part of
Mr. Fong’s subscription to the shares of stock of the joint venture
company which we will incorporate to embody and carry out our
joint venture.40 [Emphasis supplied.]
Thus, Dueñas erred when he invested Fong’s contributions in his
two companies. This money should have been used in processing
Alliance’s registration. Its incorporation would not materialize if
there would be no funds for its initial capital. Moreover, Dueñas
represented that Danton and Bakcom’s shares were valued at
P32.5 Million. If this was true, then there was no need for Fong’s
additional P5 Million investment, which may possibly increase the
value of the Danton and Bakcom shares.
Under these circumstances, the Court agrees with the trial court
that Dueñas violated his agreement with Fong. Aside from
unilaterally applying Fong’s contributions to his two companies,
Dueñas also failed to deliver the valuation documents of the
Danton and Bakcom shares to prove that the combined values of
their capital contributions actually amounted to P32.5 Million.
These acts led to Dueñas’ delay in incorporating the planned
holding company, thus resulting in his breach of the contract.
On this basis, Dueñas’ breach justified Fong’s rescission of the
joint venture agreement under Article 1191. As the Court ruled
in Velarde v. Court of Appeals:41cralawred
The right of rescission of a party to an obligation under Article
1191 of the Civil Code is predicated on a breach of faith by the
other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure
to comply with an existing obligation. When the obligor cannot
comply with what is incumbent upon it, the obligee may seek
rescission and in the absence of any just cause for the court to
determine the period of compliance, the court shall decree the
rescission.
In the present case, private respondents validly exercised their
right to rescind the contract, because of the failure of petitioners
to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that consequently
gave rise to private respondents’ right to rescind the same in
accordance with law.42 [Emphasis supplied.]
However, the Court notes that Fong also breached his obligation
in the joint venture agreement.
In his June 13, 1997 letter, Fong expressly informed Dueñas that
he would be limiting his cash contribution from P32.5 Million to
P5 Million because of the following reasons which we quote
verbatim:chanRoblesvirtualLawlibrary
 1. First, we were faced with the ‘personal’ factor which
was explained to you one time. This has caused us to
turn down a number of business opportunities;
2. Secondly, since last year, the operation of Century 21
has been taking more time from us than anticipated.
That is why we decided to relinquish our original plan
to manage and operate ‘Boboli’ knowing this
limitation. For us, it does not make sense anymore to
go for a significant shareholding when we cannot be
hands on and participate actively as originally
planned.43 x x x.
Although these reasons appear to be valid, they do not erase the
fact that Fong still reneged on his original promise to contribute
P32.5 Million. The joint venture agreement was not reduced to
writing and the evidence does not show if the parties agreed on
valid causes that would justify the limitation of the parties’ capital
contributions. Their only admission was that they obligated
themselves to contribute P32.5 Million each.
Hence, Fong’s diminution of his capital share to P5 Million also
amounted to a substantial breach of the joint venture
agreement, which breach occurred before Fong decided to
rescind his agreement with Dueñas. Thus, Fong also contributed
to the non-incorporation of Alliance that needed P65 Million as
capital to operate.
The absence of a written contract renders the Court unsure as to
whose obligation must be performed first. It is possible that the
parties agreed that Fong would infuse capital first and Dueñas’
submission of the documents on the Danton and Bakcom shares
would just follow. It could also be the other way around. Further,
the parties could have even agreed to simultaneously perform
their respective obligations.
Despite these gray areas, the fact that both Fong and Dueñas
substantially contributed to the non-incorporation of Alliance
and to the failure of their food business plans remains certain.
As the Court cannot precisely determine who between the parties
first violated the agreement, we apply the second part of Article
1192 which states: “if it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.”
In these lights, the Court holds that the joint venture agreement
between Fong and Dueñas is deemed extinguished through
rescission under Article 1192 in relation with Article 1191 of the
Civil Code. Dueñas must therefore return the P5 Million that Fong
initially contributed since rescission requires mutual
restitution.44After rescission, the parties must go back to their
original status before they entered into the agreement. Dueñas
cannot keep Fong’s contribution as this would constitute unjust
enrichment.

Fong cannot entirely blame Dueñas since the substantial

No damages shall be awarded to any party in accordance with the
reduction of his capital contribution also greatly impeded the
rule under Article 1192 of the Civil Code that in case of mutual
implementation of their agreement to engage in the food
breach and the first infractor of the contract cannot exactly be
business and to incorporate a holding company for it.
determined, each party shall bear his own damages.

As both parties failed to comply with their respective reciprocal

obligations, we apply Article 1192 of the Civil Code, which
provides:chanRoblesvirtualLawlibrary
Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. [Emphasis
supplied.]
WHEREFORE, premises considered, we hereby GRANT the
petition and reverse the September 16, 2008 decision and
December 8, 2008 resolution of the Court of Appeals in CA-G.R.
CV No. 88396. Respondent Jose V. Dueñas is ordered
to RETURN Five Million Pesos to petitioner George C. Fong. This
amount shall incur an interest of six percent (6%) per annum from
the date of finality of this judgment until fully paid.45 The parties’
respective claims for damages are deemed EXTINGUISHED and
each of them shall bear his own damages.

Notably, the Court is not aware of the schedule of performance of SO ORDERED.

the parties’ obligations since the joint venture agreement was
never reduced to writing. The facts, however, show that both
parties began performing their obligations after executing the
joint venture agreement. Fong started remitting his share while
Dueñas started processing the Boboli international license for the
proposed corporation’s food business.

G.R. No. 210215, December 09, 2015
ROGELIO S. NOLASCO, NICANORA N. GUEVARA, LEONARDA N.
ELPEDES, HEIRS OF ARNULFO S. NOLASCO, AND REMEDIOS M.
