1. G.R. No.

181206               October 9, 2009

MEGAWORLD GLOBUS ASIA, INC., Petitioner,

vs.
MILA S. TANSECO, Respondent.

DECISION

CARPIO MORALES, J.:

On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a
Contract to Buy and Sell1 a 224 square-meter (more or less) condominium unit at a pre-selling project, "The Salcedo Park," located
along Senator Gil Puyat Avenue, Makati City.

The purchase price was ₱16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of ₱100,000, or ₱4,940,611.19, by
postdated check payable on July 14, 1995; (2) ₱9,241,120.50 through 30 equal monthly installments of ₱308,037.35 from August 14,
1995 to January 14, 1998; and (3) the balance of ₱2,520,305.63 on October 31, 1998, the stipulated delivery date of the unit; provided
that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover.

Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows:

4. CONSTRUCTION SCHEDULE – The construction of the Project and the unit/s herein purchased shall be completed and delivered
not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the
unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances,
government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third
person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are
deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the
right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this contract if for
any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup
de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it can only be completed at a
financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the SELLER. (Underscoring
supplied)

Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of ₱2,520,305.63 pending delivery of the
unit.2 Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of
the six-month grace period.

A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was
ready for inspection preparatory to delivery.3 Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld’s
failure to deliver the unit on time, she was demanding the return of ₱14,281,731.70 representing the total installment payment she had
made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that none
of the excepted causes of delay existed.4

Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use Regulatory Board’s (HLURB)
Expanded National Capital Region Field Office a complaint against Megaworld for rescission of contract, refund of payment, and
damages.5

In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default
had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of turnover.6

By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tanseco’s complaint for lack of cause of action, finding that Megaworld
had effected delivery by the notice of turnover before Tanseco made a demand. Tanseco was thereupon ordered to pay Megaworld the
balance of the purchase price, plus ₱25,000 as moral damages, ₱25,000 as exemplary damages, and ₱25,000 as attorney’s fees.

On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28, 2003,8 sustained the HLURB Arbiter’s
Decision on the ground of laches for failure to demand rescission when the right thereto accrued. It deleted the award of damages,
however. Tanseco’s Motion for Reconsideration having been denied,9 she appealed to the Office of the President which dismissed the
appeal by Decision of April 28, 200610 for failure to show that the findings of the HLURB were tainted with grave abuse of discretion.
Her Motion for Reconsideration having been denied by Resolution dated August 30, 2006,11 Tanseco filed a Petition for Review under
Rule 43 with the Court of Appeals.12

By Decision of September 28, 2007,13 the appellate court granted Tanseco’s petition, disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May 28, 2003 decision of the HLURB Field Office,
the November 28, 2003 decision of the HLURB Board of Commissioners in HLURB Case No. REM-A-030711-0162, the April 28, 2006
Decision and August 30, 2006 Resolution of the Office of the President in O.P. Case No. 05-I-318, are hereby REVERSED and SET
ASIDE and a new one entered: (1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the contract to buy and sell;
(2) DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid totaling P14,281,731.70 with Twelve (12%) Percent
interest per annum from October 31, 1998; (3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by way of exemplary
damages; (4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorney’s fees; and (5) ORDERING MEGAWORLD TO
PAY TANSECO the cost of suit. (Emphasis in the original; underscoring supplied)

The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in
default if the contract, as in the herein parties’ contract, states the date when the obligation should be performed; that time was of the
essence because Tanseco relied on Megaworld’s promise of timely delivery when she agreed to part with her money; that the delay
should be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April 30, 1999 alternative
date; and that specific performance could not be ordered in lieu of rescission as the right to choose the remedy belongs to the
aggrieved party.

The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of Megaworld in forcing her to accept its
long-delayed delivery; and attorney’s fees, she having been compelled to sue to protect her rights.

Its Motion for Reconsideration having been denied by Resolution of January 8, 2008,14 Megaworld filed the present Petition for Review
on Certiorari, echoing its position before the HLURB, adding that Tanseco had not shown any basis for the award of damages and
attorney’s fees.15

Tanseco, on the other hand, maintained her position too, and citing Megaworld’s bad faith which became evident when it insisted on
making the delivery despite the long delay,16 insisted that she deserved the award of damages and attorney’s fees.

Article 1169 of the Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is
to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Underscoring
supplied)

The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on
October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time
of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her
obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable
therefor.17

That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand for refund does not abate her cause. For demand would
have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date.

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.18

The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A
real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and
currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an
everyday occurrence, hence, not an instance of caso fortuito.19 Megaworld’s excuse for its delay does not thus lie.
As for Megaworld’s argument that Tanseco’s claim is considered barred by laches on account of her belated demand, it does not lie
too. Laches is a creation of equity and its application is controlled by equitable considerations.20 It bears noting that Tanseco religiously
paid all the installments due up to January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A
circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco.

Pursuant to Section 23 of Presidential Decree No. 95721 which reads:

Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or condominium project for the lot or
unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency
interests, with interest thereon at the legal rate. (Emphasis and underscoring supplied),

Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld.

While the appellate court correctly awarded ₱14,281,731.70 then, the interest rate should, however, be 6% per annum accruing from
the date of demand on May 6, 2002, and then 12% per annum from the time this judgment becomes final and executory, conformably
with Eastern Shipping Lines, Inc. v. Court of Appeals.22

The award of ₱200,000 attorney’s fees and of costs of suit is in order too, the parties having stipulated in the Contract to Buy and Sell
that these shall be borne by the losing party in a suit based thereon,23 not to mention that Tanseco was compelled to retain the services
of counsel to protect her interest. And so is the award of exemplary damages. With pre-selling ventures mushrooming in the metropolis,
there is an increasing need to correct the insidious practice of real estate companies of proffering all sorts of empty promises to entice
innocent buyers and ensure the profitability of their projects.

The Court finds the appellate court’s award of ₱200,000 as exemplary damages excessive, however. Exemplary damages are imposed
not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious
actions.24 The Court finds that ₱100,000 is reasonable in this case.

Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and sell, the suspensive condition of full payment of the
purchase price not having occurred to trigger the obligation to convey title, cancellation, not rescission, of the contract is thus the
correct remedy in the premises.26

WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing, AFFIRMED with MODIFICATION.

As modified, the dispositive portion of the Decision reads:

The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner, Megaworld Globus Asia, Inc., is directed to pay
respondent, Mila S. Tanseco, the amount of ₱14,281,731.70, to bear 6% interest per annum starting May 6, 2002 and 12% interest per
annum from the time the judgment becomes final and executory; and to pay ₱200,000 attorney’s fees, ₱100,000 exemplary damages,
and costs of suit.

Costs against petitioner.

SO ORDERED.
2. G.R. No. 185798               January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,

vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil Procedure assailing the Decision1 of the
Court of Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of the Office of the President in O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-petitioner Fil-Estate Network,
Inc. is its authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-
square meter condominium unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of FIVE MILLION ONE
HUNDRED SEVENTY-FOUR THOUSAND ONLY (₱5,174,000.00). On 29 August 1997, respondents executed and signed a
Reservation Application Agreement wherein they deposited ₱200,000.00 as reservation fee. As agreed upon, respondents paid the full
downpayment of ₱1,552,200.00 and had been paying the ₱63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization. Claiming to have
paid a total of ₱2,198,949.96 to petitioners, respondents through two (2) successive letters, demanded a full refund of their payment
with interest. When their demands went unheeded, respondents were constrained to file a Complaint for Refund and Damages before
the Housing and Land Use Regulatory Board (HLURB). Respondents prayed for reimbursement/refund of ₱2,198,949.96 representing
the total amortization payments, ₱200,000.00 as and by way of moral damages, attorney’s fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their Answer within the reglementary
period despite service of summons.2

Petitioners filed a motion to lift order of default and attached their position paper attributing the delay in construction to the 1997 Asian
financial crisis. Petitioners denied committing fraud or misrepresentation which could entitle respondents to an award of moral
damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering petitioners to jointly and severally
pay respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED FORTY NINE PESOS &
96/100 (₱2,198,949.96) with interest thereon at twelve percent (12%) per annum to be computed from the time of the
complainants’ demand for refund on October 08, 1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable to this Office fifteen (15) days upon receipt of this
decision, for violation of Section 20 in relation to Section 38 of PD 957.3

The Arbiter considered petitioners’ failure to develop the condominium project as a substantial breach of their obligation which entitles
respondents to seek for rescission with payment of damages. The Arbiter also stated that mere economic hardship is not an excuse for
contractual and legal delay.

Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule XII of the 1996 Rules of Procedure of HLURB.
On 17 February 2005, the Board of Commissioners of the HLURB denied4 the petition and affirmed the Arbiter’s Decision. The HLURB
reiterated that the depreciation of the peso as a result of the Asian financial crisis is not a fortuitous event which will exempt petitioners
from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter, petitioners filed a Notice of Appeal with the
Office of the President. On 18 April 2007, petitioners’ appeal was dismissed6 by the Office of the President for lack of merit. Petitioners
moved for a reconsideration but their motion was denied7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43 containing the same arguments they
raised before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HONORABLE HOUSING AND
LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-APPELLEES
THE SUM OF ₱2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING THAT THE
COMPLAINT STATES NO CAUSE OF ACTION AGAINST PETITIONERS-APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE OFFICE BELOW ORDERING
PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES THE SUM OF ₱100,000.00 AS MORAL DAMAGES AND
₱50,000.00 AS ATTORNEY’S FEES CONSIDERING THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS THEREFOR.

III.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HOUSING AND LAND USE
REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO PAY ₱10,000.00 AS ADMINISTRATIVE FINE IN THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING. 8

On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate court echoed the HLURB Arbiter’s
ruling that "a buyer for a condominium/subdivision unit/lot unit which has not been developed in accordance with the approved
condominium/subdivision plan within the time limit for complying with said developmental requirement may opt for reimbursement under
Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate court supported the HLURB Arbiter’s
conclusion, which was affirmed by the HLURB Board of Commission and the Office of the President, that petitioners’ failure to develop
the condominium project is tantamount to a substantial breach which warrants a refund of the total amount paid, including interest. The
appellate court pointed out that petitioners failed to prove that the Asian financial crisis constitutes a fortuitous event which could
excuse them from the performance of their contractual and statutory obligations. The appellate court also affirmed the award of moral
damages in light of petitioners’ unjustified refusal to satisfy respondents’ claim and the legality of the administrative fine, as provided in
Section 20 of Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by the Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:

A.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF
ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE PREMISES, THE HONORABLE
COURT OF APPEALS ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%).

C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF
THE PRESIDENT INCLUDING THE PAYMENT OF ₱100,000.00 AS MORAL DAMAGES, ₱50,000.00 AS ATTORNEY’S FEES AND
₱10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH
CONCLUSIONS.11

Petitioners insist that the complaint states no cause of action because they allegedly have not committed any act of misrepresentation
amounting to bad faith which could entitle respondents to a refund. Petitioners claim that there was a mere delay in the completion of
the project and that they only resorted to "suspension and reformatting as a testament to their commitment to their buyers." Petitioners
attribute the delay to the 1997 Asian financial crisis that befell the real estate industry. Invoking Article 1174 of the New Civil Code,
petitioners maintain that they cannot be held liable for a fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of suspension of development on a project. They liken their
situation to a bank which this Court, in Overseas Bank v. Court of Appeals,12 adjudged as not liable to pay interest on deposits during
the period that its operations are ordered suspended by the Monetary Board of the Central Bank.

Lastly, petitioners aver that they should not be ordered to pay moral damages because they never intended to cause delay, and again
blamed the Asian economic crisis as the direct, proximate and only cause of their failure to complete the project. Petitioners submit that
moral damages should not be awarded unless so stipulated except under the instances enumerated in Article 2208 of the New Civil
Code. Lastly, petitioners refuse to pay the administrative fine because the delay in the project was caused not by their own deceptive
intent to defraud their buyers, but due to unforeseen circumstances beyond their control.

Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a fortuitous event which would
justify delay by petitioners in the performance of their contractual obligation; 2) assuming that petitioners are liable, whether or not 12%
interest was correctly imposed on the judgment award, and 3) whether the award of moral damages, attorney’s fees and administrative
fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings were consistent that first, the Asian
financial crisis is not a fortuitous event that would excuse petitioners from performing their contractual obligation; second, as a result of
the breach committed by petitioners, respondents are entitled to rescind the contract and to be refunded the amount of amortizations
paid including interest and damages; and third, petitioners are likewise obligated to pay attorney’s fees and the administrative fine.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the Office of the President and the Court of
Appeals.

Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under Article 1191 of the New Civil Code which
states:

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 payment of damages in either case. He
may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums, which provides:

Section 23. Non-Forfeiture of Payments.1âwphi1 No installment payment made by a buyer in a subdivision or condominium project for
the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the
total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis
supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and demand reimbursement for the
payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v. Spouses Go13 promulgated on 17
August 2007, where the Court stated that the Asian financial crisis is not an instance of caso fortuito. Bearing the same factual milieu as
the instant case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about a different condominium property. The company
likewise reneged on its obligation to respondents therein by failing to develop the condominium project despite substantial payment of
the contract price. Fil-Estate advanced the same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the
delay of the construction project. First off, the Court classified the issue as a question of fact which may not be raised in a petition for
review considering that there was no variance in the factual findings of the HLURB, the Office of the President and the Court of
Appeals. Second, the Court cited the previous rulings of Asian Construction and Development Corporation v. Philippine Commercial
International Bank14 and Mondragon Leisure and Resorts Corporation v. Court of Appeals15 holding that the 1997 Asian financial crisis
did not constitute a valid justification to renege on obligations. The Court expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation.
It is unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost of materials and labor, even before the
scheduled commencement of its real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency movements and business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange
rates happen everyday, thus, not an instance of caso fortuito.16

The aforementioned decision becomes a precedent to future cases in which the facts are substantially the same, as in this case. The
principle of stare decisis, which means adherence to judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6% legal interest computed from the date
of demand. The Court also awarded attorney’s fees. We follow that ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar v. Gallery Frames,17 embodying
the amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the interest
rate at 6% regardless of the source of obligation.

We likewise affirm the award of attorney’s fees because respondents were forced to litigate for 14 years and incur expenses to protect
their rights and interest by reason of the unjustified act on the part of petitioners.18 The imposition of ₱10,000.00 administrative fine is
correct pursuant to Section 38 of Presidential Decree No. 957 which reads:

Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten thousand pesos for violations of the
provisions of this Decree or of any rule or regulation thereunder. Fines shall be payable to the Authority and enforceable through writs
of execution in accordance with the provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in breach of contract cases, the
defendant must have acted in bad faith, must be found guilty of gross negligence amounting to bad faith, or must have acted in wanton
disregard of contractual obligations.19 The Arbiter found petitioners to have acted in bad faith when they breached their contract, when
they failed to address respondents’ grievances and when they adamantly refused to refund respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and Resolution.

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due computed from the time of respondents' demand for refund on 8 October
1998.

SO ORDERED.
3. G.R. No. 213014 October 14, 2015

MAYBANK PHILIPPINES, INC. (Formerly PNB-Republic Bank1), Petitioner

vs.
SPOUSES OSCAR and NENITA TARROSA, Respondents

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari2 are the Decision3 dated November 29, 2013 and the Resolution4 dated May 13, 2014 of
the Court of Appeals (CA) in CA-G.R. CV No. 02211, which affirmed the Decision5 dated June 16, 2005 of the Regional Trial Court of
Bacolod City, Branch 41 (RTC) in Civil Case No. 98-10451 declaring the extra judicial foreclosure sale of the property covered by
Transfer Certificate of Title (TCT) No. T-5649 as null and void for being barred by prescription.

The Facts

On December 15, 1980, respondents-spouses Oscar and Nenita Tarrosa (Sps. Tarrosa) obtained from then PNB-Republic Bank, now
petitioner Maybank Philippines, Inc. (Maybank), a loan in the amount of ₱91,000.00. The loan was secured by a Real Estate
Mortgage6 dated January 5, 1981 (real estate mortgage) over a 500-square meter parcel of land situated in San Carlos City, Negros
Occidental (subject property), covered by TCT No. T-5649,7 and the improvements thereon.8

After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained another loan from Maybank in the amount of ₱60,000.00
(second loan),9 payable on March 11, 1984.10 However, Sps. Tarrosa failed to settle the second loan upon maturity.11

Sometime in April 1998, Sps. Tarrosa received a Final Demand Letter12 dated March 4, 1998 (final demand letter) from Maybank
requiring them to settle their outstanding loan in the aggregate amount of ₱564,579.91, inclusive of principal, interests, and penalty
charges.13 They offered to pay a lesser amount, which Maybank refused.14 Thereafter, or on June 25, 1998, Maybank commenced
extrajudicial foreclosure proceedings15 before the office of Ex-Officio Provincial Sheriff Ildefonso Villanueva, Jr. (Sheriff Villanueva). The
subject property was eventually sold in a public auction sale held on July 29, 199816 for a total bid price of ₱600,000.00, to the highest
bidder, Philmay Property, Inc. (PPI), which was thereafter issued a Certificate of Sale17 dated July 30, 1998.18

On September 7, 1998, Sps. Tarrosa filed a complaint19 for declaration of nullity and invalidity of the foreclosure of real estate and of
public auction sale proceedings and damages with prayer for preliminary injunction against Maybank, PPI, Sheriff Villanueva, and the
Registry of Deeds of San Carlos City, Negros Occidental (RD-San Carlos), before the RTC, docketed as Civil Case No. 98-10451. They
averred, inter alia, that: (a) the second loan was a clean or unsecured loan; (b) after receiving the final demand letter, they tried to pay
the second loan, including the agreed interests and charges, but Maybank unjustly refused their offers of payment; and (c) Maybank’s
right to foreclose had prescribed or is barred by laches.20

On the other hand, Maybank and PPI countered21 that: (a) the second loan was secured by the same real estate mortgage under a
continuing security provision therein; (b) when the loan became past due, Sps. Tarrosa promised to pay and negotiated for a
restructuring of their loan, but failed to pay despite demands; and (c) Sps. Tarrosa’s positive acknowledgment and admission of their
indebtedness controverts the defense of prescription.22

The RTC Ruling

In a Decision23 dated June 16, 2005, the RTC held that the second loan was subject to the continuing security provision in the real
estate mortgage.24 However, it ruled that Maybank’s right to foreclose, reckoned from the time the mortgage indebtedness became due
and payable on March 11, 1984, had already prescribed, considering the lack of any timely judicial action, written extrajudicial demand
or written acknowledgment by the debtor of his debt that could interrupt the prescriptive period.25 Accordingly, it declared the
extrajudicial foreclosure proceedings affecting the subject property as null and void, and ordered Maybank to pay Sps. Tarrosa moral
and exemplary damages, as well as attorney’s fees and litigation expenses.26 Maybank filed a motion for reconsideration27 which was,
however, denied in an Order28 dated December 9, 2005, prompting it to appeal29 to the CA.

The CA Ruling

In a Decision30 dated November 29, 2013, the CA affirmed the RTC ruling that Maybank’s right to foreclose the real estate mortgage
over the subject property is already barred by prescription. It held that the prescriptive period should be reckoned from March 11, 1984
when the second loan had become past due and remained unpaid since demand was not a condition sine qua non for the accrual of
the latter’s right to foreclose under paragraph 5 of the real estate mortgage. It observed that Maybank failed to present evidence of any
timely written extrajudicial demand or written acknowledgment by the debtors of their debt that could have effectively interrupted the
running of the prescriptive period.31

Undaunted, Maybank moved for reconsideration,32 which was denied in a Resolution33 dated May 13, 2014; hence this petition.
 The Issues Before the Court

The essential issue for the Court’s resolution is whether or not the CA committed reversible error in finding that Maybank’s right to
foreclose the real estate mortgage over the subject property was barred by prescription.

The Court’s Ruling

The petition is meritorious.

An action to enforce a right arising from a mortgage should be enforced within ten (10) years from the time the right of action
accrues, i.e., when the mortgagor defaults in the payment of his obligation to the mortgagee; otherwise, it will be barred by
prescription and the mortgagee will lose his rights under the mortgage.34 However, mere delinquency in payment does not
necessarily mean delay in the legal concept. To be in default is different from mere delay in the grammatical sense, because it involves
the beginning of a special condition or status which has its own peculiar effects or results.35

In order that the debtor may be in default, it is necessary that: (a) the obligation be demandable and already liquidated; (b) the debtor
delays performance; and (c) the creditor requires the performance judicially or extrajudicially,36 unless demand is not necessary – i.e.,
when there is an express stipulation to that effect; where the law so provides; when the period is the controlling motive or the principal
inducement for the creation of the obligation; and where demand would be useless. Moreover, it is not sufficient that the law or
obligation fixes a date for performance; it must further state expressly that after the period lapses, default will commence.37 Thus, it is
only when demand to pay is unnecessary in case of the aforementioned circumstances, or when required, such demand is
made and subsequently refused that the mortgagor can be considered in default and the mortgagee obtains the right to file an
action to collect the debt or foreclose the mortgage.38

In the present case, both the CA and the RTC reckoned the accrual of Maybank’s cause of action to foreclose the real estate mortgage
over the subject property from the maturity of the second loan on May 11, 1984.1âwphi1 The CA further held that demand was
unnecessary for the accrual of the cause of action in light of paragraph 5 of the real estate mortgage, which pertinently provides:

5. In the event that the Mortgagor herein should fail or refuse to pay any of the sums of money secured by this mortgage, or any part
thereof, in accordance with the terms and conditions herein set forth, or should he/it fail to perform any of the conditions stipulated
herein, then and in any such case, the Mortgagee shall have the right, at its election to foreclose this mortgage, [x x x].39

However, this provision merely articulated Maybank’s right to elect foreclosure upon Sps. Tarrosa’s failure or refusal to comply with the
obligation secured, which is one of the rights duly accorded to mortgagees in a similar situation.40 In no way did it affect the general
parameters of default, particularly the need of prior demand under Article 116941 of the Civil Code, considering that it did not expressly
declare: (a) that demand shall not be necessary in order that the mortgagor may be in default; or (b) that default shall commence upon
mere failure to pay on the maturity date of the loan. Hence, the CA erred in construing the above provision as one through which the
parties had dispensed with demand as a condition sine qua non for the accrual of Maybank's right to foreclose the real estate mortgage
over the subject property, and thereby, mistakenly reckoned such right from the maturity date of the loan on March 11, 1984. In the
absence of showing that demand is unnecessary for the loan obligation to become due and demandable, Maybank's right to foreclose
the real estate mortgage accrued only after the lapse of the period indicated in its final demand letter for Sps. Tarrosa to pay, i.e., after
the lapse of five (5) days from receipt of the final demand letter dated March 4, 1998.42 Consequently, both the CA and the RTC
committed reversible error in declaring that Maybank's right to foreclose the real estate mortgage had already prescribed.

Thus, considering that the existence of the loan had been admitted, the default on the part of the debtors-mortgagors had been duly
established, and the foreclosure proceedings had been initiated within the prescriptive period as afore-discussed, the Court finds no
reason to nullify the extrajudicial foreclosure sale of the subject property.

WHEREFORE, the petition is GRANTED. The Decision dated November 29, 2013 and the Resolution dated May 13, 2014 of the Court
of Appeals in CA-G.R. CV No. 02211 are hereby REVERSED AND SET ASIDE. The complaint in Civil Case No. 98-10451
is DISMISSED.

SO ORDERED.
4. G.R. No. 206806    June 25, 2014

ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,

vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent.

DECISION

LEONEN, J.:

Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be presumed and may be implied only if
the old and new contracts are incompatible on every point.

Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G.R. CV No. 95709, which stemmed from
a complaint3 filed in the Regional Trial Court of Valenzuela City, Branch 171, for collection of sum of money.

The facts are as follows:

Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name Quality Paper and
Plastic Products, Enterprises, to factories engaged in the paper mill business.4 From February 2007 to March 2007, he delivered scrap
papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and
President, Candida A. Santos.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw
materials or deliver to him their finished products of equivalent value.6

Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check dated April 18, 20077 in
the amount of 1,487,766.68 as partial payment, with the assurance that the check would not bounce.8 When he deposited the check on
April 18, 2007, it was dishonored for being drawn against a closed account.9

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement10 where Arco Pulp and Paper
bound themselves to deliver their finished products to Megapack Container Corporation, owned by Eric Sy, for his account. According
to the memorandum, the raw materials would be supplied by Dan T. Lim, through his company, Quality Paper and Plastic Products.
The memorandum of agreement reads as follows:

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO
will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price of ₱18.50 per kg. to Megapack Container for Mr. Eric Sy’s
account. Schedule of deliveries are as follows:

....

It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will be supplied by
Quality Paper & Plastic Products Ent., total of 600 Metric Tons at ₱6.50 per kg. (price subject to change per advance notice). Quantity
of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack Container Corp. based on the above
production schedule.11

On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of 7,220,968.31, but no payment
was made to him.13

Dan T. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial Court, Branch 171,
Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed its answer15 but failed to have its representatives attend the pre-trial
hearing. Hence, the trial court allowed Dan T. Lim to present his evidence ex parte.16

On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint, holding that
when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement, novation took place, which extinguished Arco Pulp
and Paper’s obligation to Dan T. Lim.17

Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him, novation did not take place since the memorandum of
agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement between them. He argued that if his
name was mentioned in the contract, it was only for supplying the parties their required scrap papers, where his conformity through a
separate contract was indispensable.19
On January 11, 2013, the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment dated September 19, 2008
and ordering Arco Pulp and Paper to jointly and severally pay Dan T. Lim the amount of ₱7,220,968.31 with interest at 12% per annum
from the time of demand; ₱50,000.00 moral damages; ₱50,000.00 exemplary damages; and ₱50,000.00 attorney’s fees.22

The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative obligation.23 It also
ruled that Dan T. Lim was entitled to damages and attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not
honoring its undertaking.24

Its motion for reconsideration25 having been denied,26 Arco Pulp and Paper and its President and Chief Executive Officer, Candida A.
Santos, bring this petition for review on certiorari.

On one hand, petitioners argue that the execution of the memorandum of agreement constituted a novation of the original obligation
since Eric Sy became the new debtor of respondent. They also argue that there is no legal basis to hold petitioner Candida A. Santos
personally liable for the transaction that petitioner corporation entered into with respondent. The Court of Appeals, they allege, also
erred in awarding moral and exemplary damages and attorney’s fees to respondent who did not show proof that he was entitled to
damages.27

Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there was no proper novation in this case.
He argues that the Court of Appeals was correct in ordering the payment of 7,220,968.31 with damages since the debt of petitioners
remains unpaid.28 He also argues that the Court of Appeals was correct in holding petitioners solidarily liable since petitioner Candida A.
Santos was "the prime mover for such outstanding corporate liability."29 In their reply, petitioners reiterate that novation took place since
there was nothing in the memorandum of agreement showing that the obligation was alternative. They also argue that when respondent
allowed them to deliver the finished products to Eric Sy, the original obligation was novated.30

A rejoinder was submitted by respondent, but it was noted without action in view of A.M. No. 99-2-04-SC dated November 21, 2000.31

The issues to be resolved by this court are as follows:

1. Whether the obligation between the parties was extinguished by novation

2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.

3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded

The petition is denied.

The obligation between the

parties was an alternative
obligation

The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:

Article 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking.

"In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined by the choice of the debtor
who generally has the right of election."32 The right of election is extinguished when the party who may exercise that option categorically
and unequivocally makes his or her choice known.33

The choice of the debtor must also be communicated to the creditor who must receive notice of it since: The object of this notice is to
give the creditor . . . opportunity to express his consent, or to impugn the election made by the debtor, and only after said notice shall
the election take legal effect when consented by the creditor, or if impugned by the latter, when declared proper by a competent court.34

According to the factual findings of the trial court and the appellate court, the original contract between the parties was for respondent
to deliver scrap papers worth ₱7,220,968.31 to petitioner Arco Pulp and Paper. The payment for this delivery became petitioner Arco
Pulp and Paper’s obligation. By agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to either (1) pay the price
or(2) deliver the finished products of equivalent value to respondent.35

The appellate court, therefore, correctly identified the obligation between the parties as an alternative obligation, whereby petitioner
Arco Pulp and Paper, after receiving the raw materials from respondent, would either pay him the price of the raw materials or, in the
alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers, they exercised their
option to pay the price. Respondent’s receipt of the check and his subsequent act of depositing it constituted his notice of petitioner
Arco Pulp and Paper’s option to pay.

This choice was also shown by the terms of the memorandum of agreement, which was executed on the same day. The memorandum
declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person, thereby
extinguishing the option to deliver the finished products of equivalent value to respondent.

The memorandum of
agreement did not constitute
a novation of the original
contract

The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the contract between
the parties. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to a third person, it did not novate the
original obligation between the parties.

The rules on novation are outlined in the Civil Code, thus:

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor. (1203)

Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204)

Article 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. (1205a)

Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there is subrogation
of the creditor. It occurs only when the new contract declares so "in unequivocal terms" or that "the old and the new obligations be on
every point incompatible with each other."36

Novation was extensively discussed by this court in Garcia v. Llamas:37

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place
of the old one, or by subrogating a third person to the rights of the creditor. Article 1293 of the Civil Code defines novation as follows:

"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 rights
mentioned in articles 1236 and 1237."

In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the
initiative for the change does not come from — and may even be made without the knowledge of — the debtor, since it consists of a
third person’s assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion,
the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the
consent of these three persons are necessary. Both modes of substitution by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that
takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the
amendatory agreement. Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions,
referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the
creditor, an act known as subjective or personal novation. For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.

 3) The old contract must be extinguished.

4) There must be a valid new contract.

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is incompatible with the old one on every point. The test of incompatibility is whether
the two obligations can stand together, each one with its own independent existence.38 (Emphasis supplied)

Because novation requires that it be clear and unequivocal, it is never presumed, thus:

In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law jurisprudence, the
principle — novatio non praesumitur —that novation is never presumed.At bottom, for novation tobe a jural reality, its animus must be
ever present, debitum pro debito — basically extinguishing the old obligation for the new one.39 (Emphasis supplied) There is nothing in
the memorandum of agreement that states that with its execution, the obligation of petitioner Arco Pulp and Paper to respondent would
be extinguished. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. It
merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead.

The consent of the creditor must also be secured for the novation to be valid:

Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any
express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old
agreement.40 (Emphasis supplied)

In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the contract need not be secured. This
is clear from the first line of the memorandum, which states:

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . .41

If the memorandum of agreement was intended to novate the original agreement between the parties, respondent must have first
agreed to the substitution of Eric Sy as his new debtor. The memorandum of agreement must also state in clear and unequivocal terms
that it has replaced the original obligation of petitioner Arco Pulp and Paper to respondent. Neither of these circumstances is present in
this case.

Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to pass on their
obligation to Eric Sy. When respondent sent his letter of demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that
the former neither acknowledged nor consented to the latter as his new debtor. These acts, when taken together, clearly show that
novation did not take place. Since there was no novation, petitioner Arco Pulp and Paper’s obligation to respondent remains valid and
existing. Petitioner Arco Pulp and Paper, therefore, must still pay respondent the full amount of ₱7,220,968.31.

Petitioners are liable for

damages

Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract where the breach is due to fraud or
bad faith:

Art. 2220. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or
in bad faith. (Emphasis supplied)

Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to fraud or bad
faith. As this court stated:

Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the party from whom it
is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. The breach must be wanton, reckless,
malicious or in bad faith, and oppressive or abusive.42

Further, the following requisites must be proven for the recovery of moral damages:

An award of moral damages would require certain conditions to be met, to wit: (1)first, there must be an injury, whether physical, mental
or psychological, clearly sustained by the claimant; (2) second, there must be culpable act or omission factually established; (3) third,
the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil Code.43
Here, the injury suffered by respondent is the loss of ₱7,220,968.31 from his business. This has remained unpaid since 2007. This
injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations.

When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued an unfunded check but also entered
into a contract with a third person in an effort to evade its liability. This proves the third requirement.

As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be awarded in the following instances:

Article 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

(9) Acts mentioned in Article 309;

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party breaches a contract, he or she
goes against Article 19 of the Civil Code, which states: Article 19. 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.

Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. Failure to do so
results in an abuse of that right, which may become the basis of an action for damages. Article 19, however, cannot be its sole basis:

Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the basis of an actionable tort. Article 19
describes the degree of care required so that an actionable tort may arise when it is alleged together with Article 20 or Article 21.44

Article 20 and 21 of the Civil Code are as follows:

Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

Article 21.Any person who wilfully 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.

To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that are contrary to morals, good
customs, and public policy:

Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act have been willful or negligent.
Willful may refer to the intention to do the act and the desire to achieve the outcome which is considered by the plaintiff in tort action as
injurious. Negligence may refer to a situation where the act was consciously done but without intending the result which the plaintiff
considers as injurious.

Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily proscribed by law. This article
requires that the act be willful, that is, that there was an intention to do the act and a desire to achieve the outcome. In cases under
Article 21, the legal issues revolve around whether such outcome should be considered a legal injury on the part of the plaintiff or
whether the commission of the act was done in violation of the standards of care required in Article 19.45
When parties act in bad faith and do not faithfully comply with their obligations under contract, they run the risk of violating Article 1159
of the Civil Code:

Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in
good faith.

Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be recovered since it only specifies, among
others, Article 21. When a party reneges on his or her obligations arising from contracts in bad faith, the act is not only contrary to
morals, good customs, and public policy; it is also a violation of Article 1159. Breaches of contract become the basis of moral damages,
not only under Article 2220, but also under Articles 19 and 20 in relation to Article 1159.

Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220 requires that the breach be done
fraudulently or in bad faith. In Adriano v. Lasala:46

To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless and malicious, in bad
faith, oppressive, or abusive. Hence, the person claiming bad faith must prove its existence by clear and convincing evidence for the
law always presumes good faith.

Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. It is, therefore, a
question of intention, which can be inferred from one’s conduct and/or contemporaneous statements.47 (Emphasis supplied)

Since a finding of bad faith is generally premised on the intent of the doer, it requires an examination of the circumstances in each case.

When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent, it was presumably with the
knowledge that it was being drawn against a closed account. Worse, it attempted to shift their obligations to a third person without the
consent of respondent.

Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of known duty through some motive or interest or ill will that partakes of the nature of fraud."48 Moral damages may, therefore,
be awarded.

Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in the following circumstances:

Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.

Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be
adjudicated.

Article 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be
awarded.

In Tankeh v. Development Bank of the Philippines,49 we stated that:

The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar
offense. The case of People v. Ranteciting People v. Dalisay held that:

Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a deterrent to serious
wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty
of outrageous conduct. These terms are generally, but not always, used interchangeably. In common law, there is preference in the use
of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a
person as a result of an injury that has been maliciously and wantonly inflicted, the theory being that there should be compensation for
the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud—that intensifies the injury. The terms punitive or
vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are intended in good measure to deter the wrongdoer and others like him from
similar conduct in the future.50 (Emphasis supplied; citations omitted)

The requisites for the award of exemplary damages are as follows:

 (1) they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them
has been established;

(2) that they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory
damages that may be awarded to the claimant; and

(3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner.51

Business owners must always be forthright in their dealings. They cannot be allowed to renege on their obligations, considering that
these obligations were freely entered into by them. Exemplary damages may also be awarded in this case to serve as a deterrent to
those who use fraudulent means to evade their liabilities.

Since the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered.

Article 2208 of the Civil Code states:

Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered,
except:

(1) When exemplary damages are awarded[.]

Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation

Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the transaction was
also a personal undertaking of petitioner Santos. We disagree.

In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated that:

Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be disregarded if it is
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues.

....

Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites
must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.

While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of
corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45, this Court can take
cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a
misapprehension of facts.53 (Emphasis supplied)

As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for obligations incurred by the
corporation. However, this veil of corporate fiction may be pierced if complainant is able to prove, as in this case, that (1) the officer is
guilty of negligence or bad faith, and (2) such negligence or bad faith was clearly and convincingly proven.

Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco
Pulp and Paper. She also issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of
petitioner Arco Pulp and Paper. This is clear on the face of the check bearing the account name, "Arco Pulp & Paper, Co., Inc."54 Any
obligation arising from these acts would not, ordinarily, be petitioner Santos’ personal undertaking for which she would be solidarily
liable with petitioner Arco Pulp and Paper.

We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines:55

Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality
of a corporation is abused or used for wrongful purposes. Under the doctrine, the corporate existence may be disregarded where the
entity is formed or used for non-legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the fiction will
be disregarded and the individuals composing it and the two corporations will be treated as identical.56 (Emphasis supplied)

According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper, stating that:

In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor
of the [respondent]. After the check in the amount of 1,487,766.68 issued by [petitioner] Santos was dishonored for being drawn against
a closed account, [petitioner] corporation denied any privity with [respondent]. These acts prompted the [respondent] to avail of the
remedies provided by law in order to protect his rights.57

We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the corporate veil.1âwphi1 When petitioner
Arco Pulp and Paper’s obligation to respondent became due and demandable, she not only issued an unfunded check but also
contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability. She unjustifiably refused to honor petitioner
corporation’s obligations to respondent. These acts clearly amount to bad faith. In this instance, the corporate veil may be pierced, and
petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper.