NOLASCO, REPRESENTED BY ELENITA M. NOLASCO Petitioners,
v. CELERINO S. CUERPO, JOSELITO ENCABO, JOSEPH ASCUTIA,
AND DOMILO LUCENARIO, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated June 17, 2013 and the Resolution3 dated
November 19, 2013 of the Court of Appeals (CA) in CA-G.R. CV No.
95353, which affirmed in toto the Decision 4 dated March 1, 2010
of the Regional Trial Court of Quezon City, Branch 81 (RTC) in Civil
Case No. Q-08-63860 ordering the rescission of the Contract to
Sell executed by herein parties and the return of the amounts
already paid by respondents Celerino S. Cuerpo, Joselito Encabo,
Joseph Ascutia, and Domilo Lucenario (respondents) to petitioners
Rogelio S. Nolasco, Nicanora N. Guevara, Leonarda N. Elpedes,
Heirs of Arnulfo S. Nolasco, and Remedios M. Nolasco,
represented by Elenita M. Nolasco (petitioners), as well as the
remaining post-dated checks issued by respondent Celerino S.
Cuerpo representing the remaining monthly amortizations, all in
connection with the said contract.
The Facts
On July 22, 2008, petitioners and respondents entered into a
Contract to Sell5 (subject contract) over a 165,775-square meter
parcel of land located in Barangay San Isidro, Rodriguez, Rizal
covered by Original Certificate of Title No. 152 (subject land).6 The
subject contract provides, inter alia, that: (a) the consideration for
the sale is P33,155,000.00 payable as follows: down payment in
the amount of P11,604,250.00 inclusive of the amount of
P2,000,000.00 previously paid by respondents as earnest
money/reservation fee, and the remaining balance of
P21,550,750.00 payable in 36 monthly installments, each in the
amount of P598,632.00 through post-dated checks; (b) in case any
of the checks is dishonored, the amounts already paid shall be
forfeited in petitioners' favor, and the latter shall be entitled to
cancel the subject contract without judicial recourse in addition to
other appropriate legal action; (c) respondents are not entitled to
possess the subject land until full payment of the purchase price;
(d) petitioners shall transfer the title over the subject land from a
certain Edilberta N. Santos to petitioners' names, and, should they
fail to do so, respondents may cause the said transfer and charge
the costs incurred against the monthly amortizations; and (e)
upon full payment of the purchase price, petitioners shall transfer
title over the subject land to respondents.7 However, respondents
sent petitioners a letter8 dated November 7, 2008 seeking to
rescind the subject contract on the ground of financial difficulties
in complying with the same. They also sought the return of the
amount of P12,202,882.00 they had paid to petitioners.9 As their
letter went unheeded, respondents filed the instant
complaint10 for rescission before the RTC.11
In their defense,12 petitioners countered that respondents' act is a
unilateral cancellation of the subject contract as the former did
not consent to it. Moreover, the ground of financial difficulties is
not among the grounds provided by law to effect a valid
rescission.13
In view of petitioners' failure to file the required pre-trial brief,
they were declared "as in default" and, consequently,
respondents were allowed to present their evidence ex-parte.14
The RTC Ruling
In a Decision15 dated March 1, 2010, the RTC ruled in favor of
respondents and, accordingly, ordered: (a) the rescission of the
subject contract; and (b) the return of the amounts already paid
by respondents to petitioners, as well as the remaining post-dated
checks issued by respondent Celerino S. Cuerpo representing the
remaining monthly amortizations.16
It found petitioners to have substantially breached paragraph 7 of
the subject contract which states that "[t]he [petitioners] shall,
within ninety (90) days from the signing of [the subject contract]
cause the completion of the transfer of registration of title of the
property subject of [the said contract], from Edilberta N. Santos to
their names, at [petitioners'] own expense."17 As such,
respondents were entitled to rescission under Article 1191 of the
Civil Code.18
Dissatisfied, petitioners appealed19 to the CA.
The CA Ruling
20
In a Decision  dated June 17, 2013, the CA affirmed the RTC
ruling. It agreed with the RTC that petitioners substantially
breached paragraph 7 of the subject contract when they did not
effect the transfer of the subject land from Edilberta N. Santos to
petitioners' names within ninety (90) days from the execution of
said contract, thus, entitling respondents to rescind the same. In
this relation, the CA held that under the present circumstances,
the forfeiture of the payments already made by respondents to
petitioners is clearly improper and unwarranted.21
Aggrieved, petitioners moved for reconsideration,22 which was
denied in a Resolution23 dated November 19, 2013; hence, this
petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or not the CA
correctly affirmed the rescission of the subject contract and the
return of the amounts already paid by respondents to petitioners,
as well as the remaining post-dated checks issued by respondent
Celerino S. Cuerpo representing the remaining monthly
amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party may rescind - or more
appropriately, resolve - the contract upon the other party's
substantial breach of the obligation/s he had assumed
thereunder.24 This is expressly provided for in Article 1191 of the
Civil Code which states:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
"More accurately referred to as resolution, the right of rescission
under Article 1191 is predicated on a breach of faith that violates
the reciprocity between the parties to the contract. This
retaliatory remedy is given to the contracting party who suffers
the injurious breach on the premise that it is 'unjust that a party
be held bound to fulfill his promises when the other violates
his.'"25 Note that the rescission (or resolution) of a contract will
not be permitted for a slight or casual breach, but only for such
substantial and fundamental violations as would defeat the very
object of the parties in making the agreement.26 Ultimately, the
question of whether a breach of contract is substantial depends
upon the attending circumstances.27
In the instant case, both the RTC and the CA held that petitioners
were in substantial breach of paragraph 7 of the subject contract
as they did not cause the transfer of the property to their names
from one Edilberta N. Santos within 90 days from the execution of
said contract.28
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:
7. [Petitioners] shall, within ninety (90) days from the signing of
[the subject contract], cause the completion of the transfer of
registration of title of the property subject of [the subject
contract], from Edilberta N. Santos to their names, at
[petitioners'] own expense. Failure on the part of [petitioners] to
undertake the foregoing within the prescribed period shall
automatically authorize [respondents] to undertake the same in
behalf of [petitioners] and charge the costs incidental to the
monthly amortizations upon due date. (Emphasis and
underscoring supplied)
A plain reading of paragraph 7 of the subject contract reveals that
while the RTC and the CA were indeed correct in finding that
petitioners failed to perform their obligation to effect the transfer
of the title to the subject land from one Edilberta N. Santos to
their names within the prescribed period, said courts erred in
concluding that such failure constituted a substantial breach that
would entitle respondents to rescind (or resolve) the subject
contract. To reiterate, for a contracting party to be entitled to
rescission (or resolution) in accordance with Article 1191 of the
Civil Code, the other contracting party must be in substantial
breach of the terms and conditions of their contract. A substantial
breach of a contract, unlike slight and casual breaches thereof, is
a fundamental breach that defeats the object of the parties in
entering into an agreement.29 Here, it cannot be said that
petitioners' failure to undertake their obligation under paragraph
7 defeats the object of the parties in entering into the subject
contract, considering that the same paragraph provides
respondents contractual recourse in the event of petitioners' non-
performance of the aforesaid obligation, that is, to cause such
transfer themselves in behalf and at the expense of petitioners.