The rate of interest due on

the obligation must be
reduced in view of Nacar v.
Gallery Frames58

In view, however, of the promulgation by this court of the decision dated August 13, 2013 in Nacar v. Gallery Frames,59 the rate of
interest due on the obligation must be modified from 12% per annum to 6% per annum from the time of demand.

Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals,60 and we have laid down the following
guidelines with regard to the rate of legal interest:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Linesare accordingly modified to
embody BSP-MB Circular No. 799, as follows:

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 money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such 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.61 (Emphasis supplied; citations omitted.)

According to these guidelines, the interest due on the obligation of ₱7,220,968.31 should now be at 6% per annum, computed from
May 5, 2007, when respondent sent his letter of demand to petitioners. This interest shall continue to be due from the finality of this
decision until its full satisfaction.

WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay respondent Dan T. Lim the amount
of ₱7,220,968.31 with interest of 6% per annum at the time of demand until finality of judgment and its full satisfaction, with moral
damages in the amount of ₱50,000.00, exemplary damages in the amount of ₱50,000.00, and attorney's fees in the amount of
₱50,000.00.

SO ORDERED.
 5. G.R. No. 177921               December 4, 2013

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND
MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated February 12, 2007 and the Resolution3 dated May 10, 2007 of
the Court of Appeals (CA) in CA-G.R. CV No. 86896 which reversed and set aside the Decision4 dated January 17, 2006 of the
Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case 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 aggregate
amount of ₱51,064,094.28, with applicable interests and penalty charges.

The Facts

On various dates and for different amounts, Metro Concast, a corporation duly organized and existing under and by virtue of Philippine
laws and engaged in the business of manufacturing steel,5 through its officers, herein individual petitioners, obtained several loans from
Allied Bank. These loan transactions were covered by a promissory note and separate letters of credit/trust receipts, the details of
which are as follows:
Date Document Amount
December 13, 1996 Promissory Note No. 96-213016 ₱2,000,000.00
7
November 7, 1995 Trust Receipt No. 96-202365 ₱608,603.04
May 13, 1996 Trust Receipt No. 96-9605228 ₱3,753,777.40
9
May 24, 1996 Trust Receipt No. 96-960524 ₱4,602,648.08
March 21, 1997 Trust Receipt No. 97-20472410 ₱7,289,757.79
June 7, 1996 Trust Receipt No. 96-20328011 ₱17,340,360.73
12
July 26, 1995 Trust Receipt No. 95-201943 ₱670,709.24
August 31, 1995 Trust Receipt No. 95-20205313 ₱313,797.41
14
November 16, 1995 Trust Receipt No. 96-202439 ₱13,015,109.87
July 3, 1996 Trust Receipt No. 96-20355215 ₱401,608.89
16
June 20, 1995 Trust Receipt No. 95-201710 ₱750,089.25
December 13, 1995 Trust Receipt No. 96-37908917 ₱92,919.00
18
December 13, 1995 Trust Receipt No. 96/202581 ₱224,713.58

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.), with penalty charge of 3% per month
in case of default; while the twelve (12) trust receipts uniformly provided for an interest rate of 14% p.a. and 1% penalty charge. By way
of security, the individual petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements19 in favor of Allied
Bank. Petitioners failed to settle their obligations under the aforementioned promissory note and trust receipts, hence, Allied Bank,
through counsel, sent them demand letters,20 all dated December 10, 1998, seeking payment of the total amount of ₱51,064,093.62,
but to no avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of money21 (subject complaint) against
petitioners before the RTC, docketed as Civil Case No. 00-1563. In their second22 Amended Answer,23 petitioners admitted their
indebtedness to Allied Bank but denied liability for the interests and penalties charged, claiming to have paid the total sum of
₱65,073,055.73 by way of interest charges for the period covering 1992 to 1997.24

They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation of the peso
against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the business of Metro Concast and
eventually leading to its cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s
remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter, however, refused. Instead, Allied Bank
advised them to sell the equipment and apply the proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered
the equipment for sale, but since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the years. In
2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest in buying the scrap
metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s legal
department, acted as the latter’s agent. Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of
Agreement25 dated November 8, 2002 (MoA) was drawn between Metro Concast, represented by petitioner Jose Dychiao, and
Peakstar, through Camiling, under which Peakstar obligated itself to purchase the scrap metal for a total consideration of
₱34,000,000.00, payable as follows:

(a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be 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

(b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly installments of ₱3,000,000.00, secured by bank guarantees
from Bankwise, Inc. (Bankwise) in the form of separate post-dated checks.27

Unfortunately, Peakstar reneged on all its obligations under the MoA.1âwphi1 In this regard, petitioners asseverated that:

(a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as force majeure ; and

(b) since Allied Bank was the party that accepted the terms and conditions of payment proposed by Peakstar, petitioners must
therefore be deemed to have settled their obligations to Allied Bank. To bolster their defense, petitioner Jose Dychiao (Jose
Dychiao) testified28 during trial that it was Atty. Saw himself who drafted the MoA and subsequently received29 the
₱2,000,000.00 cash and the two (2) Bankwise post-dated checks worth ₱1,000,000.00 each from Camiling. However, Atty.
Saw turned over only the two (2) checks and ₱1,500,000.00 in cash to the wife of Jose Dychiao.30

Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the award of moral damages in the amount
of ₱20,000,000.00 in favor of Metro Concast and at least ₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as exemplary
damages, ₱1,000,000.00 as attorney’s fees, ₱500,000.00 for other litigation expenses, including costs of suit.

The RTC Ruling

After trial on the merits, the RTC, in a Decision31 dated January 17, 2006, dismissed the subject complaint, holding that the "causes of
action sued upon had been paid or otherwise extinguished." It ruled that since Allied Bank was duly represented by its agent, Atty. Saw,
in all the negotiations and transactions with Peakstar – considering that Atty. Saw

(a) drafted the MoA,

(b) accepted the bank guarantee issued by Bankwise, and

(c) was apprised of developments regarding the sale and disposition of the scrap metal – then it stands to reason that the MoA
between Metro Concast and Peakstar was binding upon said bank.

The CA Ruling

Allied Bank appealed to the CA which, in a Decision32 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.

6. G.R. No. 199650               June 26, 2013

J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,
vs.
UTILITY ASSURANCE CORPORATION, Respondent.

DECISION

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the
Decision1 dated January 27,2011 and Resolution2 dated December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112808.

The Facts

On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its Chairman, Joo Han Lee, and Martin E.
Mabunay, doing business under the name and style of Seven Shades of Blue Trading and Services, entered into a Construction
Agreement3 whereby the latter undertook to build the former's 72-room condominium/hotel (Condotel Building 25) located at the
Fairways & Bluewaters Golf & Resort in Boracay Island, Malay, Aklan. The project, costing ₱42,000,000.00, was to be completed within
one year or 365 days reckoned from the first calendar day after signing of the Notice of Award and Notice to Proceed and receipt of
down payment (20% of contract price). The ₱8,400,000.00 down payment was fully paid on January 14, 2008.4 Payment of the balance
of the contract price will be based on actual work finished within 15 days from receipt of the monthly progress billings. Per the agreed
work schedule, the completion date of the project was December 2008.5 Mabuhay also submitted the required Performance
Bond6 issued by respondent Utility Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or ₱8.4 million.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th monthly progress billing sent by
Mabunay. As of September 16, 2008, petitioner had paid the total amount of ₱15,979,472.03 inclusive of the 20% down payment.
However, as of said date, Mabunay had accomplished only 27.5% of the project.7

In the Joint Construction Evaluation Result and Status Report8 signed by Mabunay assisted by Arch. Elwin Olavario, and Joo Han Lee
assisted by Roy V. Movido, the following findings were accepted as true, accurate and correct:

III STATUS OF PROJECT AS OF 14 NOVEMBER 2008

1) After conducting a joint inspection and evaluation of the project to determine the actual percentage of accomplishment, the
contracting parties, assisted by their respective technical groups, SSB assisted by Arch. Elwin Olavario and JPLUS assisted
by Engrs. Joey Rojas and Shiela Botardo, concluded and agreed that as of 14 November 2008, the project is only Thirty One
point Thirty Nine Percent (31.39%) complete.

2) Furthermore, the value of construction materials allocated for the completion of the project and currently on site has been
determined and agreed to be ONE MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND
FORTY FIVE CENTAVOS (₱1,049,364.45)

3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th and 9th billings, is Three point
Eighty Five Percent (3.85%) with a gross value of ₱1,563,553.34 amount creditable to SSB after deducting the withholding tax
is ₱1,538,424.84

4) The unrecouped amount of the down payment is ₱2,379,441.53 after deducting the cost of materials on site and the net
billable amount reflected in the reconciled and consolidated 8th and 9th billings. The uncompleted portion of the project is
68.61% with an estimated value per construction agreement signed is ₱27,880,419.52.9 (Emphasis supplied.)

On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay and respondent surety. As its demands
went unheeded, petitioner filed a Request for Arbitration10 before the Construction Industry Arbitration Commission (CIAC). Petitioner
prayed that Mabunay and respondent be ordered to pay the sums of ₱8,980,575.89 as liquidated damages and ₱2,379,441.53
corresponding to the unrecouped down payment or overpayment petitioner made to Mabunay.11

In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by Joo Han Lee. He
asserted that he actually had until April 30, 2009 to finish the project since the 365 days period of completion started only on May 2,
2008 after clearing the retrofitted old structure. Hence, the termination of the contract by petitioner was premature and the filing of the
complaint against him was baseless, malicious and in bad faith.

Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no cause of action and the complaint states
no cause of action against it. The CIAC denied the motion to dismiss. Respondent’s motion for reconsideration was likewise denied.13
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-claims,14 respondent argued that the
performance bond merely guaranteed the 20% down payment and not the entire obligation of Mabunay under the Construction
Agreement. Since the value of the project’s accomplishment already exceeded the said amount, respondent’s obligation under the
performance bond had been fully extinguished. As to the claim for alleged overpayment to Mabunay, respondent contended that it
should not be credited against the 20% down payment which was already exhausted and such application by petitioner is tantamount to
reviving an obligation that had been legally extinguished by payment. Respondent also set up a cross-claim against Mabunay who
executed in its favor an Indemnity Agreement whereby Mabunay undertook to indemnify respondent for whatever amounts it may be
adjudged liable to pay petitioner under the surety bond.

Both petitioner and respondent submitted their respective documentary and testimonial evidence. Mabunay failed to appear in the
scheduled hearings and to present his evidence despite due notice to his counsel of record. The CIAC thus declared that Mabunay is
deemed to have waived his right to present evidence.15

On February 2, 2010, the CIAC rendered its Decision16 and made the following award:

Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:

1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:

a) ₱4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of 6% per annum computed from the
date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid, and

b) ₱2,379,441.53 as unrecouped down payment plus interest thereon at the rate of 6% per annum computed from the
date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid.

It being understood that respondent Utassco’s liability shall in no case exceed ₱8.4 million.

2. Respondent Mabunay to pay to claimant the amount of ₱98,435.89, which is respondent Mabunay’s share in the arbitration
cost claimant had advanced, with legal interest thereon from January 8, 2010 until fully paid.

3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant
under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment
made by respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00 as attorney’s fees.

SO ORDERED.17

Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as amended.

In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance Bond did not clearly state the
limitation of the surety’s liability. Pursuant to Article 137718 of the Civil Code, the CA said that the provision should be construed in favor
of petitioner considering that the obscurely phrased provision was drawn up by respondent and Mabunay. Further, the appellate court
stated that respondent could not possibly guarantee the down payment because it is not Mabunay who owed the down payment to
petitioner but the other way around. Consequently, the completion by Mabunay of 31.39% of the construction would not lead to the
extinguishment of respondent’s liability. The ₱8.4 million was a limit on the amount of respondent’s liability and not a limitation as to the
obligation or undertaking it guaranteed.

However, the CA reversed the CIAC’s ruling that Mabunay had incurred delay which entitled petitioner to the stipulated liquidated
damages and unrecouped down payment. Citing Aerospace Chemical Industries, Inc. v. Court of Appeals,19 the appellate court said
that not all requisites in order to consider the obligor or debtor in default were present in this case. It held that it is only from December
24, 2008 (completion date) that we should reckon default because the Construction Agreement provided only for delay in the
completion of the project and not delay on a monthly basis using the work schedule approved by petitioner as the reference point.
Hence, petitioner’s termination of the contract was premature since the delay in this case was merely speculative; the obligation was
not yet demandable.

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed Decision dated 13 January 2010
rendered by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REVERSED and SET ASIDE. Accordingly, the Writ of
Execution dated 24 November 2010 issued by the same tribunal is hereby ANNULLED and SET ASIDE.

SO ORDERED.20
Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial reconsideration. Both motions were
denied.

The Issues

Before this Court petitioner seeks to reverse the CA insofar as it denied petitioner’s claims under the Performance Bond and to
reinstate in its entirety the February 2, 2010 CIAC Decision. Specifically, petitioner alleged that –

A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE ALTERNATIVE DISPUTE RESOLUTION
ACT AND THE SPECIAL RULES ON ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS
OF JURISDICTION TO REVIEW ARBITRAL AWARDS.

B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD ON AN ISSUE THAT WAS
NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN THE TERMS OF REFERENCE, NOT ASSIGNED AS ANERROR, AND
NOT ARGUED IN ANY OF THE PLEADINGS FILED BEFORE THE COURT.

C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF AEROSPACE CHEMICAL
INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94, WHICH HAS NOTHING TO DO WITH CONSTRUCTION
AGREEMENTS.21

Our Ruling

On the procedural issues raised, we find no merit in petitioner’s contention that with the institutionalization of alternative dispute
resolution under Republic Act (R.A.) No. 9285,22 otherwise known as the Alternative Dispute Resolution Act of 2004, the CA was
divested of jurisdiction to review the decisions or awards of the CIAC. Petitioner erroneously relied on the provision in said law allowing
any party to a domestic arbitration to file in the Regional Trial Court (RTC) a petition either to confirm, correct or vacate a domestic
arbitral award.

We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or decisions of the CIAC in construction
disputes. On the contrary, Section 40 thereof expressly declares that confirmation by the RTC is not required, thus:

SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed by Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the Regional Trial
Court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of Procedure to be
promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O. No. 1008. (Emphasis
supplied.)

Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of
the contract, or after the abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award of the CIAC is
final and unappealable, except on questions of law, which are appealable to the Supreme Court. With the amendments introduced by
R.A. No. 7902 and promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of
quasijudicial agencies whose decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such review of the
CIAC award may involve either questions of fact, of law, or of fact and law.23

Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this Court and which took effect on
October 30, 2009. Since R.A. No. 9285 explicitly excluded CIAC awards from domestic arbitration awards that need to be confirmed to
be executory, said awards are therefore not covered by Rule 11 of the Special ADR Rules,24 as they continue to be governed by EO
No. 1008, as amended and the rules of procedure of the CIAC. The CIAC Revised Rules of Procedure Governing Construction
Arbitration25 provide for the manner and mode of appeal from CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. – A petition for review from a final award may be taken by any of the parties within fifteen (15) days
from receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court.

As to the alleged error committed by the CA in deciding the case upon an issue not raised or litigated before the CIAC, this assertion
has no basis. Whether or not Mabunay had incurred delay in the performance of his obligations under the Construction Agreement was
the very first issue stipulated in the Terms of Reference26 (TOR), which is distinct from the issue of the extent of respondent’s liability
under the Performance Bond.
Indeed, resolution of the issue of delay was crucial upon which depends petitioner’s right to the liquidated damages pursuant to the
Construction Agreement. Contrary to the CIAC’s findings, the CA opined that delay should be reckoned only after the lapse of the one-
year contract period, and consequently Mabunay’s liability for liquidated damages arises only upon the happening of such condition.

We reverse the CA.

Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. It
is the non-fulfillment of an obligation with respect to time.27

Article 1169 of the Civil Code provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.

xxxx

It is a general rule that one who contracts to complete certain work within a certain time is liable for the damage for not completing it
within such time, unless the delay is excused or waived.28

The Construction Agreement provides in Article 10 thereof the following conditions as to completion time for the project

1. The CONTRACTOR shall complete the works called for under this Agreement within ONE (1) YEAR or 365 Days reckoned
from the 1st calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment.

2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by OWNER within Seven (7) days after
signing of this Agreement and full payment of 20% of the agreed contract price. Said detailed work schedule shall follow the
general schedule of activities and shall serve as basis for the evaluation of the progress of work by CONTRACTOR.29

In this jurisdiction, the following requisites must be present in order that the debtor may be in default: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially
or extrajudicially.30

In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to perform or complete the project was not
yet demandable as of November 19, 2008 when petitioner terminated the contract, because the agreed completion date was still more
than one month away (December 24, 2008). Since the parties contemplated delay in the completion of the entire project, the CA
concluded that the failure of the contractor to catch up with schedule of work activities did not constitute delay giving rise to the
contractor’s liability for damages.

We cannot sustain the appellate court’s interpretation as it is inconsistent with the terms of the Construction Agreement. Article 1374 of
the Civil Code requires that the 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. Here, the work schedule approved by petitioner was intended, not only to serve as its
basis for the payment of monthly progress billings, but also for evaluation of the progress of work by the contractor. Article 13.01 (g) (iii)
of the Construction Agreement provides that the contractor shall be deemed in default if, among others, it had delayed without
justifiable cause the completion of the project "by more than thirty (30) calendar days based on official work schedule duly approved by
the OWNER."31

Records showed that as early as April 2008, or within four months after Mabunay commenced work activities, the project was already
behind schedule for reasons not attributable to petitioner. In the succeeding months, Mabunay was still unable to catch up with his
accomplishment even as petitioner constantly advised him of the delays, as can be gleaned from the following notices of delay sent by
petitioner’s engineer and construction manager, Engr. Sheila N. Botardo:

April 30, 2008

Seven Shades of Blue

Boracay Island
Malay, Aklan
1âwphi1
Attention : Mr. Martin Mabunay
General Manager
Thru : Engr. Reynaldo Gapasin
Project : Villa Beatriz
Subject : Notice of Delay

Dear Mr. Mabunay:

This is to formalize our discussion with your Engineers during our meeting last April 23, 2008 regarding the delay in the implementation
of major activities based on your submitted construction schedule. Substantial delay was noted in concreting works that affects your
roof framing that should have been 40% completed as of this date. This delay will create major impact on your over-all schedule as the
finishing works will all be dependent on the enclosure of the building.