Indubitably, there is no substantial breach of paragraph 7 on the
part of petitioners that would necessitate a rescission (or
resolution) of the subject contract. As such, a reversal of the
rulings of the RTC and the CA is in order.
The foregoing notwithstanding, the Court cannot grant
petitioners' prayer in the instant petition to order the cancellation
of the subject contract and the forfeiture of the amounts already
paid by respondents on account of the latter's failure to pay its
monthly amortizations,30 simply because in their Answer with
Compulsory Counterclaim and Motion for Summary
Judgment31 filed before the RTC, petitioners neither prayed for
this specific relief nor argued that they were entitled to the same.
Worse, petitioners were declared "as in default" for failure to file
the required pre-trial brief and, thus, failed to present any
evidence in support of their defense.32 It is settled that "[w]hen a
party deliberately adopts a certain theory and the case is decided
upon that theory in the court below, he will not be permitted to
change the same on appeal, because to permit him to do so
would be unfair to the adverse party."33 The Court's
pronouncement in Peña v. Spouses Tolentino34 is instructive on
this matter, to wit:
Indeed, the settled rule in this jurisdiction, according to Mon v.
Court of Appeals, is that a party cannot change his theory of the
case or his cause of action on appeal. This rule affirms that "courts
of justice have no jurisdiction or power to decide a question not in
issue." Thus, a judgment that goes beyond the issues and purports
to adjudicate something on which the court did not hear the
parties is not only irregular but also extrajudicial and invalid. The
legal theory under which the controversy
was heard and decided in the trial court should be
the same theory under which the review on appeal is conducted.
Otherwise, prejudice will result to the adverse party. We stress
that points of law, theories, issues, and arguments not
adequately brought to the attention of the lower court will not
be ordinarily considered by a reviewing court, inasmuch as they
cannot be raised for the first time on appeal. This would be
offensive to the basic rules of fair play, justice, and due
process.35 (Emphasis and underscoring supplied)
WHEREFORE, the petition is PARTIALLY GRANTED. Accordingly,
the Decision dated June 17, 2013 and the Resolution dated
November 19, 2013 of the Court of Appeals in CA-G.R. CV No.
95353 are hereby REVERSED and SET ASIDE. The Contract to Sell
executed by the parties on July 22, 2008
remains VALID and SUBSISTING.
SO ORDERED.

ASB REALTY CORPORATION, Petitioner, v. ORTIGAS & COMPANY
LIMITED PARTNERSHIP, Respondent.
DECISION
BERSAMIN, J.:
This appeal seeks the review and reversal of the amended
decision promulgated on January 9, 2012,1 whereby the Court of
Appeals (CA) disposed thusly:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is
rendered:chanRoblesvirtualLawlibrary
1. Granting the appeal of plaintiff-appellant and herein movant
Ortigas and Company Limited Partnership, and reversing the
Decision of the court a quo dated December 14, 2009;
2. Rescinding the June 24, 1994 Deed of Sale between Ortigas and
Company Limited Partnership and Amethyst Pearl Corporation in
view of the material breached (sic) thereof by AMETHYST;
3. Ordering ASB Realty Corporation, by way of mutual restitution,
the RECONVEYANCE to ORTIGAS of the subject property covered
by TCT No. PT-105797 upon payment by ORTIGAS to ASB of the
amount of Two Million Twenty Four Thousand Pesos (PhP
2,024,000.00) plus legal interest at the rate of 6% per annum from
the time of the finality of this judgment until the same shall have
been fully paid; and
4. Ordering the Register of Deeds of Pasig City to cancel TCT No.
PT-105797 and issue a new title over the subject property under
the name of ORTIGAS & COMPANY LIMITED PARTNERSHIP.
No pronouncement as to cost.
SO ORDERED.2
The petitioner also assails the resolution promulgated on July 26,
2012,3 whereby the CA denied its Motion for Reconsideration.