In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of critical materials on site. We would
highly appreciate if you could attend our next regular meeting so we could immediately address this matter. Thank you.

Very truly yours,

Engr. Sheila N. Botardo

Construction Manager – LMI/FEPI32

October 15, 2008

xxxx

Dear Mr. Mabunay,

We have noticed continuous absence of all the Engineers that you have assigned on-site to administer and supervise your contracted
work. For the past two (2) weeks, your company does not have a Technical Representative manning the jobsite considering the critical
activities that are in progress and the delays in schedule that you have already incurred. In this regard, we would highly recommend the
immediate replacement of your Project Engineer within the week.

We would highly appreciate your usual attention on this matter.

x x x x33

November 5, 2008

xxxx

Dear Mr. Mabunay,

This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008 regarding the construction of the
Field Office and Stock Room for Materials intended for Villa Beatriz use only. We understand that you have committed to complete it
November 5, 2008 but as of this date there is no improvement or any ongoing construction activity on the said field office and
stockroom.

We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is badly needed. We will highly
appreciate if this matter will be given your immediate attention.

Thank you.

x x x x34

November 6, 2008

xxxx

Dear Mr. Mabunay,

We would like to call your attention regarding the decrease in your manpower assigned on site. We have observed that for the past
three (3) weeks instead of increasing your manpower to catch up with the delay it was reduced to only 8 workers today from an average
of 35 workers in the previous months.
Please note that based on your submitted revised schedule you are already delayed by approximately 57% and this will worsen should
you not address this matter properly.

We are looking forward for [sic] your cooperation and continuous commitment in delivering this project as per contract agreement.

x x x x35

Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects and engineers of petitioner and
Mabunay and it was found that as of November 14, 2008, the project was only 31.39% complete and that the uncompleted portion was
68.61% with an estimated value per Construction Agreement as ₱27,880,419.52. Instead of doubling his efforts as the scheduled
completion date approached, Mabunay did nothing to remedy the delays and even reduced the deployment of workers at the project
site. Neither did Mabunay, at anytime, ask for an extension to complete the project. Thus, on November 19, 2008, petitioner advised
Mabunay of its decision to terminate the contract on account of the tremendous delay the latter incurred. This was followed by the claim
against the Performance Bond upon the respondent on December 18, 2008.

Petitioner’s claim against the Performance Bond included the liquidated damages provided in the Construction Agreement, as follows:

ARTICLE 12 – LIQUIDATED DAMAGES:

12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the PROJECT within the period stipulated
herein or within the period of extension granted by the OWNER, plus One (1) Week grace period, without any justifiable reason, the
CONTRACTOR hereby agrees –

a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of One Percent (1/10 of 1%) of the
Contract Amount for each day of delay after any and all extensions and the One (1) week Grace Period until completed by the
CONTRACTOR.

b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted works and/or delays shall not relieve
it of the obligation to complete and finish the construction.

Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts retained under Article 9 or retained by
the OWNER when the works called for under this Agreement have been finished and completed.

Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors collectibles without prior consent
and concurrence by the CONTRACTOR.

12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of any further act and deed,
authorizes the OWNER to deduct any amount that may be due under Item (a) above, from any and all money or amounts due or which
will become due to the CONTRACTOR by virtue of this Agreement and/or to collect such amounts from the Performance Bond filed by
the CONTRACTOR in this Agreement.36 (Emphasis supplied.)

Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which provide:

ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.

ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.

ART. 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon
the liquidated damages, the law shall determine the measure of damages, and not the stipulation.

A stipulation for liquidated damages is attached to an obligation in order to ensure performance and has a double function: (1) to
provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach.37 The amount agreed upon answers for damages suffered by the owner due to delays in the completion of the
project.38 As a precondition to such award, however, there must be proof of the fact of delay in the performance of the obligation.39

Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor to complete the project within the
stipulated period or the extension granted by the owner. However, this will not defeat petitioner’s claim for damages nor respondent’s
liability under the Performance Bond. Mabunay was clearly in default considering the dismal percentage of his accomplishment
(32.38%) of the work he contracted on account of delays in executing the scheduled work activities and repeated failure to provide
sufficient manpower to expedite construction works. The events of default and remedies of the Owner are set forth in Article 13, which
reads:
ARTICLE 13 – DEFAULT OF CONTRACTOR:

13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.

xxxx

g. In case the CONTRACTOR has done any of the following:

(i.) has abandoned the Project

(ii.) without reasonable cause, has failed to commence the construction or has suspended the progress of the Project for
twenty-eight days

(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty (30) calendar days based on official
work schedule duly approved by the OWNER

(iv.) despite previous written warning by the OWNER, is not executing the construction works in accordance with the
Agreement or is persistently or flagrantly neglecting to carry out its obligations under the Agreement.

(v.) has, to the detriment of good workmanship or in defiance of the Owner’s instructions to the contrary, sublet any part of the
Agreement.

13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the OWNER may after giving fourteen (14)
calendar days notice in writing to the CONTRACTOR, enter upon the site and expel the CONTRACTOR therefrom without voiding this
Agreement, or releasing the CONTRACTOR from any of its obligations, and liabilities under this Agreement. Also without diminishing or
affecting the rights and powers conferred on the OWNER by this Agreement and the OWNER may himself complete the work or may
employ any other contractor to complete the work. If the OWNER shall enter and expel the CONTRACTOR under this clause, the
OWNER shall be entitled to confiscate the performance bond of the CONTRACTOR to compensate for all kinds of damages the
OWNER may suffer. All expenses incurred to finish the Project shall be charged to the CONTRACTOR and/or his bond. Further, the
OWNER shall not be liable to pay the CONTRACTOR until the cost of execution, damages for the delay in the completion, if any, and
all; other expenses incurred by the OWNER have been ascertained which amount shall be deducted from any money due to the
CONTRACTOR on account of this Agreement. The CONTRACTOR will not be compensated for any loss of profit, loss of goodwill, loss
of use of any equipment or property, loss of business opportunity, additional financing cost or overhead or opportunity losses related to
the unaccomplished portions of the work.40 (Emphasis supplied.)

As already demonstrated, the contractor’s default in this case pertains to his failure to substantially perform the work on account of
tremendous delays in executing the scheduled work activities. Where a party to a building construction contract fails to comply with the
duty imposed by the terms of the contract, a breach results for which an action may be maintained to recover the damages sustained
thereby, and of course, a breach occurs where the contractor inexcusably fails to perform substantially in accordance with the terms of
the contract.41

The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate the Performance Bond to answer for
all kinds of damages it may suffer as a result of the contractor’s failure to complete the building. Having elected to terminate the
contract and expel the contractor from the project site under Article 13 of the said Agreement, petitioner is clearly entitled to the
proceeds of the bond as indemnification for damages it sustained due to the breach committed by Mabunay. Such stipulation allowing
the confiscation of the contractor’s performance bond partakes of the nature of a penalty clause. A penalty clause, expressly
recognized by law, is an accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. It
functions to strengthen the coercive force of obligation and to provide, in effect, for what could be the liquidated damages resulting from
such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on
the measure of damages caused by the breach. It is well-settled that so long as such stipulation does not contravene law, morals, or
public order, it is strictly binding upon the obligor.42

Respondent, however, insists that it is not liable for the breach committed by Mabunay because by the terms of the surety bond it
issued, its liability is limited to the performance by said contractor to the extent equivalent to 20% of the down payment. It stresses that
with the 32.38% completion of the project by Mabunay, its liability was extinguished because the value of such accomplishment already
exceeded the sum equivalent to 20% down payment (₱8.4 million).

The appellate court correctly rejected this theory of respondent when it ruled that the Performance Bond guaranteed the full and faithful
compliance of Mabunay’s obligations under the Construction Agreement, and that nowhere in law or jurisprudence does it state that the
obligation or undertaking by a surety may be apportioned.

The pertinent portions of the Performance Bond provide:

The conditions of this obligation are as follows:

Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION AND DEVELOPMENT, INC. to post a
bond of the abovestated sum to guarantee 20% down payment for the construction of Building 25 (Villa Beatriz) 72-Room Condotel,
The Lodgings inside Fairways and Bluewater, Boracay Island, Malay, Aklan.

Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated sum to secure the full and faithful
performance on his part of said contract.

It is a special provision of this undertaking that the liability of the surety under this bond shall in no case exceed the sum of
₱8,400,000.00 Philippine Currency.

Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions and agreements
stipulated in said contract, then this obligation shall be null and void; otherwise to remain in full force and effect.43 (Emphasis supplied.)

While the above condition or specific guarantee is unclear, the rest of the recitals in the bond unequivocally declare that it secures the
full and faithful performance of Mabunay’s obligations under the Construction Agreement with petitioner. By its nature, a performance
bond guarantees that the contractor will perform the contract, and usually provides that if the contractor defaults and fails to complete
the contract, the surety can itself complete the contract or pay damages up to the limit of the bond.44 Moreover, the rule is that if the
language of the bond is ambiguous or uncertain, it will be construed most strongly against a compensated surety and in favor of the
obligees or beneficiaries under the bond, in this case petitioner as the Project Owner, for whose benefit it was ostensibly executed.45

The imposition of interest on the claims of petitioner is likewise in order. As we held in Commonwealth Insurance Corporation v. Court
of Appeals46

Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its
liability shall in no case exceed the amount of the said bonds.

We are not persuaded. Petitioner’s argument is misplaced.

Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in Plaridel Surety &
Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more recently, in Republic vs. Court of Appeals and R & B Surety and
Insurance Company, Inc., we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest,
even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract but
because of the default and the necessity of judicial collection.

Petitioner’s liability under the suretyship contract is different from its liability under the law.1âwphi1 There is no question that as a
surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds. However, it is clear from the
above-cited jurisprudence that petitioner’s liability for the payment of interest is not by reason of the suretyship agreement itself but
because of the delay in the payment of its obligation under the said agreement.47 (Emphasis supplied; citations omitted.)

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27, 2011 and Resolution dated
December 8, 2011 of the Court of Appeals in CA-G.R. SP No. 112808 are hereby REVERSED and SET ASIDE.

The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration Commission Is hereby REINSTATED
with the following MODIFICATIONS:

"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:

1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full amount of the Performance Bond,
₱8,400,000.00, pursuant to Art. 13 of the Construction Agreement dated December 24, 2007, with interest at the rate of 6%
per annum computed from the date of the filing of the complaint until the finality of this decision, and 12% per annum
computed from the date this decision becomes final until fully paid; and

2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant
under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment
made by respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00 as attorney's fees.

SO ORDERED.

With the above modifications, the Writ of Execution dated November 24, 2010 issued by the CIAC Arbitral Tribunal in CIAC Case No.
03-2009 is hereby REINSTATED and UPHELD. No pronouncement as to costs.

SO ORDERED.
 7. G.R. No. 158361               April 10, 2013

INTERNATIONAL HOTEL CORPORATION, Petitioner,

vs.
FRANCISCO B. JOAQUIN, JR. and RAFAEL SUAREZ, Respondents.

DECISION

BERSAMIN, J.:

To avoid unjust enrichment to a party from resulting out of a substantially performed contract, the principle of quantum meruit may be
used to determine his compensation in the absence of a written agreement for that purpose. The principle of quantum meruit justifies
the payment of the reasonable value of the services rendered by him.

The Case

Under review is the decision the Court of Appeals (CA) promulgated on November 8, 2002,1 disposing:

WHEREFORE, premises considered, the decision dated August 26, 1993 of the Regional Trial Court, Branch 13, Manila in Civil Case
No. R-82-2434 is AFFIRMED with Modification as to the amounts awarded as follows: defendant-appellant IHC is ordered to pay
plaintiff-appellant Joaquin ₱700,000.00 and plaintiff-appellant Suarez ₱200,000.00, both to be paid in cash.

SO ORDERED.

Antecedents

On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors of the International Hotel
Corporation (IHC) for him to render technical assistance in securing a foreign loan for the construction of a hotel, to be guaranteed by
the Development Bank of the Philippines (DBP).2 The proposal encompassed nine phases, namely: (1) the preparation of a new project
study; (2) the settlement of the unregistered mortgage prior to the submission of the application for guaranty for processing by DBP; (3)
the preparation of papers necessary to the application for guaranty; (4) the securing of a foreign financier for the project; (5) the
securing of the approval of the DBP Board of Governors; (6) the actual follow up of the application with DBP3; (7) the overall
coordination in implementing the projections of the project study; (8) the preparation of the staff for actual hotel operations; and (9) the
actual hotel operations.4

The IHC Board of Directors approved phase one to phase six of the proposal during the special board meeting on February 11, 1969,
and earmarked ₱2,000,000.00 for the project.5 Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP processed
the application,6 and approved it on October 24, 1969 subject to several conditions.7

On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request the payment of his fees in the amount
of ₱500,000.00 for the services that he had provided and would be providing to IHC in relation to the hotel project that were outside the
scope of the technical proposal. Joaquin intimated his amenability to receive shares of stock instead of cash in view of IHC’s financial
situation.8

On July 11, 1969, the stockholders of IHC met and granted Joaquin’s request, allowing the payment for both Joaquin and Rafael
Suarez for their services in implementing the proposal.9

On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his negotiations with potential foreign financiers. He
narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation. He recommended that the Board of Directors
consider Materials Handling Corporation based on the more beneficial terms it had offered. His recommendation was accepted.10

Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International (Barnes), ensued. While the
negotiations with Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC, met with another financier, the Weston
International Corporation (Weston), to explore possible financing.11 When Barnes failed to deliver the needed loan, IHC informed DBP
that it would submit Weston for DBP’s consideration.12 As a result, DBP cancelled its previous guaranty through a letter dated
December 6, 1971.13

On December 13, 1971, IHC entered into an agreement with Weston, and communicated this development to DBP on June 26, 1972.
However, DBP denied the application for guaranty for failure to comply with the conditions contained in its November 12, 1971 letter.14

Due to Joaquin’s failure to secure the needed loan, IHC, through its President Bautista, canceled the 17,000 shares of stock previously
issued to Joaquin and Suarez as payment for their services. The latter requested a reconsideration of the cancellation, but their request
was rejected.
Consequently, Joaquin and Suarez commenced this action for specific performance, annulment, damages and injunction by a
complaint dated December 6, 1973 in the Regional Trial Court in Manila (RTC), impleading IHC and the members of its Board of
Directors, namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin J. Bautista, Basilio L.
Lirag, Danilo R. Lacerna and Hermenegildo R. Reyes.15 The complaint alleged that the cancellation of the shares had been illegal, and
had deprived them of their right to participate in the meetings and elections held by IHC; that Barnes had been recommended by IHC
President Bautista, not by Joaquin; that they had failed to meet their obligation because President Bautista and his son had intervened
and negotiated with Barnes instead of Weston; that DBP had canceled the guaranty because Barnes had failed to release the loan; and
that IHC had agreed to compensate their services with 17,000 shares of the common stock plus cash of ₱1,000,000.00.16

IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and Benjamin J. Bautista, filed an answer claiming that the
shares issued to Joaquin and Suarez as compensation for their "past and future services" had been issued in violation of Section 16 of
the Corporation Code; that Joaquin and Suarez had not provided a foreign financier acceptable to DBP; and that they had already
received ₱96,350.00 as payment for their services.17

On their part, Lirag and Lacerna denied any knowledge of or participation in the cancellation of the shares.18

Similarly, Gochangco and Reyes denied any knowledge of or participation in the cancellation of the shares, and clarified that they were
not directors of IHC.19 In the course of the proceedings, Reyes died and was substituted by Consorcia P. Reyes, the administratrix of
his estate.20

Ruling of the RTC

Under its decision rendered on August 26, 1993, the RTC held IHC liable pursuant to the second paragraph of Article 1284 of the Civil
Code, disposing thusly:

WHEREFORE, in the light of the above facts, law and jurisprudence, the Court hereby orders the defendant International Hotel
Corporation to pay plaintiff Francisco B. Joaquin, the amount of Two Hundred Thousand Pesos (₱200,000.00) and to pay plaintiff
Rafael Suarez the amount of Fifty Thousand Pesos (₱50,000.00); that the said defendant IHC likewise pay the co-plaintiffs, attorney’s
fees of ₱20,000.00, and costs of suit.

IT IS SO ORDERED.21

The RTC found that Joaquin and Suarez had failed to meet their obligations when IHC had chosen to negotiate with Barnes rather than
with Weston, the financier that Joaquin had recommended; and that the cancellation of the shares of stock had been proper under
Section 68 of the Corporation Code, which allowed such transfer of shares to compensate only past services, not future ones.

Ruling of the CA

Both parties appealed.22

Joaquin and Suarez assigned the following errors, to wit:

DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT PLAINTIFFS-APPELLANTS FULLY PERFORMED ALL THAT WAS
INCUMBENT UPON THEM, THE HONORABLE JUDGE ERRED IN NOT ORDERING THAT:

A. DEFENDANTS WERE UNJUSTIFIED IN CANCELLING THE SHARES OF STOCK PREVIOUSLY ISSUED TO

PLAINTIFFS-APPELLANTS; AND

B. DEFENDANTS PAY PLAINTIFFS-APPELLANTS TWO MILLION SEVEN HUNDRED PESOS (sic) (₱2,700,000.00),
INCLUDING INTEREST THEREON FROM 1973, REPRESENTING THE TOTAL OBLIGATION DUE PLAINTIFFS-
APPELLANTS.23

On the other hand, IHC attributed errors to the RTC, as follows:

I.

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS HAVE NOTBEEN COMPLETELY PAID FOR THEIR
SERVICES, AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY TWO HUNDRED THOUSAND PESOS (₱200,000.00) AND
FIFTY THOUSAND PESOS (₱50,000.00) TO PLAINTIFFS-APPELLANTS FRANCISCO B. JOAQUIN AND RAFAEL SUAREZ,
RESPECTIVELY.

II.
THE LOWER COURT ERRED IN AWARDING PLAINTIFFS-APPELLANTS ATTORNEY’S FEES AND COSTS OF SUIT. 24

In its questioned decision promulgated on November 8, 2002, the CA concurred with the RTC, upholding IHC’s liability under Article
1186 of the Civil Code. It ruled that in the context of Article 1234 of the Civil Code, Joaquin had substantially performed his obligations
and had become entitled to be paid for his services; and that the issuance of the shares of stock was ultra vires for having been issued
as consideration for future services.