Antecedents
On June 29, 1994, respondent Ortigas & Company Limited
Partnership (Ortigas) entered into a Deed of Sale with Amethyst
Pearl Corporation (Amethyst) involving the parcel of land with an
area of 1,012 square meters situated in Barrio Oranbo, Pasig City
and registered under Transfer Certificate of Title (TCT) No. 65118
of the Register of Deeds of Rizal4 for the consideration of
P2,024,000.00. The Deed of Sale5 contained the following
stipulations, among others:
COVENANTS, CONDITIONS AND RESTRICTIONS
This lot has been segregated by ORTIGAS from its subdivisions to
form part of a zonified BUILDING AREA pursuant to its controlled
real estate development project and subdivision scheme, and is
subject to the following covenants which form part of the
consideration of ORTIGAS' sale to VENDEE and its assigns,
namely:chanRoblesvirtualLawlibrary
xxxx
B. BUILDING WORKS AND ARCHITECTURE:
1. The building to be constructed on the lot shall be of reinforced
concrete, cement hollow blocks and other high-quality materials
and shall be of the following height of not more than: fourteen
(14) storeys plus one penthouse.
xxxx
L. SUBMISSION OF PLANS:
The final plans and specifications of the said building shall be
submitted to ORTIGAS for approval not later than six (6) months
from date hereof. Should ORTIGAS object to the same, it shall
notify and specify to the VENDEE in writing the amendments
required to conform with its building restrictions and VENDEE
shall submit the amended plans within sixty (60) days from receipt
of said notice.
M. CONSTRUCTION AND COMPLETION OF BUILDING:
The VENDEE shall finish construction of its building within four (4)
years from December 31, 1991.6ChanRoblesVirtualawlibrary
As a result, the Register of Deeds of Rizal cancelled TCT No. 65118
and issued TCT No. PT-94175 in the name of Amethyst.7 The
conditions contained in the Deed of Sale were also annotated on
TCT No. PT-94175 as encumbrances.8
On December 28, 1996, Amethyst assigned the subject property
to its sole stockholder, petitioner ASB Realty Corporation (the
petitioner), under a so-called Deed of Assignment in Liquidation in
consideration of 10,000 shares of the petitioner's outstanding
capital stock.9 Thus, the property was transferred to the petitioner
free from any liens or encumbrances except those duly annotated
on TCT No. PT-94175.10 The Register of Deeds of Rizal cancelled
TCT No. PT-94175 and issued TCT No. PT-105797 in the name of
the petitioner with the same encumbrances annotated on TCT No.
PT-94175.11
On July 7, 2000, Ortigas filed its complaint for specific
performance against the petitioner,12 which was docketed as Civil
Case No. 67978 of the Regional Trial Court (RTC) in Pasig
City.13 Ortigas amended the complaint, and alleged,14 among
others, that:
5. Defendant has violated the terms of the Deed of Absolute Sale
(Annex "A") in the following manner:
a. While the lot may be used only "for office and residential
purposes", defendant introduced constructions on the property
which are commercial in nature, like restaurants, retail stores and
the like (see par. A, Deed of Absolute Sale, Annex "A").
b. The commercial structures constructed by defendant on the
property extend up to the boundary lines of the lot in question
violating the setbacks established in the contract (see par. B.A.,
ibid).
c. Defendant likewise failed to submit the final plans and
specifications of its proposed building not later than six (6)
months from June 29, 1994 and to complete construction of the
same within four (4) years from December 31, 1991. (see pars. L
and M, ibid).
d. Being situated in a first-class office building area, it was agreed
that no advertisements or any kind of commercial signs shall be
allowed on the lot or the improvements therein but this was
violated by defendant when it put up commercial signs and
advertisements all over the area, (see par. F, ibid).
6. Any of the afore-described violations committed by the
defendant empower the plaintiff to sue under parangraph "N.
Unilateral Cancellation", plaintiff may have the Deed of Absolute
Sale (Annex "A") cancelled and the property reverted to it by
paying the defendant the amount it has paid less the items
indicated therein.15ChanRoblesVirtualawlibrary
For reliefs, Ortigas prayed for the reconveyance of the subject
property, or, alternatively, for the demolition of the structures
and improvements thereon, plus the payment of penalties,
attorney's fees and costs of suit.16
During the pendency of the proceedings in the RTC, the petitioner
amended its Articles of Incorporation to change its name to St.
Francis Square Realty Corporation.17
After trial on the merits, the RTC rendered its decision on
December 14, 2009,18 and dismissed the complaint, pertinently
holding as follows:
Ortigas sold the property [to] Amethyst on 29 June 1994.
Amethyst was supposed to finish construction on 31 December
1995. Yet, up to the time the property was transferred to ASB on
28 December 1996, Ortigas never initiated any action against
Amethyst to enforce said provision. Ortigas is therefore guilty of
laches or negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned it or declined to assert it. (Tijam
v. Sibonghanoy, L-21450, 15 April 1968, 23 SCRA 29).
It is worth mentioning that the restrictions annotated in TCT No.
94175 (in the name of Amethyst Pearl Corporation) and TCT No.
PT-105797 (in the name of ASB) repeatedly and consistently refer
to the VENDEE. The term VENDEE in the said restrictions obviously
refer to Amethyst Pearls Corporation considering the fact that the
date referred to in Paragraph N thereof (Construction and
Completion of Building), which is four (4) years from December
31, 1991, obviously refer to the plaintiffs VENDEE Amethyst Pearl
Corporation. Definitely, it cannot refer to the defendant ASB
which is not a vendee of the plaintiff. Therefore, all references to
VENDEE in the restrictions evidently refer to Amethyst Pearl
Corporation, the VENDEE in the sale from the plaintiff. Such
explanation is more consistent with logic than the plaintiffs
convoluted assertions that the said restrictions apply to the
defendant ASB.
Reconveyance of the property to Ortigas necessarily implies
rescission of the sale or transfer from Amethyst to ASB and from
Ortigas to Amethyst. But Amethyst was not made a party to the
case. Reconveyance of the property to the original seller (Ortigas)
applies only on the sale to the original vendee (Amethyst) and not
to subsequent vendees to whom the property was sold (Ayala
Corp. v. Rosa Diana Realty and Dev. Corp., G.R. No. 134284, Dec.
1, 2000, 346 SCRA 663).
The non-compliance by the plaintiff with the requisites of its own
restrictions further proves that it had no intention whatsoever to
enforce or implement the same. If at all, this evinces an
afterthought of the plaintiff to belatedly and unjustifiably single
out the defendant for alleged non compliance of the said
restrictions which are not applicable to it anyway.
WHEREFORE, foregoing premises considered, the present
complaint is hereby dismissed for lack of basis.
SO ORDERED.19ChanRoblesVirtualawlibrary
Ortigas appealed to the CA, which initially affirmed the RTC under
the decision promulgated on September 6, 2011,20 ruling thusly:
x x x x ORTIGAS can no longer enforce the said restrictions as
against ASB.
The "Covenants, Conditions and Restrictions" of ORTIGAS with
respect to the property clearly states the following purpose:
"This lot has been segregated by ORTIGAS from its subdivisions to
form part of a zonified BUILDING AREA pursuant to its controlled
real estate development project and subdivision scheme. x x x"
However, it appears from the circumstances obtaining in this case
that ORTIGAS failed to pursue the aforequoted purpose. It never
filed a complaint against its vendee, AMETHYST, notwithstanding
that it required the latter to complete construction of the building
within four (4) years from the execution of the Deed of Sale.
Neither did it make a demand to enforce the subject restriction.
Moreover, while it imposed a restriction on the registration and
issuance of title in the name of the vendee under Paragraph
"P" on "Registration of Sale", to wit:chanRoblesvirtualLawlibrary
"P. REGISTRATION OF SALE:
The VENDEE hereby agrees that, for the time being, this Deed will
not be registered and that its title shall not be issued until the
satisfactory construction of the contemplated Office Building and
VENDEE's compliance with all conditions therein. x x x"
AMETHYST was nonetheless able to procure the title to the
property in its name, and subsequently, assigned the same to
ASB.
Besides, records show that there are registered owner-
corporations of several properties within the Ortigas area, where
the subject property is located, that have likewise failed to comply
with the restriction on building construction notwithstanding the
fact of its annotation on the titles covering their properties. In
fact, the tax declarations covering these properties in the
respective names of UNIMART INC., CHAILEASE DEVELOPMENT
CO. INC., CANOGA PARK DEVELOPMENT CORPORATION, and
MAKATI SUPERMARKET CORPORATION reveal that no
improvements or buildings have been erected thereon.
Notwithstanding such blatant non-compliance, however, records
are bereft of evidence to prove that ORTIGAS took steps to
demand observance of the said restriction from these
corporations, or that it opted to institute any case against them in
order to enforce its rights as seller. Thus, while ORTIGAS
effectively tolerated the non-compliance of these other
corporations, it nonetheless proceeded with the filing of the
Complaint a quo against ASB, seeking the rescission of the
original Deed of Sale on the ground of non-compliance of the very
same restriction being violated by other property owners similarly
situated.
On the basis of the foregoing acts or omissions of ORTIGAS, and
the factual milieu of the present case, it cannot be pretended that
it failed to actively pursue the attainment of its objective of having
a "controlled real estate development project and subdivision
scheme". The Court thus concurs with the ratiocinations of the
RTC when it posited that the restrictions imposed by ORTIGAS on
ASB have been "rendered obsolete and inexistent" for failure of
ORTIGAS to enforce the same uniformly and
indiscriminately against all non-complying property owners. If the
purpose of ORTIGAS for imposing the restrictions was for its
"controlled real estate development project and subdivision
scheme", then it should have sought compliance from all property
owners that have violated the restriction on building completion.
As things stand, ASB would appear to have been singled out by
ORTIGAS, rendering the present action highly suspect and a mere
afterthought.
Consequently, while it may be true that ASB was bound by the
restrictions annotated on its title, specifically the restriction on
building completion, ORTIGAS is now effectively estopped from
enforcing the same by virtue of its inaction and silence.
xxxx
In this case, ORTIGAS acquiesced to the conveyance of the
property from AMETHYST to ASB with nary a demand, reservation
or complaint for the enforcement of the restriction on building
construction. It allowed the four-year period within which to
construct a building to lapse before it decided that it wanted,
after all, to enforce the restriction, which cannot be allowed lest
the property rights of the registered owner, ASB, be transgressed.
Such a silence or inaction, which in effect led ASB to believe that
ORTIGAS no longer sought the enforcement of the restrictions on
the contract, therefore bars ORTIGAS from enforcing the
restriction it imposed on the subject property.
xxxx
WHEREFORE, premises considered, the instant appeal is DENIED.
The assailed Decision is hereby AFFIRMED.
SO ORDERED.21ChanRoblesVirtualawlibrary
Acting on Ortigas' Motion for Reconsideration, however, the CA
promulgated its assailed amended decision on January 9,
2012,22 whereby it reversed the decision promulgated on
September 6, 2011. It observed and ruled as follows:
It is not disputed that AMETHYST failed to finish construction
within the period stated in the 1994 Deed of Sale. As correctly
pointed out by ORTIGAS, in accordance with Article 1144 of the
Civil Code, the prescriptive period within which to enforce
remedies under the 1994 Deed of sale is ten (10) years from the
time the right of action accrues.
ORTIGAS, therefore, had ten (10) years from 31 December 1995
or until 31 December 2005 within which to file suit to enforce the
restriction. ORTIGAS filed the present complaint on 07 July 2000
well within the prescriptive period for filing the same.