Anent how much was due to Joaquin and Suarez, the CA explained thusly:

This Court does not subscribe to plaintiffs-appellants’ view that defendant-appellant IHC agreed to pay them ₱2,000,000.00. Plaintiff-
appellant Joaquin’s letter to defendant-appellee F.A. Bautista, quoting defendant-appellant IHC’s board resolutions which supposedly
authorized the payment of such amount cannot be sustained. The resolutions are quite clear and when taken together show that said
amount was only the "estimated maximum expenses" which defendant-appellant IHC expected to incur in accomplishing phases 1 to 6,
not exclusively to plaintiffs-appellants’ compensation.This conclusion finds support in an unnumbered board resolution of defendant-
appellant IHC dated July 11, 1969:

"Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorized by this
corporation in its Resolution of February 11, 1969 considering that the assistance so far given the corporation by said Technical Group
in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which
are now being processed. It is estimated that ₱400,000.00 worth of Common Stock would be reasonable for the present
accomplishments and to this effect, the President is authorized to issue the same in the name of the Technical Group, as follows:

₱200,000.00 in common stock to Rafael Suarez, as associate in the Technical Group, and ₱200,000.00 in common stock to Francisco
G. Joaquin, Jr., also a member of the Technical Group.

It is apparent that not all of the ₱2,000,000.00 was allocated exclusively to compensate plaintiffs-appellants. Rather, it was intended to
fund the whole undertaking including their compensation. On the same date, defendant-appellant IHC also authorized its president to
pay-appellant Joaquin ₱500,000.00 either in cash or in stock or both.

The amount awarded by the lower court was therefore less than what defendant-appellant IHC agreed to pay plaintiffs-appellants.
While this Court cannot decree that the cancelled shares be restored, for they are without a doubt null and void, still and all, defendant-
appellant IHC cannot now put up its own ultra vires act as an excuse to escape obligation to plaintiffs-appellants. Instead of shares of
stock, defendant-appellant IHC is ordered to pay plaintiff-appellant Joaquin a total of ₱700,000.00 and plaintiff-appellant Suarez
₱200,000.00, both to be paid in cash.

Although the lower court failed to explain why it was granting the attorney’s fees, this Court nonetheless finds its award proper given
defendant-appellant IHC’s actions.25

Issues

In this appeal, the IHC raises as issues for our consideration and resolution the following:

WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING COMPENSATION AND EVEN MODIFYING THE
PAYMENT TO HEREIN RESPONDENTS DESPITE NON-FULFILLMENT OF THEIR OBLIGATION TO HEREIN PETITIONER

II

WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING ATTORNEY’S FEES TO RESPONDENTS 26

IHC maintains that Article 1186 of the Civil Code was erroneously applied; that it had no intention of preventing Joaquin from complying
with his obligations when it adopted his recommendation to negotiate with Barnes; that Article 1234 of the Civil Code applied only if
there was a merely slight deviation from the obligation, and the omission or defect was technical and unimportant; that substantial
compliance was unacceptable because the foreign loan was material and was, in fact, the ultimate goal of its contract with Joaquin and
Suarez; that because the obligation was indivisible and subject to a suspensive condition, Article 1181 of the Civil Code27 applied, under
which a partial performance was equivalent to non-performance; and that the award of attorney’s fees should be deleted for lack of
legal and factual bases.

On the part of respondents, only Joaquin filed a comment,28 arguing that the petition was fatally defective for raising questions of fact;
that the obligation was divisible and capable of partial performance; and that the suspensive condition was deemed fulfilled through
IHC’s own actions.29
 Ruling

We deny the petition for review on certiorari subject to the ensuing disquisitions.

1.

IHC raises questions of law

We first consider and resolve whether IHC’s petition improperly raised questions of fact.

A question of law exists when there is doubt as to what the law is on a certain state of facts, but, in contrast, a question of fact exists
when the doubt arises as to the truth or falsity of the facts alleged. A question of law does not involve an examination of the probative
value of the evidence presented by the litigants or by any of them; the resolution of the issue must rest solely on what the law provides
on the given set of circumstances.30 When there is no dispute as to the facts, the question of whether or not the conclusion drawn from
the facts is correct is a question of law.31

Considering that what IHC seeks to review is the CA’s application of the law on the facts presented therein, there is no doubt that IHC
raises questions of law. The basic issue posed here is whether the conclusions drawn by the CA were correct under the pertinent laws.

2.

Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC’s obligation to pay respondents IHC argues that it should
not be held liable because: (a) it was Joaquin who had recommended Barnes; and (b) IHC’s negotiation with Barnes had been neither
intentional nor willfully intended to prevent Joaquin from complying with his obligations.

IHC’s argument is meritorious.

Article 1186 of the Civil Code reads:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

This provision refers to the constructive fulfillment of a suspensive condition,32 whose application calls for two requisites, namely: (a) the
intent of the obligor to prevent the fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere intention of the debtor
to prevent the happening of the condition, or to place ineffective obstacles to its compliance, without actually preventing the fulfillment,
is insufficient.33

The error lies in the CA’s failure to determine IHC’s intent to pre-empt Joaquin from meeting his obligations. The June 20, 1970 minutes
of IHC’s special board meeting discloses that Joaquin impressed upon the members of the Board that Materials Handling was offering
more favorable terms for IHC, to wit:

xxxx

At the meeting all the members of the Board of Directors of the International Hotel Corporation were present with the exception of
Directors Benjamin J. Bautista and Sergio O. Rustia who asked to be excused because of previous engagements. In that meeting, the
President called on Mr. Francisco G. Joaquin, Jr. to explain the different negotiations he had conducted relative to obtaining the needed
financing for the hotel project in keeping with the authority given to him in a resolution approved by the Board of Directors.

Mr. Joaquin presently explained that he contacted several local and foreign financiers through different brokers and after examining the
different offers he narrowed down his choice to two (2), to wit: the foreign financier recommended by George Wright of the Roger Dunn
& Company and the offer made by the Materials Handling Corporation.

After explaining the advantages and disadvantages to our corporation of the two (2) offers specifically with regard to the terms and
repayment of the loan and the rate of interest requested by them, he concluded that the offer made by the Materials Handling
Corporation is much more advantageous because the terms and conditions of payment as well as the rate of interest are much more
reasonable and would be much less onerous to our corporation. However, he explained that the corporation accepted, in principle, the
offer of Roger Dunn, per the corporation’s telegrams to Mr. Rudolph Meir of the Private Bank of Zurich, Switzerland, and until such time
as the corporation’s negotiations with Roger Dunn is terminated, we are committed, on one way or the other, to their financing.

It was decided by the Directors that, should the negotiations with Roger Dunn materialize, at the same time as the offer of Materials
Handling Corporation, that the funds committed by Roger Dunn may be diverted to other borrowers of the Development Bank of the
Philippines. With this condition, Director Joaquin showed the advantages of the offer of Materials Handling Corporation. Mr. Joaquin
also informed the corporation that, as of this date, the bank confirmation of Roger Dunn & Company has not been received. In view of
the fact that the corporation is racing against time in securing its financing, he recommended that the corporation entertain other offers.
After a brief exchange of views on the part of the Directors present and after hearing the clarification and explanation made by Mr. C.
M. Javier who was present and who represented the Materials Handling Corporation, the Directors present approved unanimously the
recommendation of Mr. Joaquin to entertain the offer of Materials Handling Corporation.34

Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and, later on, with Barnes. In
negotiating with Barnes, IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such
absence of any intention negated the basis for the CA’s reliance on Article 1186 of the Civil Code.

Nor do we agree with the CA’s upholding of IHC’s liability by virtue of Joaquin and Suarez’s substantial performance. In so ruling, the
CA applied Article 1234 of the Civil Code, which states:

Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict
and complete fulfillment, less damages suffered by the obligee.

It is well to note that Article 1234 applies only when an obligor admits breaching the contract35 after honestly and faithfully performing all
the material elements thereof except for some technical aspects that cause no serious harm to the obligee.36 IHC correctly submits that
the provision refers to an omission or deviation that is slight, or technical and unimportant, and does not affect the real purpose of the
contract.

Tolentino explains the character of the obligor’s breach under Article 1234 in the following manner, to wit:

In order that there may be substantial performance of an obligation, there must have been an attempt in good faith to perform, without
any willful or intentional departure therefrom. The deviation from the obligation must be slight, and the omission or defect must be
technical and unimportant, and must not pervade the whole or be so material that the object which the parties intended to accomplish in
a particular manner is not attained. The non-performance of a material part of a contract will prevent the performance from amounting
to a substantial compliance.

The party claiming substantial performance must show that he has attempted in good faith to perform his contract, but has through
oversight, misunderstanding or any excusable neglect failed to completely perform in certain negligible respects, for which the other
party may be adequately indemnified by an allowance and deduction from the contract price or by an award of damages. But a party
who knowingly and wilfully fails to perform his contract in any respect, or omits to perform a material part of it, cannot be permitted,
under the protection of this rule, to compel the other party, and the trend of the more recent decisions is to hold that the percentage of
omitted or irregular performance may in and of itself be sufficient to show that there had not been a substantial performance.37

By reason of the inconsequential nature of the breach or omission, the law deems the performance as substantial, making it the
obligee’s duty to pay.38 The compulsion of payment is predicated on the substantial benefit derived by the obligee from the partial
performance. Although compelled to pay, the obligee is nonetheless entitled to an allowance for the sum required to remedy omissions
or defects and to complete the work agreed upon.39

Conversely, the principle of substantial performance is inappropriate when the incomplete performance constitutes a material breach of
the contract. A contractual breach is material if it will adversely affect the nature of the obligation that the obligor promised to deliver, the
benefits that the obligee expects to receive after full compliance, and the extent that the non-performance defeated the purposes of the
contract.40 Accordingly, for the principle embodied in Article 1234 to apply, the failure of Joaquin and Suarez to comply with their
commitment should not defeat the ultimate purpose of the contract.

The primary objective of the parties in entering into the services agreement was to obtain a foreign loan to finance the construction of
IHC’s hotel project. This objective could be inferred from IHC’s approval of phase 1 to phase 6 of the proposal. Phase 1 and phase 2,
respectively the preparation of a new project study and the settlement of the unregistered mortgage, would pave the way for Joaquin
and Suarez to render assistance to IHC in applying for the DBP guaranty and thereafter to look for an able and willing foreign financial
institution acceptable to DBP. All the steps that Joaquin and Suarez undertook to accomplish had a single objective – to secure a loan
to fund the construction and eventual operations of the hotel of IHC. In that regard, Joaquin himself admitted that his assistance was
specifically sought to seek financing for IHC’s hotel project.41

Needless to say, finding the foreign financier that DBP would guarantee was the essence of the parties’ contract, so that the failure to
completely satisfy such obligation could not be characterized as slight and unimportant as to have resulted in Joaquin and Suarez’s
substantial performance that consequentially benefitted IHC. Whatever benefits IHC gained from their services could only be minimal,
and were even probably outweighed by whatever losses IHC suffered from the delayed construction of its hotel. Consequently, Article
1234 did not apply.

3.

IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation
Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was liable based on the nature of the
obligation.

Considering that the agreement between the parties was not circumscribed by a definite period, its termination was subject to a
condition – the happening of a future and uncertain event.42 The prevailing rule in conditional obligations is that the acquisition of rights,
as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event that constitutes the
condition.43

To recall, both the RTC and the CA held that Joaquin and Suarez’s obligation was subject to the suspensive condition of successfully
securing a foreign loan guaranteed by DBP. IHC agrees with both lower courts, and even argues that the obligation with a suspensive
condition did not arise when the event or occurrence did not happen. In that instance, partial performance of the contract subject to the
suspensive condition was tantamount to no performance at all. As such, the respondents were not entitled to any compensation.

We have to disagree with IHC’s argument.

To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the respondents because it required
the action and discretion of third persons – an able and willing foreign financial institution to provide the needed funds, and the DBP
Board of Governors to guarantee the loan. Such third persons could not be legally compelled to act in a manner favorable to IHC.
There is no question that when the fulfillment of a condition is dependent partly on the will of one of the contracting parties,44 or of the
obligor, and partly on chance, hazard or the will of a third person, the obligation is mixed.45 The existing rule in a mixed conditional
obligation is that when the condition was not fulfilled but the obligor did all in his power to comply with the obligation, the condition
should be deemed satisfied.46

Considering that the respondents were able to secure an agreement with Weston, and subsequently tried to reverse the prior
cancellation of the guaranty by DBP, we rule that they thereby constructively fulfilled their obligation.

4.

Quantum meruit should apply in the absence of an express agreement on the fees

The next issue to resolve is the amount of the fees that IHC should pay to Joaquin and Suarez.

Joaquin claimed that aside from the approved ₱2,000,000.00 fee to implement phase 1 to phase 6, the IHC Board of Directors had
approved an additional ₱500,000.00 as payment for his services. The RTC declared that he and Suarez were entitled to ₱200,000.00
each, but the CA revised the amounts to ₱700,000.00 for Joaquin and ₱200,000.00 for Suarez.

Anent the ₱2,000,000.00, the CA rightly concluded that the full amount of ₱2,000,000.00 could not be awarded to respondents because
such amount was not allocated exclusively to compensate respondents, but was intended to be the estimated maximum to fund the
expenses in undertaking phase 6 of the scope of services. Its conclusion was unquestionably borne out by the minutes of the February
11, 1969 meeting, viz:

xxxx

II

The preparation of the necessary papers for the DBP including the preparation of the application, the presentation of the mechanics of
financing, the actual follow up with the different departments of the DBP which includes the explanation of the feasibility studies up to
the approval of the loan, conditioned on the DBP’s acceptance of the project as feasible. The estimated expenses for this particular
phase would be contingent, i.e. upon DBP’s approval of the plan now being studied and prepared, is somewhere around
₱2,000,000.00.

After a brief discussion on the matter, the Board on motion duly made and seconded, unanimously adopted a resolution of the following
tenor:

RESOLUTION NO. ______

(Series of 1969)

"RESOLVED, as it is hereby RESOLVED, that if the Reparations allocation and the plan being negotiated with the DBP is realized the
estimated maximum expenses of ₱2,000,000.00 for this phase is hereby authorized subject to the sound discretion of the committee
composed of Justice Felix Angelo Bautista, Jose N. Valero and Ephraim G. Gochangco."47 (Emphasis supplied)

Joaquin’s claim for the additional sum of ₱500,000.00 was similarly without factual and legal bases. He had requested the payment of
that amount to cover services rendered and still to be rendered to IHC separately from those covered by the first six phases of the
scope of work. However, there is no reason to hold IHC liable for that amount due to his failure to present sufficient proof of the services
rendered towards that end. Furthermore, his July 11, 1969 letter revealed that the additional services that he had supposedly rendered
were identical to those enumerated in the technical proposal, thus:

The Board of Directors

International Hotel Corporation

Thru: Justice Felix Angelo Bautista

President & Chairman of the Board

Gentlemen:

I have the honor to request this Body for its deliberation and action on the fees for my services rendered and to be rendered to the hotel
project and to the corporation. These fees are separate from the fees you have approved in your previous Board Resolution, since my
fees are separate. I realize the position of the corporation at present, in that it is not in a financial position to pay my services in cash,
therefore, I am requesting this Body to consider payment of my fees even in the form of shares of stock, as you have done to the other
technical men and for other services rendered to the corporation by other people.

Inasmuch as my fees are contingent on the successful implementation of this project, I request that my fees be based on a percentage
of the total project cost. The fees which I consider reasonable for the services that I have rendered to the project up to the completion of
its construction is ₱500,000.00. I believe said amount is reasonable since this is approximately only ¾ of 1% of the total project cost.

So far, I have accomplished Phases 1-5 of my report dated February 1, 1969 and which you authorized us to do under Board
Resolution of February 11, 1969. It is only Phase 6 which now remains to be implemented. For my appointment as Consultant dated
May 12, 1969 and the Board Resolution dated June 23, 1969 wherein I was appointed to the Technical Committee, it now follows that I
have been also authorized to implement part of Phases 7 & 8.

A brief summary of my accomplished work has been as follows:

1. I have revised and made the new Project Study of your hotel project, making it bankable and feasible.

2. I have reduced the total cost of your project by approximately ₱24,735,000.00.

3. I have seen to it that a registered mortgage with the Reparations Commission did not affect the application with the IBP for
approval to processing.

4. I have prepared the application papers acceptable to the DBP by means of an advance analysis and the presentation of the
financial mechanics, which was accepted by the DBP.

5. I have presented the financial mechanics of the loan wherein the requirement of the DBP for an additional ₱19,000,000.00
in equity from the corporation became unnecessary.

6. The explanation of the financial mechanics and the justification of this project was instrumental in changing the original
recommendation of the Investment Banking Department of the DBP, which recommended disapproval of this application, to
the present recommendation of the Real Estate Department which is for the approval of this project for proceeding.

7. I have submitted to you several offers already of foreign financiers which are in your files. We are presently arranging the
said financiers to confirm their funds to the DBP for our project,

8. We have secured the approval of the DBP to process the loan application of this corporation as per its letter July 2, 1969.

9. We have performed other services for the corporation which led to the cooperation and understanding of the different
factions of this corporation.

I have rendered services to your corporation for the past 6 months with no clear understanding as to the compensation of my services.
All I have drawn from the corporation is the amount of ₱500.00 dated May 12, 1969 and personal payment advanced by Justice Felix
Angelo Bautista in the amount of ₱1,000.00.

I am, therefore, requesting this Body for their approval of my fees. I have shown my good faith and willingness to render services to
your corporation which is evidenced by my continued services in the past 6 months as well as the accomplishments above mentioned. I
believe that the final completion of this hotel, at least for the processing of the DBP up to the completion of the construction, will take
approximately another 2 ½ years. In view of the above, I again reiterate my request for your approval of my fees. When the corporation
is in a better financial position, I will request for a withdrawal of a monthly allowance, said amount to be determined by this Body.

Very truly yours,

(Sgd.)
Francisco G., Joaquin, Jr.48
(Emphasis supplied)

Joaquin could not even rest his claim on the approval by IHC’s Board of Directors. The approval apparently arose from the confusion
between the supposedly separate services that Joaquin had rendered and those to be done under the technical proposal. The minutes
of the July 11, 1969 board meeting (when the Board of Directors allowed the payment for Joaquin’s past services and for the 70%
project completion by the technical group) showed as follows:

III

The Third order of business is the compensation of Mr. Francisco G. Joaquin, Jr. for his services in the corporation.