ASB contends that it could not have complied with the particular
restriction to finish construction of the building as the period to
finish the same had already lapsed by the time ASB acquired the
property by way of a Deed of Assignment in Liquidation between
AMETHYST and ASB on 28 December 1996. We hold, however,
that the mere assignment or transfer of the subject property
from AMETHYST to ASB does not serve to defeat the vested right
of ORTIGAS to avail of remedies to enforce the subject restriction
within the applicable prescriptive period.
xxxx
As to the argument that the inaction of ORTIGAS with respect to
other non-compliant properties in the Ortigas area is tantamount
to consenting to such non-compliance, it must be mentioned that
it is the sole prerogative and discretion of Ortigas to initiate any
action against the violators of the deed restrictions. This Court
cannot interfere with the exercise of such prerogative/discretion.
Furthermore, We cannot sustain estoppel in doubtful inference.
Absent the conclusive proof that its essential elements are
present, estoppel must fail. Estoppel, when misapplied, becomes
an effective weapon to accomplish an injustice, inasmuch as it
shuts a man's mouth from speaking the
truth.23ChanRoblesVirtualawlibrary
By its resolution promulgated on July 26, 2012, the CA denied the
petitioner's Motion for Reconsideration24 for being filed out of
time.25cralawred
Issues
Hence, this appeal in which ASB submits: (1) that its Motion for
Reconsideration vis-a-vis the CA's amended decision was filed on
time; and (2) that the amended decision promulgated on January
9, 2012 by CA be reversed and set aside, and the decision
promulgated on September 6, 2011 be reinstated.26
The petitioner essentially seeks the resolution of the issue of
whether or not Ortigas validly rescinded the Deed of Sale due to
the failure of Amethyst and its assignee, the petitioner, to fulfil
the covenants under the Deed of Sale.
Ruling of the Court
The petition for review is meritorious.
1.
Petitioner's motion for reconsideration vis-a-vis the amended
decision of the CA was timely filed
In denying the petitioner's Motion for Reconsideration, the CA
concluded as follows:
Per allegation of material dates, the Motion for Reconsideration
filed by Balgos Gumara & Jalandoni, co-counsel with Jose,
Mendoza & Associates, on January 30, 2012 appears to have been
filed on time. However, per registry return attached at the back of
p. 212 of the Rollo, the Motion for Reconsideration was filed three
(3) days late considering that the Amended Decision was received
by defendant appellee's counsel of record, Jose, Mendoza &
Associates, on January 12, 2012.27ChanRoblesVirtualawlibrary
The conclusion of the CA was unwarranted because the petitioner
established that its filing of the Motion for Reconsideration was
timely.
It is basic that the party who asserts a fact or the affirmative of an
issue has the burden of proving it.28 Here, that party was the
petitioner. To comply with its burden, it attached to its petition
for review on certiorari: (1) the affidavit executed by Noel S.R.
Rose, Senior Partner of Jose, Mendoza & Associates attesting that
he had requested the postmaster of the Mandaluyong City Post
Office to certify the date when Jose, Mendoza & Associates had
received the copy of the amended decision of the CA;29 and (2)
the certification issued on August 15, 2012 by Postmaster Rufino
C. Robles, and Letter Carrier, Jojo Salvador, both of the
Mandaluyong Central Post Office, certifying that Registered Letter
No. MVC 457 containing the copy of the amended decision had
been delivered to and received on January 18, 2012 by Jose,
Mendoza & Associates, through Ric Ancheta.30 It thereby sought
to prove that it had received the copy of the amended decision
only on January 18, 2012, not January 12, 2012 as stated in the
registry return card on record. Thus, it had until February 2, 2012,
or 15 days from January 18, 2012, within which to file the same. In
contrast, Ortigas relied only on the copy of the registry return to
refute the petitioner's assertion.31 Under the circumstances, the
filing on January 30, 2012 of the Motion for Reconsideration was
timely.
2.
Ortigas' action for rescission could not prosper
The petitioner reiterates that although the restrictions and
covenants imposed by Ortigas under the Deed of Sale with
Amethyst, particularly with regard to the construction of the
building, were similarly imposed on Ortigas' other buyers and
annotated on the latter's respective certificates of title,32 Ortigas
never took to task such other buyers and Amethyst for failing to
construct the buildings within the periods contractually
imposed.33 It maintains, therefore, that Ortigas slept on its rights
because it did not take any action against Amethyst during the
period prescribed in the Deed of Sale.34 It argues that even
assuming that it was bound by the terms of the Deed of Sale,
certain circumstances occurred in the interim that rendered it
impossible for the petitioner to comply with the covenants
embodied in the Deed of Sale, namely: (1) the delay in the
petitioner's possession of the property resulted from the
complaint for forcible entry it had filed in the Metropolitan Trial
Court in Pasig City; (2) at the time the property was transferred to
the petitioner, the period within which to construct the building
had already expired without Ortigas enforcing the obligation
against Amethyst; and (3) the petitioner was placed under
corporate rehabilitation by the Securities and Exchange
Commission (SEC) by virtue of which a stay order was issued on
May 4, 2000.35
In contrast, Ortigas contends that it had the sole discretion
whether or not to commence any action against a party who
violated a restriction in the Deed of Sale;36 and that it could not be
estopped because the Deed of Sale with Amethyst and the deeds
of sale with its other buyers contained a uniform provision to the
effect that "any inaction, delay or tolerance by OCLP (Ortigas) in
respect to violation of any of the covenants and restrictions
committed by these buyers shall not bar or estop the institution of
an action to enforce them."37
In asserting its right to rescind, Ortigas insists that the petitioner
was bound by the covenants of the Deed of Sale annotated on TCT
No. PT-10597 in the name of the petitioner;38 and that the
petitioner's privity to the Deed of Sale was by virtue of its being
the successor-in-interest or assignee of Amethyst.39
After evaluating the parties' arguments and the records of the
case, the Court holds that Ortigas could not validly demand the
reconveyance of the property, or the demolition of the structures
thereon through rescission.