After a brief discussion that ensued, upon motion duly made and seconded, the stockholders unanimously approved a resolution of the
following tenor:

RESOLUTION NO. ___

(Series of 1969)

"RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a compensation in the amount of Five Hundred Thousand (₱500,000.00)
Pesos for his past services and services still to be rendered in the future to the corporation up to the completion of the
Project.1âwphi1 The President is given full discretion to discuss with Mr. Joaquin the manner of payment of said compensation,
authorizing him to pay part in stock and part in cash."

Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorized by this
corporation in its Resolution of February 11, 1969 considering that the assistance so far given the corporation by said Technical Group
in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which
are now being processed. It is estimated that ₱400,000.00 worth of Common Stock would be reasonable for the present
accomplishments and to this effect, the President is authorized to issue the same in the name of the Technical Group, as follows:

₱200,000.00 in Common Stock to Rafael Suarez, an associate in the Technical Group, and ₱200,000.00 in Common stock to Francisco
G. Joaquin, Jr., also a member of the Technical Group.49

Lastly, the amount purportedly included services still to be rendered that supposedly extended until the completion of the construction
of the hotel. It is basic, however, that in obligations to do, there can be no payment unless the obligation has been completely
rendered.50

It is notable that the confusion on the amounts of compensation arose from the parties’ inability to agree on the fees that respondents
should receive. Considering the absence of an agreement, and in view of respondents’ constructive fulfillment of their obligation, the
Court has to apply the principle of quantum meruit in determining how much was still due and owing to respondents. Under the principle
of quantum meruit, a contractor is allowed to recover the reasonable value of the services rendered despite the lack of a written
contract.51 The measure of recovery under the principle should relate to the reasonable value of the services performed.52 The principle
prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain any benefit without paying for it.
Being predicated on equity, the principle should only be applied if no express contract was entered into, and no specific statutory
provision was applicable.53

Under the established circumstances, we deem the total amount of ₱200,000.00 to be reasonable compensation for respondents’
services under the principle of quantum meruit.

Finally, we sustain IHC’s position that the grant of attorney’s fees lacked factual or legal basis. Attorney’s fees are not awarded every
time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. There should be factual or
legal support in the records before the award of such fees is sustained. It is not enough justification for the award simply because
respondents were compelled to protect their rights.54

ACCORDINGLY, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision of the Court of Appeals
promulgated on November 8, 2002 in C.A.-G.R. No. 47094 subject to the MODIFICATIONS that: (a) International Hotel Corporation is
ordered to. pay Francisco G. Joaquin, Jr. and Rafael Suarez ₱100,000.00 each as compensation for their services, and (b) the award
of ₱20,000.00 as attorney's fees is deleted. No costs of suit. SO ORDERED.
 8. G.R. No. 121989             January 31, 2006

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, Respondents.

DECISION

TINGA, J.:

In this Petition for Review on Certiorari, Philippine Commercial International Bank (PCIB) impugns the Decision1 of the Court of Appeals
dated 21 June 1995 finding it liable to Atlas Consolidated Mining and Development Corporation (Atlas), as well as the Resolution2 dated
12 September 1995 denying its Motion for Reconsideration.3

The antecedents follow.

PCIB and, Manila Banking Corporation (MBC) were joint bidders in a foreclosure sale held on 20 December 1975 of assorted mining
machinery and equipment previously mortgaged to them by the Philippine Iron Mines, Inc. (PIM).

Four (4) years later, Atlas agreed to purchase some of these properties owned jointly at that time by PCIB and MBC. The sale was
evidenced by a Deed of Sale dated 8 February 1979, with the parties agreeing therein to an initial downpayment of P12,000,000.00 and
the balance of P18,000,000.00 payable in six (6) monthly installments. It was also stipulated that the total purchase price would be
finally adjusted to exclude items to be retained by the Bureau of Mines. The contract contained provisions expressly warranting the
following: (1) full and sufficient title to the properties, (2) freeing the properties from all liens and encumbrances, (3) freeing Atlas from
all claims and incidental actions of the National Mines and Allied Workers Union (NAMAWU), and (4) full rights and capacity of the
seller to convey title to and effect peaceful delivery of the properties to Atlas.4

The NAMAWU claim stemmed from a labor dispute docketed as RB-VI-3322-75 of the National Labor Relations Commission (NLRC),
where it obtained a favorable judgment against PIM in the amount of P4,298,307.77. This award was affirmed by the Court.5 After the
judgment became final and executory, a writ of execution was duly issued.

In compliance with the contract, on 12 February 1979, Atlas issued Hongkong and Shanghai Bank Check No. 003842 in the amount
of P12,000,000.00 as downpayment, payable to both PCIB and MBC.

In a letter-agreement6 dated 7 March 1979 between PCIB and MBC bearing the conformity of Atlas that was made a supplement to the
Deed of Sale, the final purchase price was adjusted to P29,630,000.00.

On the following day, PCIB and MBC wrote Atlas requesting that subsequent installment payments of the balance be made in the
following proportions: PCIB – 63.1579% and MBC - 36.8421%. The request was expressed through a letter7 signed by Ruben G.
Asedillo and Porfirio Q. Cabalu, Vice Presidents respectively of MBC and PCIB.

On 18 April 1979, Atlas paid to NAMAWU the amount of P4,298,307.77. This payment was made in compliance with the writ of
garnishment issued on the same date against Atlas to satisfy the final judgment in favor of NAMAWU and against PIM.

PCIB and MBC filed on 23 April 1979 a petition for certiorari with this Court, seeking to annul and set aside the order of garnishment
and to enjoin Atlas from complying with it. The Court, in G.R. No. L-50402, dismissed the petition and sustained Atlas’s rights as
follows:

. . . Atlas had the right to receive the properties free from any lien and encumbrance, and when the garnishment was served on it, it was
perfectly in the right in slashing the P4,298,307.77 from the P30M it had to pay petitioners (PCIB, MBC) in order to satisfy the long
existing and vested right of the laborers of financially moribund PIM, without any liability to petitioners for reimbursement thereof." 8

In the meantime, Atlas had made six (6) monthly payments in 1979 totaling P13,696,692.22, of which P8,650,543.18 or 63.1579% was
received by PCIB.

According to Atlas, apart from the downpayment of P12,000,000.00 and installment payments of P13,696,692.22, it should be credited
with its payment of P4,298,307.77 to NAMAWU as a consequence of the garnishment with which the latter had secured together with
corresponding P5,000.00 sheriff’s fee. Thus, Atlas claims to have paid a total of P30,000,000.00, of which P370,000.00 was an
overpayment. Following the payment allocations between PCIB and MBI, Atlas claimed that PCIB should reimburse it to the tune
of P233,684.23. When PCIB refused to pay, Atlas sued PCIB to obtain reimbursement of the alleged overpayment.

On the other hand, PCIB contended that Atlas still owed it a total of P908,398.75. It also alleged that even before the writ of
garnishment was served on Atlas, the judgment in favor of NAMAWU had already been partially satisfied in the amount of P601,260.00.
On account of this earlier payment, PCIB argued that the total payments NAMAWU had received exceeded what it was entitled to by
reason of the final judgment and, therefore, Atlas could not credit the full amount received by NAMAWU in satisfaction of the Atlas
obligation to PCIB.

The trial court, in a Decision9 dated 29 November 1990, upheld PCIB’s position and ordered Atlas to pay P908,398.75, plus interest at
the legal rate from the time of demand until payment of said amount.10 It ruled:

After a thorough analysis and evaluation of the evidence thus far adduced and remaining unrebutted, the Court is convinced that
defendant only received the amount of P6,819,766.10, as its share out of the P12,000,000.00 downpayment, provided in the Deed of
Sale, not P7,578,948.00 as claimed by plaintiff. The Court is furthermore convinced that plaintiff erroneously paid the amount
of P4,298,307.77 to NAMAWU which payment was made pursuant to the writ of garnishment in NLRC Case No. RB-VI-3322-75. Before
the service of the writ of garnishment on April 18, 1979, the judgment in NLRC Case had already been satisfied in the amount
of P601,260.00 on account of several execution sales held on February 28, 1976 and October 20, 1976 and the remaining balance
thereto at the time of the service of the writ of garnishment on plaintiff was only P3,697,[047].77. Certainly, this is the only amount which
can be credited to plaintiff by defendant because 63.1579% of P3,697,047.77 is P2,334,977.74, according to letter-request of
defendant PCIB and MBC to plaintiff dated March 8, 1979. Instead of paying NAMAWU the amount of P3,697,047.77 which is the
correct amount, plaintiff paid the amount of P4,298,307.77.

The Court of Appeals reversed the lower court by ordering PCIB to pay Atlas the sum of P233,654.23, plus interest at the legal rate
from the date of the first demand on 3 September 1984, until fully paid, as well as the sum of P20,000.00 as attorney’s fees and costs
of suit. The appellate court disposed of the case as follows:

A careful examination of the evidences presented in the case, though, evidently show that appellee PCIB has no cause to blame
appellant Atlas for its failure to receive what it maintains was a shortchange in the share of P12 Million downpayment. It must be
emphasized that at the time the downpayment check was paid, the Deed of Sale did not mention any proportionate sharing of the
proceeds thereof between PCIB and MBC implying a 50-50 sharing between the two (2) sellers. The 63.1579% for PCIB and 36.8421%
was only made known and relayed to Atlas in a letter dated March 8, 1979 after the downpayment check of P12 Million had already
been paid on February 12, 1979. Furthermore, the initial check was paid and received by Porfirio O. Cabalu, Jr., Vice-President of
defendant-appellee PCIB. Apparently, after the check was deposited in the account of MBC, the latter issued its MBC Check No.
1652661 in the amount of P6,819,766.10 to PCIB, properly receipted under Official Receipt No. 466652 of PCIB. In other words, what
the appellee herein receipted was the share given to it by Manilabank. Whether the same was short of what is legally entitled becomes
an internal matter between MBC and PCIB, with Atlas having nothing to do with it. Legally, Atlas had effectively paid the P12 Million
downpayment to both PCIB and MBC.

As regard the second item, the propriety of the P4,298,307.77 paid by Atlas to NAMAWU and incidental amount of P5,000.00 to the
Sheriff by virtue of the Notice of Garnishment in the labor dispute NLRC Case No. RB-VI-331-75, had already been judicially settled in
the case of "PCIB and MBC versus NAMAWU-IMF, L-50402, August 1982, 115 SCRA 873." Said case is a Petition for Certiorari
praying, inter-alia that the High Court orders [sic] the NLRC to stop delivery of the check of P4,298,307.77 (same check in this case) of
private respondent Atlas and/or to stop payment to NAMAWU.

....

Rightfully so, with the above discussion and the conceded fact that Atlas made a P370,000.00 overpayment to PCIB and MBC, said
amount should be ordered returned. And since mathematically, 63.1579% of P370,000.00 is P233,684.23, appellee PCIB should be
ordered to pay back Atlas said amount with interest at the legal rate, being a forbearance of money, from the first demand until fully
paid. Reasonable attorney’s [fees] of P20,000.00 is likewise award[ed] to appellant Atlas for having been forced to litigate after its
several prior lawful demands to collect from PCIB the overpayment, were obstinately and unjustly refused.11 (Emphasis not ours.)

PCIB moved for a reconsideration of the decision but the same was denied by the Court of Appeals in a Resolution dated 12
September 1995.

PCIB is now before us. The instant petition is anchored on two grounds, namely: (1) the Court of Appeals erred in reversing the trial
court by disturbing the latter’s factual findings and conclusions despite the absence of strong and cogent reasons: and (2) the Court of
Appeals erred in finding that Atlas had complied with its obligation to PCIB.12

Prefatorily, findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this Court.13 A
deviation from this rule, however, is justified where the findings of fact of the Court of Appeals contradict those of the trial court.14 In the
case at bar, the contradictory findings of the courts below necessitate our review of the factual issues.

The controversy boils down into whether Atlas overpaid or underpaid PCIB. To resolve the conflicting claims, we must dispose of two
issues: whether PCIB should settle for only P6,819,766.10 which it received out of the P12,000,000.00 downpayment or it is entitled to
more than that, specifically 63.1579% of the downpayment; and whether Atlas should be fully credited for the amount of P4,298,307.77
it had paid to NAMAWU.
Let us briefly recall the pertinent antecedents to appreciate the issues in a better light. There is no dispute that the total purchase price
of the properties bought by Atlas was P29,630,000.00. Of this amount, PCIB claims that it is entitled to receive from Atlas the total
of P18,713,685.77 or 63.1579% of the purchase price, pursuant to the letter dated 7 March 1979 of the P12,000,000.00 down payment
made by Atlas to PCIB and MBC, and PCIB acknowledged that it had received P6,819,766.10. PCIB also admitted having
received P8,650,543.18 as its share from the subsequent installment payments made by Atlas.

On the first issue, the Court of Appeals rejected PCIB’s claim that it should received 63.1579% of the downpayment. It ruled in essence
that PCIB cannot demand from Atlas more than what it got from MBC out of the downpayment remitted by Atlas to both PCIB and MBC.

We uphold the appellate court on this issue.

This case concerns a joint obligation, which is defined as an obligation where there is a concurrence of several creditors, or of several
debtors, or of several debtors, or of several creditors and debtors, by virtue of which each of the creditors has a right to demand, and
each of the debtors is bound to render, compliance with his proportionate part of the prestation which constitutes the object of the

obligation.15 Article 120816 of the Civil Code mandates the equal sharing of creditors in the payment of debt in the absence of any law or
stipulation to the contrary.

PCIB is adamant in claiming that it only received P6,819,766.10 as its share in the downpayment. To prove its allegation, PCIB
presented its own receipt17 wherein it was clearly stated that PCIB received from Atlas the amount of P6,819,766.10.

It is beyond dispute that Atlas issued Hongkong Shanghai Bank Check No. 003842 in the sum of P12,000,000.00 with PCIB and MBC
as joint payees as downpayment of the purchase price on 12 February 1979. The check was received by Porfirio Cabalu, Jr., a PCIB
Vice-President. As admitted by the parties during trial, the check was afterwards deposited in the account of MBC.18 Therefore, it is
reasonable to conclude that the amount received by PCIB, as evidenced by the receipt, was given to it by MBC. The appellate court
arrived at the same conclusion, to wit:

Apparently, after the check was deposited in the account of MBC, the latter issued its MBC Check No. 1652661 in the amount
of P6,819,766.10 to PCIB, properly receipted under Official Receipt No. 466652 of PCIB. In other words, what the appellee herein
receipted was the share given to it by Manilabank.

Undeniably, there was yet no agreement as of that date concerning the corresponding share of each creditor. It was only on 8 March
1979 when PCIB communicated to Atlas the percentage of payments to be remitted to PCIB and MBC. Before said date, Atlas could be
secure in the thought that the matter of sharing was best left to the creditors to decide.

Thus, we agree with the appellate court’s conclusion that whatever deficiency PCIB is entitled from the P12,000,000.00 down payment
had become an internal matter between it and MBC.19 The obligation was deemed fulfilled to the extent of P12,000,000.00 on the part
of Atlas when the check was received by a representative of PCIB and eventually deposited in the account of MBC.

On the second issue, PCIB posits that Atlas cannot be credited with the payment of the full amount of P4,298,307.77 because the
remaining outstanding balance with respect to the NAMAWU judgment claim at the time of the service of the writ of garnishment on
Atlas was only P3,697,047.77. Atlas, on the other hand, insists that the creditable payment to NAMAWU was P4,298,307.77, as upheld
by the Supreme Court in NAMAWU v. PCIB. Accordingly, it is this amount which should be the basis in extracting the 63.1579% share
of PCIB, which amounts to P2,714,720.92 and not P2,334,977.74 as erroneously asserted by PCIB.20

The appellate court upheld the position of Atlas on the second issue. We reverse the appellate court.

While the original amount sought to be garnished was P4,298,307.77, the partial payment of P601,260.00 naturally reduced it
to P3,697,047.77. Clearly, Atlas overpaid NAMAWU. It will be recalled that upon receipt of the writ of garnishment, Atlas immediately
paid NAMAWU, without making any investigation or consultation with PCIB.

Article 1236 of the Civil Code applies in this instance. It provides that whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has
been beneficial to the debtor.

PCIB is the debtor in this case, it having purchased along with MBC legally garnished properties, while Atlas is the third person who
paid the obligation of the debtor without the latter’s knowledge and consent. Since Atlas readily paid NAMAWU without the knowledge
and consent of PCIB, Atlas may only recover from PCIB or, more precisely charge to PCIB, only the amount of payment which has
benefited the latter.

Generally, the third person who paid another’s debt is entitled to recover the full amount he had paid. The law, however, limits his
recovery to the amount by which the debtor has been benefited, if the debtor has no knowledge of, or has expressed his opposition to
such payment. Where the defenses that could have been set up by the debtor against the creditor were existing and perfected, a
payment by a third person without the knowledge of the debtor cannot obligate the
debtor to such third person to an amount more than what he could have been compelled by the creditor to pay. Thus, if the debt has
been remitted, paid, compensated or prescribed, a payment by a third person would constitute a payment of what is not due; his
remedy would be against the person who received the payment under such conditions, and not against the debtor who did not benefit
from the payment.21

The trial court correctly ruled that the overpayment amounting to P601,260.00 should be recovered from NAMAWU. The remedy of
Atlas in this case would be to proceed, not against PCIB, but against NAMAWU who was paid in excess, applying the principle that no
person can unjustly enrich himself at the expense of another.22

Having established that there has been partial satisfaction of the judgment in the amount of P601,260.00, the remaining obligation of
PCIB in the judgment account stood at P2,334,977.74. Consequently, this is the only amount which must be credited to Atlas.

As it stands, the total payments by Atlas amounted to only P29,398,739.99. Therefore, Atlas must settle P231,260.00, the balance of
the purchase price, of which PCIB is entitled to receive P146,058.96 as its proportionate share.

WHEREFORE, based on the foregoing, the petition is GRANTED in PART. The Decision of the Court of Appeals is REVERSED and
SET ASIDE and in lieu thereof Atlas is ORDERED to pay PCIB the sum of P146,058.96, with legal interest commencing from the time
of first demand on 22 August 1985.

No costs.

SO ORDERED.
 9. G.R. No. 156302               April 7, 2009

THE HEIRS OF GEORGE Y. POE, Petitioners,

vs.
MALAYAN INSURANCE COMPANY, INC., Respondent.