The Deed of Assignment in Liquidation executed between
Amethyst and the petitioner expressly stated, in part, that:
x x x x [T]he ASSIGNOR hereby assigns, transfers and conveys
unto the ASSIGNEE, its successors and assigns, free from any lien
or encumbrance except those that are duly annotated on the
Transfer Certificate of Title (TCT), one parcel of real property
(with improvements). x x x.
xxxx
The ASSIGNEE in turn in consideration of the
foregoing assignment of assets to it, hereby surrenders to
ASSIGNOR, Amethyst Pearl Corporation, Stock Certificate Nos.
(006, 007, 008, 009, 010, 011), covering a total of TEN THOUSAND
SHARES (10,000) registered in the name of the ASSIGNEE and its
nominees in the books of ASSIGNOR, receipt of which is hereby
acknowledged, and in addition hereby releases ASSIGNOR from
any and all claims.40ChanRoblesVirtualawlibrary
The express terms of the Deed of Assignment in Liquidation,
supra, indicate that Amethyst transferred to the petitioner only
the tangible asset consisting of the parcel of land covered by TCT
No. PT-94175 registered in the name of Amethyst. By no means
did Amethyst assign the rights or duties it had assumed under
the Deed of Sale. The petitioner thus became vested with the
ownership of the parcel of land "free from any lien or
encumbrance except those that are duly annotated on the [title]"
from the time Amethyst executed the Deed of Assignment in
Liquidation.
Although the Deed of Sale stipulated that:
3. The lot, together with any improvements thereon, or any rights
thereto, shall not be transferred, sold or encumbered before the
final completion of the building as herein provided unless it is with
the prior express written approval of ORTIGAS. 41
xxxx
The VENDEE hereby agrees that, for the time being, this Deed will
not be registered and that its title shall not be issued until the
satisfactory construction of the contemplated Office Building and
VENDEE's compliance with all conditions herein. x x
x42ChanRoblesVirtualawlibrary
Ortigas apparently recognized without any reservation the
issuance of the new certificate of title in the name of Amethyst
and the subsequent transfer by assignment from Amethyst to the
petitioner that resulted in the issuance of the new certificate of
title under the name of the petitioner. As such, Ortigas was
estopped from assailing the petitioner's acquisition and
ownership of the property.
The application of estoppel was appropriate. The doctrine of
estoppel was based on public policy, fair dealing, good faith and
justice, and its purpose was to forbid a party to speak against his
own act or omission, representation, or commitment to the injury
of another to whom the act, omission, representation, or
commitment was directed and who reasonably relied thereon.
The doctrine sprang from equitable principles and the equities in
the case, and was designed to aid the law in the administration of
justice where without its aid injustice would result. Estoppel has
been applied by the Court wherever and whenever special
circumstances of the case so demanded.43
Yet, the query that persists is whether or not the covenants
annotated on TCT No. PT-10597 bound the petitioner to the
performance of the obligations assumed by Amethyst under
the Deed of Sale.
We agree with Ortigas that the annotations on TCT No. PT-10597
bound the petitioner but not to the extent that rendered the
petitioner liable for the non-performance of the covenants
stipulated in the Deed of Sale.
Section 39 of Act No. 496 (The Land Registration Act) requires that
every person receiving a certificate of title in pursuance of a
decree of registration, and every subsequent purchaser of
registered land who takes a certificate of title for value in good
faith shall hold the same free of all encumbrances except those
noted on said certificate. An encumbrance in the context of the
provision is "anything that impairs the use or transfer of property;
anything which constitutes a burden on the title; a burden or
charge upon property; a claim or lien upon property."44 It denotes
"any right to, or interest in, land which may subsist in another to
the diminution of its value, but consistent with the passing of the
fee by conveyance."45 An annotation, on the other hand, is "a
remark, note, case summary, or commentary on some passage of
a book, statutory provision, court decision, of the like, intended to
illustrate or explain its meaning."46 The purpose of the annotation
is to charge the purchaser or title holder with notice of such
burden and claims.47 Being aware of the annotation, the
purchaser must face the possibility that the title or the real
property could be subject to the rights of third parties.48
By acquiring the parcel of land with notice of the covenants
contained in the Deed of Sale between the vendor (Ortigas) and
the vendee (Amethyst), the petitioner bound itself to
acknowledge and respect the encumbrance. Even so, the
petitioner did not step into the shoes of Amethyst as a party in
the Deed of Sale. Thus, the annotation of the covenants contained
in the Deed of Sale did not give rise to a liability on the part of the
petitioner as the purchaser/successor-in-interest without its
express assumption of the duties or obligations subject of the
annotation. As stated, the annotation was only the notice to the
purchaser/successor-in-interest of the burden, claim or lien
subject of the annotation. In that respect, the Court has observed
in Garcia v. Villar:49
The sale or transfer of the mortgaged property cannot affect or
release the mortgage; thus the purchaser or transferee is
necessarily bound to acknowledge and respect the encumbrance.
xxxx
x x x However, Villar, in buying the subject property with notice
that it was mortgaged, only undertook to pay such mortgage or
allow the subject property to be sold upon failure of the mortgage
creditor to obtain payment from the principal debtor once the
debt matures. Villar did not obligate herself to replace the debtor
in the principal obligation, and could not do so in law without the
creditors consent. Article 1293 of the Civil Code provides:
Art. 1293. Novation which consists in substituting a new debtor in
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237.