DECISION

CHICO-NAZARIO, J.:

The instant Petition for Review under Rule 451 of the Rules of Court assails the Decision2 dated 26 June 2002 of the Court of Appeals
in CA-G.R. SP No. 67297, which granted the Petition for Certiorari of respondent Malayan Insurance Company, Inc. (MICI) and recalled
and set aside the Order3 dated 6 September 2001 of the Regional Trial Court (RTC), Branch 73, of Antipolo City, in Civil Case No. 93-
2705. The RTC, in its recalled Order, denied the Notice of Appeal of MICI and granted the Motion for the Issuance of a Writ of
Execution filed by petitioners Heirs of George Y. Poe. The present Petition also challenges the Resolution4 dated 29 November 2002 of
the appellate court denying petitioners’ Motion for Reconsideration.

Records show that on 26 January 1996 at about 4:45 a.m., George Y. Poe (George) while waiting for a ride to work in front of Capital
Garments Corporation, Ortigas Avenue Extension, Barangay Dolores, Taytay, Rizal, was run over by a ten-wheeler Isuzu hauler truck
with Plate No. PMH-858 owned by Rhoda Santos (Rhoda), and then being driven by Willie Labrador (Willie).5 The said truck was
insured with respondent MICI under Policy No. CV-293-007446-8.

To seek redress for George’s untimely death, his heirs and herein petitioners, namely, his widow Emercelinda, and their children Flerida
and Fernando, filed with the RTC a Complaint for damages against Rhoda and respondent MICI, docketed as Civil Case No. 93-
2705.6 Petitioners identified Rhoda and respondent MICI, as follows:

Defendant RHODA SANTOS is likewise of legal age, Filipino and a resident of Real Street, Pamplona, Las Piñas, Metro Manila where
she may be served with summons and other court processes.

[Herein respondent] MALAYAN INSURANCE COMPANY, INC. (hereinafter "[MICI]" for brevity) is a corporation duly organized and
existing under Philippine law with address at Yuchengco Bldg., 484 Q. Paredes Street, Binondo, Manila where it may be served with
summons and other processes of this Honorable Court;

Defendant Rhoda Santos, who is engaged in the business, among others, of selling gravel and sand is the registered owner of one
Isuzu Truck, with Plate No. PMH-858 and is the employer of Willie Labrador the authorized driver of the aforesaid truck.

[Respondent MICI] on the other hand is the insurer of Rhoda Santos under a valid and existing insurance policy duly issued by said
[MICI], Policy No. CV-293-007446-8 over the subject vehicle owned by Rhoda Santos, Truck-Hauler Isuzu 10 wheeler with plate no.
PMH-858, serial no. SRZ451-1928340 and motor no. 10PA1-403803. Under said insurance policy, [MICI] binds itself, among others, to
be liable for damages as well as any bodily injury to third persons which may be caused by the operation of the insured vehicle.7

And prayed that:

[J]udgment issue in favor of [herein petitioners] ordering [Rhoda and herein respondent MICI] jointly and solidarily to pay the
[petitioners] the following:

1. Actual damages in the total amount of THIRTY SIX THOUSAND (₱36,000.00) PESOS for funeral and burial expenses;

2. Actual damages in the amount of EIGHT HUNDRED FIVE THOUSAND NINE HUNDRED EIGHTY FOUR (₱805,984.00)
PESOS as loss of earnings and financial support given by the deceased by reason of his income and employment;

3. Moral damages in the amount of FIFTY THOUSAND (₱50,000.00) PESOS;

4. Exemplary damages in the amount of FIFTY THOUSAND (₱50,000.00) PESOS;

5. Attorney’s fees in the amount of FIFTY THOUSAND (₱50,000.00) PESOS and litigation expense in the amount of ONE
THOUSAND FIVE HUNDRED (₱1,500.00) PESOS for each court appearance;

6. The costs of suit.

Other reliefs just and equitable in the premises are likewise prayed for.8
Rhoda and respondent MICI made the following admissions in their Joint Answer9 :

That [Rhoda and herein respondent MICI] admit the allegations in paragraphs 2, 3 and 4 of the complaint;

That [Rhoda and respondent MICI] admit the allegations in paragraph 5 of the complaint that the cargo truck is insured with
[respondent] Malayan Insurance Company, Inc. [(MICI)] however, the liability of the insured company attached only if there is a judicial
pronouncement that the insured and her driver are liable and moreover, the liability of the insurance company is subject to the
limitations set forth in the insurance policy.10

Rhoda and respondent MICI denied liability for George’s death averring, among other defenses, that: a) the accident was caused by
the negligent act of the victim George, who surreptitiously and unexpectedly crossed the road, catching the driver Willie by surprise,
and despite the latter’s effort to swerve the truck to the right, the said vehicle still came into contact with the victim; b) the liability of
respondent MICI, if any, would attach only upon a judicial pronouncement that the insured Rhoda and her driver Willie are liable; c) the
liability of MICI should be based on the extent of the insurance coverage as embodied in Rhoda’s policy; and d) Rhoda had always
exercised the diligence of a good father of a family in the selection and supervision of her driver Willie.

After the termination of the pre-trial proceedings, trial on the merits ensued.

Petitioners introduced and offered evidence in support of their claims for damages against MICI, and then rested their case. Thereafter,
the hearings for the reception of the evidence of Rhoda and respondent MICI were scheduled, but they failed to adduce their evidence
despite several postponements granted by the trial court. Thus, during the hearing on 9 June 1995, the RTC, upon motion of
petitioners’ counsel, issued an Order11 declaring that Rhoda and respondent MICI had waived their right to present evidence, and
ordering the parties to already submit their respective Memorandum within 15 days, after which, the case would be deemed submitted
for decision.1avvphi1.zw+

Rhoda and respondent MICI filed a Motion for Reconsideration12 of the Order dated 9 June 1995, but it was denied by the RTC in
another Order dated 11 August 1995.13

Consequently, Rhoda and respondent MICI filed a Petition for Certiorari, Mandamus,14 Prohibition and Injunction with Prayer for a
Temporary Restraining Order and Writ of Preliminary Injunction, assailing the Orders dated 9 June 1995 and 11 August 1995 of the
RTC foreclosing their right to adduce evidence in support of their defense. The Petition was docketed as CA-G.R. SP No. 38948.

The Court of Appeals, through its Third Division, promulgated a Decision15 on 29 April 1996, denying due course to the Petition in CA-
G.R. SP No. 38948. Rhoda and respondent MICI elevated the matter to the Supreme Court via a Petition for Certiorari,16 docketed as
G.R. No. 126244. This Court likewise dismissed the Petition in G.R. No. 126244 in a Resolution dated 30 September 1996.17 Entry of
Judgment was made in G.R. No. 126244 on 8 November 1996.18

On 28 February 2000, the RTC rendered a Decision in Civil Case No. 93-2705, the dispositive portion of which reads:

Wherefore, [Rhoda and herein respondent MICI] are hereby ordered to pay jointly and solidarily to the [herein petitioners] the following:

1. Moral damages amounting to ₱100,000.00;

2. Actual damages for loss of earning capacity amounting to ₱805,984.00;

3. ₱36,000.00 for funeral expenses;

4. ₱50,000.00 as exemplary damages;

5. ₱50,000.00 for attorney’s fees plus ₱1,500 per court appearance; and

6. Cost of suit.19

Rhoda and respondent MICI received their copy of the foregoing RTC Decision on 14 March 2000.20 On 22 March 2000, respondent
MICI and Rhoda filed a Motion for Reconsideration21 of said Decision, averring therein that the RTC erred in ruling that the obligation of
Rhoda and respondent MICI to petitioners was solidary or joint and several; in computing George’s loss of earning capacity not in
accord with established jurisprudence; and in awarding moral damages although it was not buttressed by evidence.

Resolving the Motion of respondent MICI and Rhoda, the RTC issued an Order22 on 24 January 2001 modifying and amending its
Decision dated 28 February 2000, and dismissing the case against respondent MICI.

The RTC held that:

After a careful evaluation of the issues at hand, the contention of the [herein respondent MICI] as far as the solidary liability of the
insurance company with the other defendant [Rhoda] is meritorious. However, the assailed Decision can be modified or amended to
correct the same honest inadvertence without necessarily reversing it and set aside to conform with the evidence on hand.

The RTC also re-computed George’s loss of earning capacity, as follows:

The computation of actual damages for loss of earning capacity was determined by applying the formula adopted in the American
Expectancy Table of Mortality or the actuarial of Combined Experience Table of Mortality applied in x x x Villa Rey Transit, Inc. v. Court
of Appeals (31 SCRA 521). Moral damages is awarded in accordance with Article 2206 of the New Civil Code of the Philippines. While
death indemnity in the amount of ₱50,000.00 is automatically awarded in cases where the victim had died (People v. Sison, September
14, 1990 [189 SCRA 643]).23

In the end, the RTC decreed:

WHEREFORE, in view of the foregoing consideration, the Decision of this Court dated 28 February 2000 is hereby amended or
modified. Said Decision should read as follows:

"Wherefore, defendant Rhoda Santos is hereby ordered to pay to the [herein petitioners] the following:

1. Moral damages amounting to ₱100,000.00;

2. Actual damages for loss of earning capacity amounting to ₱102,106.00;

3. ₱36,000.00 for funeral expenses;

4. ₱50,000.00 as death indemnity;

5. ₱50,000.00 for attorney’s fees plus ₱1,500.00 per court appearance;

6. Costs of the suit.

The case against Malayan Insurance Company, Inc. is hereby dismissed."24

It was petitioners’ turn to file a Motion for Reconsideration25 of the 24 January 2001 Order, to which respondent MICI filed a "Vigorous
Opposition to the Plaintiff’s Motion for Reconsideration."26

On 15 June 2001, the RTC issued an Order reinstating its Decision dated 28 February 2000, relevant portions of which state:

Finding the arguments raised by the [herein petitioners] in their Motion for Reconsideration of the Order of this Court dated January 24,
2001 to be more meritorious to [herein respondent’s] Malayan Insurance Co., Inc. (sic) arguments in its vigorous opposition thereto,
said motion is hereby granted.

Accordingly, the Order under consideration is hereby reconsidered and set aside. The decision of this Court dated February 28, 2000 is
hereby reinstated.

Notify parties herein.27

Respondent MICI received a copy of the 15 June 2001 Order of the RTC on 27 June 2001.

Aggrieved by the latest turn of events, respondent MICI filed on 9 July 2001 a Notice of Appeal28 of the 28 February 2000 Decision of
the RTC, reinstated by the 15 June 2001 Resolution of the same court. Rhoda did not join respondent MICI in its Notice of Appeal.29

Petitioners filed their Opposition30 to the Notice of Appeal of respondent MICI, with a Motion for the Issuance of Writ of Execution.

After considering the recent pleadings of the parties, the RTC, in its Order dated 6 September 2001, denied the Notice of Appeal of
respondent MICI and granted petitioners’ Motion for the Issuance of Writ of Execution. The RTC reasoned in its Order:

The records disclosed that on February 28, 2000 this Court rendered a Decision in favor of the [herein petitioners] and against [Rhoda
and herein respondent MICI]. The Decision was said to have been received by MICI on March 14, 2000. Eight days after or on March
22, 2000, MICI mailed its Motion for Reconsideration to this Court and granted the same in the Order dated January 24, 2001. From
this Order, [petitioners] filed a Motion for Reconsideration on February 21, 2001 to which MICI filed a vigorous opposition. On June 15,
2001 this Court granted [petitioners’] motion reinstating the Decision dated February 28, 2000. According to MICI, the June 15, 2001
order was received by it on June 27, 2001. MICI filed a Notice of Appeal on July 9, 2001 or twelve (12) days from receipt of said Order.

[Petitioners] contend that the Notice of Appeal was filed out of time while [respondent] MICI opposes, arguing otherwise. The latter
interposed that the Order dated June 15, 2001 is in reality a new Decision thereby giving it a fresh fifteen (15) days within which to file
notice of appeal.

[Respondent] MICI’s contention is not meritorious. The fifteen (15) day period within which to file a notice of appeal should be reckoned
from the date it received the Decision on March 14, 2000. So that when MICI mailed its Motion for Reconsideration on March 22, 2000,
eight (8) days had already lapsed, MICI has remaining seven (7) days to file a notice of appeal. However, when it received the last
Order of this Court it took [respondent] MICI twelve (12) days to file the same. Needless to say, MICI’s Notice of Appeal was filed out of
time. The Court cannot countenance the argument of MICI that a resolution to a motion for a final order or judgment will have the effect
of giving a fresh reglementary period. This would be contrary to what was provided in the rules of procedure.31

Accordingly, the RTC adjudged:

WHEREFORE, premises considered, [herein respondent] MICI’s Notice of Appeal is hereby Denied for having filed out of time making
the Decision of this Court dated February 28, 2000 as final and executory. Accordingly, the Motion for Issuance of Writ of Execution
filed by [herein petitioners] is hereby Granted.

Notify parties herein.32

Respondent MICI filed a Petition for Certiorari33 under Rule 65 of the Rules of Court before the Court of Appeals, which was docketed
as CA-G.R. SP No. 67297. The Petition assailed, for having been rendered by the RTC with grave abuse of discretion amounting to
lack or excess of jurisdiction, the following: (1) the Order dated 6 September 2001, denying the Notice of Appeal of respondent MICI
and granting petitioners’ Motion for the Issuance of Writ of Execution; (2) the Decision dated 28 February 2000, holding Rhoda and
respondent MICI jointly and severally liable for George’s death; and (3) the Order dated 15 June 2001, reinstating the Decision dated
28 February 2000.

The Court of Appeals granted the Petition for Certiorari of respondent MICI in a Decision dated 26 June 2000, ratiocinating thus:

Prescinding therefrom, we hold that the fifteen (15) day period to appeal must be reckoned from the time the [herein
respondent] Malayan received the order dated 15 June 2001 reversing in toto the order of 24 January 2000 and reinstating in
full the Decision dated 28 February 2000. Thus, [respondent] Malayan had until 12 July 2001 within which to file its notice of appeal.
Therefore, when [respondent] Malayan filed its notice of appeal on 09 July 2001, it was well within the reglementary period and should
have been given due course by the public respondent court.

It was therefore, an excess of jurisdiction on the part of the public respondent court when it reckoned the [respondent] Malayan’s period
to appeal on the date it received on 14 March 2000 the former’s decision dated 28 February 2000. As earlier expostulated, the said
decision was completely vacated insofar as the [respondent] Malayan is concerned when the public respondent court in its order dated
24 January 2001 dismissed the case against the former. Thus, to reckon the fifteen (15) days to appeal from the day the [respondent]
Malayan received the said decision on 14 March 2000, is the height of absurdity because there was nothing for the [respondent]
Malayan to appeal inasmuch as the public respondent court vacated the said decision in favor of the former.

The aforesaid conclusion finds support in Sta. Romana vs. Lacson (104 SCRA 93), where the court, relying on the case of Magdalena
Estate, Inc. vs. Caluag, 11 SCRA 334, held that where the court of origin made a thoroughly (sic) restudy of the original judgment and
rendered the amended and clarified judgment only after considering all the factual and legal issues, the amended and clarified decision
was an entirely new decision which superseded (sic). For all intents and purposes, the court concluded the trial court rendered a new
judgment from which the time to appeal must be reckoned.

In the instant case, what is involved is not merely a substantial amendment or modification of the original decision, but the total reversal
thereof in the order dated 24 January 2000. Given the rationale in the aforecited cases, it is only logical that the period of appeal be
counted from 27 June 2001, the date that [respondent] Malayan received the order dated 15 June 2001 reversing in toto the order of 24
January 2000 and reinstating the Decision dated 28 February 2000.34 (Emphasis supplied.)

The fallo of the Decision of the Court of Appeals reads:

WHEREFORE, in consideration of the foregoing premises, the petition for certiorari is partially GRANTED. Accordingly, the public
respondent court’s order dated 06 September 2001 is hereby RECALLED and SET ASIDE.

Public respondent court is hereby directed to approve the petitioner Malayan’s notice of appeal and to refrain from executing the writ of
execution granted on 06 September 2001.35

The Court of Appeals denied petitioners’ Motion for Reconsideration in a Resolution dated 29 November 2002.
Understandably distraught, petitioners come before this Court in this Petition for Review, which raise the following issues:

I.

Whether or not the respondent Court of Appeals committed grave abuse of discretion when it ruled that private respondent could file a
Petition for Certiorari even though its Motion for Reconsideration was still pending resolution with the lower court.

II.

Whether or not the respondent Court of Appeals committed grave abuse of discretion when it ruled that the private respondent had filed
its Notice of Appeal with the trial court within the reglementary period.36

The Court first turns its attention to the primary issue for its resolution: whether the Notice of Appeal filed by respondent MICI before the
RTC was filed out of time.

The period for filing a Notice of Appeal is set by Rule 41, Section 3 of the 1997 Rules of Court:

SEC. 3. Period of ordinary appeal. The appeal shall be taken within fifteen (15) days from notice of the judgment or final order appealed
from. Where a record on appeal is required, the appellants shall file a notice of appeal and a record on appeal within thirty (30) days
from notice of the judgment or final order. x x x.

The period of appeal shall be interrupted by a timely motion for new trial or reconsideration. No motion for extension of time to file a
motion for new trial or reconsideration shall be allowed.

It is clear under the Rules that an appeal should be taken within 15 days from the notice of judgment or final order appealed from.37 A
final judgment or order is one that finally disposes of a case, leaving nothing more for the court to do with respect to it. It is an
adjudication on the merits which, considering the evidence presented at the trial, declares categorically what the rights and obligations
of the parties are; or it may be an order or judgment that dismisses an action.38

Propitious to petitioners is Neypes v. Court of Appeals,39 which the Court promulgated on 14 September 2005, and wherein it laid down
the fresh period rule:

To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal their cases, the Court deems it
practical to allow a fresh period of 15 days within which to file the notice of appeal in the Regional Trial Court, counted from receipt
of the order dismissing a motion for a new trial or motion for reconsideration.

Henceforth, this "fresh period rule" shall also apply to Rule 40 governing appeals from the Municipal Trial Courts to the Regional
Trial Courts; Rule 42 on petitions for review from the Regional Trial Courts to the Court of Appeals; Rule 43 on appeals from
quasi-judicial agencies to the Court of Appeals and Rule 45 governing appeals by certiorari to the Supreme Court. The new rule aims to
regiment or make the appeal period uniform, to be counted from receipt of the order denying the motion for new trial, motion for
reconsideration (whether full or partial) or any final order or resolution. (Emphases ours.)