Therefore, the obligation to pay the mortgage indebtedness
remains with the original debtors Galas and Pingol. x x x
To be clear, contractual obligations, unlike contractual rights or
benefits, are generally not assignable. But there are recognized
means by which obligations may be transferred, such as by sub-
contract and novation. In this case, the substitution of the
petitioner in the place of Amethyst did not result in the novation
of the Deed of Sale. To start with, it does not appear from the
records that the consent of Ortigas to the substitution had been
obtained despite its essentiality to the novation. Secondly, the
petitioner did not expressly assume Amethyst's obligations under
the Deed of Sale, whether through the Deed of Assignment in
Liquidation or another document. And, thirdly, the consent of the
new obligor (i.e., the petitioner), which was as essential to the
novation as that of the obligee (i.e., Ortigas), was not obtained.50
Even if we would regard the petitioner as the assignee of
Amethyst as far as the Deed of Sale was concerned, instead of
being the buyer only of the subject property, there would still be
no express or implied indication that the petitioner had assumed
Amethyst's obligations. In short, the burden to perform the
covenants under the Deed of Sale, or the liability for the non-
performance thereof, remained with Amethyst. As held in an
American case:
The mere assignment of a bilateral executory contract may not be
interpreted as a promise by the assignee to the assignor to
assume the performance of the assignor's duties, so as to have
the effect of creating a new liability on the part of the assignee to
the other party to the contract assigned. The assignee of the
vendee is under no personal engagement to the vendor where
there is no privity between them. (Champion v. Brown, 6 Johns.
Ch. 398; Anderson v. N. Y. & H. R. R. Co., 132 App. Div. 183, 187,
188; Hugel v. Habel, 132 App. Div. 327, 328.) The assignee may,
however, expressly or impliedly, bind himself to perform the
assignor's duties. This he may do by contract with the assignor or
with the other party to the contract. It has been held (Epstein v.
Gluckin, 233 N. Y. 490) that where the assignee of the vendee
invokes the aid of a court of equity in an action for specific
performance, he impliedly binds himself to perform on his part
and subjects himself to the conditions of the judgment
appropriate thereto. "He who seeks equity must do equity." The
converse of the proposition, that the assignee of the vendee
would be bound when the vendor began the action, did not follow
from the decision in that case. On the contrary, the question was
wholly one of remedy rather than right and it was held that
mutuality of remedy is important only so far as its presence is
essential to the attainment of the ends of justice. This holding was
necessary to sustain the decision. No change was made in the law
of contracts nor in the rule for the interpretation of an assignment
of a contract.
A judgment requiring the assignee of the vendee to perform at
the suit of the vendor would operate as the imposition of a new
liability on the assignee which would be an act of oppression and
injustice, unless the assignee had, expressly or by implication,
entered into a personal and binding contract with the assignor or
with the vendor to assume the obligations of the
assignor.51ChanRoblesVirtualawlibrary
Is rescission the proper remedy for Ortigas to recover the subject
property from the petitioner?
The Civil Code uses rescission in two different contexts, namely:
(1) rescission on account of breach of contract under Article 1191;
and (2) rescission by reason of lesion or economic prejudice under
Article 1381. Cogently explaining the differences between the
contexts of rescission in his concurring opinion in Universal Food
Corp. v. Court of Appeals,52 the eminent Justice J.B.L. Reyes
observed:
x x x The rescission on account of breach of stipulations is not
predicated on injury to economic interests of the party plaintiff
but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing anywhere that
the action for rescission thereunder is subordinated to anything;
other than the culpable breach of his obligations by the
defendant. This rescission is in principal action retaliatory in
character, it being unjust that a party be held bound to fulfill his
promises when the other violates his, as expressed in the old Latin
aphorism: "Non servanti fidem, non est fides servanda." Hence,
the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic
prejudice, the cause of action is subordinated to the existence of
that prejudice, because it is the raison d'etre as well as the
measure of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383
and 1384. But the operation of these two articles is limited to the
cases of rescission for lesion enumerated in Article 1381 of the
Civil Code of the Philippines, and does not apply to cases under
Article 1191.
Based on the foregoing, Ortigas' complaint was predicated on
Article 1191 of the Civil Code, which provides:
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
Rescission under Article 1191 of the Civil Code is proper if one of
the parties to the contract commits a substantial breach of its
provisions. It abrogates the contract from its inception and
requires the mutual restitution of the benefits received;53 hence,
it can be carried out only when the party who demands rescission
can return whatever he may be obliged to restore.
Considering the foregoing, Ortigas did not have a cause of action
against the petitioner for the rescission of the Deed of Sale. Under
Section 2, Rule 2 of the Rules of Court, a cause of action is the act
or omission by which a party violates a right of another. The
essential elements of a cause of action are: (1) a right in favor of
the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the defendant not to
violate such right; and (3) an act or omission on the part of the
defendant in violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff for which
the latter may maintain an action for recovery of damages or
other relief. It is only upon the occurrence of the last element that
the cause of action arises, giving the plaintiff the right to file an
action in court for the recovery of damages or other relief. 54
The second and third elements were absent herein. The petitioner
was not privy to the Deed of Sale because it was not the party
obliged thereon. Not having come under the duty not to violate
any covenant in the Deed of Sale when it purchased the subject
property despite the annotation on the title, its failure to comply
with the covenants in the Deed of Sale did not constitute a breach
of contract that gave rise to Ortigas' right of rescission. It was
rather Amethyst that defaulted on the covenants under the Deed
of Sale; hence, the action to enforce the provisions of the contract
or to rescind the contract should be against Amethyst. In other
words, rescission could not anymore take place against the
petitioner once the subject property legally came into the juridical
possession of the petitioner, who was a third party to the Deed of
Sale.55
In view of the outcome, we consider to be superfluous any
discussion of the other matters raised in the petition, like the
effects of the petitioner's corporate rehabilitation and whether
Ortigas was guilty of laches.
WHEREFORE, the Court GRANTS the petition for review
on certiorari; ANNULS and REVERSES the amended decision
promulgated on January 9, 2012 and the resolution promulgated
on July 26, 2012 by the Court of Appeals in C.A.-G.R. CV No.
94997; DISMISSES Civil Case No. 67978 for lack of cause of action;
and ORDERS respondent ORTIGAS & COMPANY LIMITED
PARTNERSHIP to pay the costs of suit.
SO ORDERED.c