The fresh period of 15 days becomes significant when a party opts to file a motion for new trial or motion for reconsideration. In this
manner, the trial court which rendered the assailed decision is given another opportunity to review the case and, in the process,
minimize and/or rectify any error of judgment.40 With the advent of the fresh period rule, parties who availed themselves of the remedy
of motion for reconsideration are now allowed to file a notice of appeal within fifteen days from the denial of that motion.41

The Court has accentuated that the fresh period rule is not inconsistent with Rule 41, Section 3 of the Rules of Court which states that
the appeal shall be taken "within fifteen (15) days from notice of judgment or final order appealed from." The use of the disjunctive word
"or" signifies disassociation and independence of one thing from another. It should, as a rule, be construed in the sense which it
ordinarily implies.42 Hence, the use of "or" in the above provision supposes that the notice of appeal may be filed within 15 days from
the notice of judgment or within 15 days from notice of the final order in the case.

Applying the fresh period rule, the Court agrees with the Court of Appeals and holds that respondent MICI seasonably filed its Notice of
Appeal with the RTC on 9 July 2001, just 12 days from 27 June 2001, when it received the denial of its Motion for Reconsideration of
the 15 June 2001 Resolution reinstating the 28 February 2000 Decision of the RTC.

The fresh period rule may be applied to the case of respondent MICI, although the events which transpired concerning its Notice of
Appeal took place in June and July 2001, inasmuch as rules of procedure may be given retroactive effect on actions pending and
undetermined at the time of their passage. The Court notes that Neypes was promulgated on 14 September 2005, while the instant
Petition was still pending before this Court.
Reference may be made to Republic v. Court of Appeals,43 involving the retroactive application of A.M. No. 00-2-03-SC which provided
that the 60-day period within which to file a petition for certiorari shall be reckoned from receipt of the order denying the motion for
reconsideration. In said case, the Court declared that rules of procedure "may be given retroactive effect to actions pending and
undetermined at the time of their passage and this will not violate any right of a person who may feel that he is adversely affected,
inasmuch as there is no vested rights in rules of procedure."

Hence, the fresh period rule laid down in Neypes was applied by the Court in resolving the subsequent cases of Sumaway v. Urban
Bank, Inc.,44 Elbiña v. Ceniza,45 First Aqua Sugar Traders, Inc. v. Bank of the Philippine Islands,46 even though the antecedent facts
giving rise to said cases transpired before the promulgation of Neypes.

In De los Santos v. Vda de Mangubat,47 particularly, the Court applied the fresh period rule, elucidating that procedural law refers to the
adjective law which prescribes rules and forms of procedure in order that courts may be able to administer justice. Procedural laws do
not come within the legal conception of a retroactive law, or the general rule against the retroactive operation of statutes. The fresh
period rule is irrefragably procedural, prescribing the manner in which the appropriate period for appeal is to be computed or
determined and, therefore, can be made applicable to actions pending upon its effectivity without danger of violating anyone else’s
rights.

Since the Court affirms the ruling of the Court of Appeals that respondent MICI filed its Notice of Appeal with the RTC within the
reglementary period, the appropriate action, under ordinary circumstances, would be for the Court to remand the case to the RTC so
that the RTC could approve the Notice of Appeal of respondent MICI and respondent MICI could already file its appeal with the Court of
Appeals.

However, considering that the case at bar has been pending for almost sixteen years,48 and the records of the same are already before
this Court, remand is no longer necessary.

Jurisprudence dictates that remand of a case to a lower court does not follow if, in the interest of justice, the Supreme Court itself can
resolve the dispute based on the records before it. As a rule, remand is avoided in the following instances: (a) where the ends of justice
would not be subserved by a remand; or (b) where public interest demands an early disposition of the case; or (c) where the trial court
has already received all the evidence presented by both parties, and the Supreme Court is in a position, based upon said evidence, to
decide the case on its merits.49 In Lao v. People,50 the Supreme Court, in consideration of the years that it had taken for the controversy
therein to reach it, concluded that remand of the case to a lower court was no longer the more expeditious and practical route to follow,
and it then decided the said case based on the evidentiary record before it.

The consistent stand of the Court has always been that a case should be decided in its totality, resolving all interlocking issues in order
to render justice to all concerned and to end the litigation once and for all. Verily, courts should always strive to settle the entire
controversy in a single proceeding, leaving no root or branch to bear the seed of future litigation.51 Where the public interest so
demands, the court will broaden its inquiry into a case and decide the same on the merits rather than merely resolve the procedural
question raised.52 Such rule obtains in this case.

The Court is convinced that the non-remanding of the case at bar is absolutely justified. Petitioners have already suffered from the
tragic loss of a loved one, and must not be made to endure more pain and uncertainty brought about by the continued pendency of their
claims against those liable. The case has been dragging on for almost 16 years now without the petitioners having been fully
compensated for their loss. The Court cannot countenance such a glaring indifference to petitioners’ cry for justice. To be sure, they
deserve nothing less than full compensation to give effect to their substantive rights.53

The complete records of the present case have been elevated to this Court, and the pleadings and evidence therein could fully support
its factual adjudication. Indeed, after painstakingly going over the records, the Court finds that the material and decisive facts are
beyond dispute: George was killed when he was hit by the truck driven by Willie, an employee of Rhoda; and the truck is insured with
respondent MICI. The only issue left for the Court to resolve is the extent of the liability of Rhoda and respondent MICI for George’s
death and the appropriate amount of the damages to be awarded to petitioners.

The Court now turns to the issue of who is liable for damages for the death of George.

Respondent MICI does not deny that it is the insurer of the truck. Nevertheless, it asserts that its liability is limited, and it should not be
held solidarily liable with Rhoda for all the damages awarded to petitioners.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to
demand the whole obligation. In a joint obligation, each obligor answers only for a part of the whole liability and to each obligee belongs
only a part of the correlative rights. Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is solidary
liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.54

It is settled that where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct
and such third persons can directly sue the insurer. The direct liability of the insurer under indemnity contracts against third party liability
does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they
are being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with
the provisions of the Civil Code;55 while that of the insurer arises from contract, particularly, the insurance policy. The third-party liability
of the insurer is only up to the extent of the insurance policy and that required by law; and it cannot be held solidarily liable for anything
beyond that amount.56 Any award beyond the insurance coverage would already be the sole liability of the insured and/or the other
parties at fault.57

In Vda. de Maglana v. Consolacion,58 it was ruled that an insurer in an indemnity contract for third-party liability is directly liable to the
injured party up to the extent specified in the agreement, but it cannot be held solidarily liable beyond that amount. According to
respondent MICI, its liability as insurer of Rhoda’s truck is limited. Following Vda. de Maglana, petitioners would have had the option
either (1) to claim the amount awarded to them from respondent MICI, up to the extent of the insurance coverage, and the balance from
Rhoda; or (2) to enforce the entire judgment against Rhoda, subject to reimbursement from respondent MICI to the extent of the
insurance coverage. The Court, though, is precluded from applying its ruling in Vda. de Maglana by the difference in one vital detail
between the said case and the one at bar. The insurer was able to sufficiently establish its limited liability in Vda. de Maglana, while the
same cannot be said for respondent MICI herein.

The Court highlights that in this case, the insurance policy between Rhoda and respondent MICI, covering the truck involved in the
accident which killed George, was never presented. There is no means, therefore, for this Court to ascertain the supposed limited
liability of respondent MICI under said policy. Without the presentation of the insurance policy, the Court cannot determine the
existence of any limitation on the liability of respondent MICI under said policy, and the extent or amount of such limitation.

It should be remembered that respondent MICI readily admits that it is the insurer of the truck that hit and killed George, except that it
insists that its liability under the insurance policy is limited. As the party asserting its limited liability, respondent MICI then has the
burden of evidence to establish its claim. In civil cases, the party that alleges a fact has the burden of proving it. Burden of proof is the
duty of a party to present evidence on the facts in issue necessary to prove its claim or defense by the amount of evidence required by
law.59 Regrettably, respondent MICI failed to discharge this burden.60 The Court cannot rely on mere allegations of limited liability sans
proof.

The failure of respondent MICI to present the insurance policy – which, understandably, is not in petitioners’ possession, but in the
custody and absolute control of respondent MICI as the insurer and/or Rhoda as the insured – gives rise to the presumption that its
presentation is prejudicial to the cause of respondent MICI.61 When the evidence tends to prove a material fact which imposes a liability
on a party, and he has it in his power to produce evidence which, from its very nature, must overthrow the case made against him if it is
not founded on fact, and he refuses to produce such evidence, the presumption arises that the evidence, if produced, would operate to
his prejudice and support the case of his adversary.62

Respondent MICI had all the opportunity to prove before the RTC that its liability under the insurance policy it issued to Rhoda, was
limited; yet, respondent MICI failed to do so. The failure of respondent MICI to rebut that which would have naturally invited an
immediate, pervasive, and stiff opposition from it created an adverse inference that either the controverting evidence to be presented by
respondent MICI would only prejudice its case, or that the uncontroverted evidence of petitioners indeed speaks of the truth. And such
adverse inference, recognized and adhered to by courts in judging the weight of evidence in all kinds of proceedings, surely is not
without basis – its rationale and effect rest on sound, logical and practical considerations, viz:

The presumption that a man will do that which tends to his obvious advantage, if he possesses the means, supplies a most important
test for judging of the comparative weight of evidence x x x If, on the supposition that a charge or claim is unfounded, the party against
whom it is made has evidence within his reach by which he may repel that which is offered to his prejudice, his omission to do so
supplies a strong presumption that the charge or claim is well founded; it would be contrary to every principle of reason, and to all
experience of human conduct, to form any other conclusion." (Starkie on Evidence, p. 846, Moore on Facts, Vol. I, p. 544)

xxxx

The ordinary rule is that one who has knowledge peculiarly within his own control, and refuses to divulge it, cannot complain if the court
puts the most unfavorable construction upon his silence, and infers that a disclosure would have shown the fact to be as claimed by the
opposing party." (Societe, etc., v. Allen, 90 Fed. Rep. 815, 817, 33 C.C.A. 282, per Taft, C.J., Moore on Facts, Vol. I, p. 561). 63

The inference still holds even if it be assumed, for argument's sake, that the solidary liability of respondent MICI with Rhoda is
improbable, for it has likewise been said that:

Weak evidence becomes strong by the neglect of the party against whom it is put in, in not showing by means within the easy control of
that party that the conclusion drawn from such evidence is untrue. (Pittsburgh, etc., R. Co. v. Callaghan, 50 III. App. 676, 681, Moore on
Facts, Vol. I, p. 572).64

Given the admission of respondent MICI that it is the insurer of the truck involved in the accident that killed George, and in the utter
absence of proof to establish both the existence and the extent/amount of the alleged limited liability of respondent MICI as insurer, the
Court could only conclude that respondent MICI had agreed to fully indemnify third-party liabilities. Consequently, there is no more
difference in the amounts of damages which petitioners can recover from Rhoda or respondent MICI; petitioners can recover the said
amounts in full from either of them, thus, making their liabilities solidary or joint and several.
The Court now comes to the issue of the amounts of the damages awarded.

In its Decision dated 22 February 2000, the RTC awarded petitioners moral and actual damages, as well as funeral expenses and
attorney’s fees. Subsequently, in its Order dated 24 January 2001, the RTC reduced the amount of actual damages from ₱805,984.00
to ₱102,106.00, but additionally awarded death indemnity in the amount of ₱50,000.00. Its award of moral damages and funeral
expenses as well as attorney’s fees remained constant in its 28 February 2000 decision and was carried over to its 24 January 2001
Order.

The Court shall now proceed to scrutinize said award of damages.

As regards the award of actual damages, Article 2199 of the Civil Code provides that "[e]xcept as provided by law or by stipulation one
is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved x x x."

The RTC awarded ₱36,000.00 for burial expenses. The award of ₱36,000.00 for burial expenses is duly supported by receipts
evidencing that petitioners did incur this expense. The petitioners held a wake for two days at their residence and another two days at
the Loyola Memorial Park.65 The amount covered the expenses by petitioners for the wake, funeral and burial of George.66

As to compensation for loss of earning capacity, the RTC initially awarded ₱805,984.00 in its 28 February 2000 Decision, which it later
reduced to ₱102,106.00 on 24 January 2001.

Article 2206 of the Civil Code provides that in addition to the indemnity for death caused by a crime or quasi-delict, the "defendant shall
be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter, x x x."
Compensation of this nature is awarded not for loss of earnings but for loss of capacity to earn money. Hence, it is proper that
compensation for loss of earning capacity should be awarded to the petitioners in accordance with the formula established in decided
cases for computing net earning capacity, to wit:

The formula for the computation of unearned income is:

Net Earning Capacity = life expectancy x (gross annual income -reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 - age of deceased at the time of death]67

Jurisprudence provides that the first factor, i.e., life expectancy, shall be computed by applying the formula (2/3 x [80 - age at death])
adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality.

The second factor is computed by multiplying the life expectancy by the net earnings of the deceased, i.e., the total earnings less
expenses necessary in the creation of such earnings or income and less living and other incidental expenses. The loss is not equivalent
to the entire earnings of the deceased, but only such portion that he would have used to support his dependents or heirs. Hence, the
Court deducts from his gross earnings the necessary expenses supposed to be used by the deceased for his own needs. The Court
explained in Villa Rey Transit v. Court of Appeals68 :

[The award of damages for loss of earning capacity is] concerned with the determination of the losses or damages sustained by the
private respondents, as dependents and intestate heirs of the deceased, and that said damages consist, not of the full amount of his
earnings, but of the support they received or would have received from him had he not died in consequence of the negligence of
petitioner's agent. In fixing the amount of that support, we must reckon with the "necessary expenses of his own living," which should
be deducted from his earnings. Thus, it has been consistently held that earning capacity, as an element of damages to one's estate for
his death by wrongful act is necessarily his net earning capacity or his capacity to acquire money, "less necessary expense for his own
living." Stated otherwise, the amount recoverable is not the loss of the entire earning, but rather the loss of that portion of the earnings
which the beneficiary would have received. In other words, only net earnings, and not gross earnings are to be considered that is, the
total of the earnings less expenses necessary in the creation of such earnings or income and less living and other incidental expenses."

Applying the aforestated jurisprudential guidelines in the computation of the amount of award for damages set out in Villa Rey, the
Court computes the award for the loss of George’s earning capacity as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 — 56]
2/3 x [24]

FORMULA – NET EARNING CAPACITY (NEC)

If:
 Age at time of death of George Poe = 5869

Monthly Income at time of death = ₱6,94670

Gross Annual Income (GAI) = [(6,946) (12)] = ₱83,352

Reasonable/Necessary Living Expenses (R/NLE) = 50%71 of GAI = ₱41,676

NEC = [2/3 (80-58)] [83,352-41,676]
= [2/3 (22)] [41,676]
= [14.67] [41,676]
= ₱611,386.92

Therefore, George’s lost net earning capacity is equivalent to ₱611,386.92

The RTC awarded moral damages72 in the amount of ₱100,000.00. With respect to moral damages, the same are awarded under the
following circumstances:

The award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual status quo ante. Moral damages
are designed to compensate and alleviate in some way the physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury unjustly caused a person. Although incapable of
pecuniary computation, they must be proportionate to the suffering inflicted. The amount of the award bears no relation whatsoever with
the wealth or means of the offender.

In the instant case, petitioners’ testimonies reveal the intense suffering which they continue to experience as a result of George’s
death.73 It is not difficult to comprehend that the sudden and unexpected loss of a husband and father would cause mental anguish and
serious anxiety in the wife and children he left behind. Moral damages in the amount of ₱100,000.00 are proper for George’s
death.741avvphi1.zw+

The RTC also awarded ₱50,000.00 as death indemnity which the Court shall not disturb. The award of ₱50,000.00 as death indemnity
is in accordance with current rulings of the Court.75

Finally, the RTC awarded attorneys fees to petitioners. Petitioners are entitled to attorney’s fees. Under Article 2008 of the Civil Code,
attorney’s fees may be granted when a party is compelled to litigate or incur expenses to protect his interest by reason of an unjustified
act of the other party.76 In Metro Manila Transit Corporation v. Court of Appeals,77 the Court held that an award of ₱50,000.00 as
attorney’s fees was reasonable. Hence, petitioners are entitled to attorney’s fees in that amount.78

WHEREFORE, premises considered, the instant Petition is PARTIALLY GRANTED. While the Court AFFIRMS the Decision, dated 26
June 2002, and Resolution, dated 29 November 2002, of the Court of Appeals in CA-G.R. SP No. 67297, granting the Petition for
Certiorari of respondent Malayan Insurance Company, Inc., the Court, nonetheless, RESOLVES, in consideration of the speedy
administration of justice, and the peculiar circumstances of the case, to give DUE COURSE to the present Petition and decide the same
on its merits.

Rhoda Santos and respondent Malayan Insurance Company, Inc. are hereby ordered to pay jointly and severally the petitioners Heirs
of George Y. Poe the following:

(1) Funeral expenses ₱36,000.00;

(2) Actual damages for loss of earning capacity ₱611,386.92;

(3) Moral damages amounting to ₱100,000.00;

(4) Death indemnity ₱50,000.00; and

(5) Attorney’s fees ₱50,000.00 plus ₱1,500.00 per court appearance.

No costs.

SO ORDERED.
 10. G.R. No. 133179               March 27, 2008

ALLIED BANKING CORPORATION, Petitioner,

vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK, Respondents.

DECISION

VELASCO, JR., J.:

To ingratiate themselves to their valued depositors, some banks at times bend over backwards that they unwittingly expose themselves
to great risks.

The Case

This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals’ (CA’s) Decision promulgated on March 18,
19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the Decision dated
November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in Civil Case No. 6757.

The Facts

The facts as found by the RTC and affirmed by the CA are as follows:

On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) at its Quintin Paredes
Branch in Manila a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983,3 as
evidenced by Provisional Receipt No. 1356 dated November 14, 1983.4

On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter to pre-
terminate Lim Sio Wan’s money market placement, to issue a manager’s check representing the proceeds of the placement, and to
give the check to one Deborah Dee Santos who would pick up the check.5 Lim Sio Wan described the appearance of Santos so that So
could easily identify her.6

Later, Santos arrived at the bank and signed the application form for a manager’s check to be issued.7 The bank issued Manager’s
Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wan’s money market placement in the name of Lim Sio
Wan, as payee.8 The check was cross-checked "For Payee’s Account Only" and given to Santos.9

Thereafter, the manager’s check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank
and Trust Co. (Metrobank),10 with the forged signature of Lim Sio Wan as indorser.11

Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with respondent Producers Bank.
Santos was the money market trader assigned to handle FCC’s account.12 Such deposit is evidenced by Official Receipt No.
31756813 and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of the
placement.14 The placement matured on October 25, 1983 and was rolled-over until December 5, 1983 as evidenced by a Letter dated
October 25, 1983.15 When the placement matured, FCC demanded the payment of the proceeds of the placement.16 On December 5,
1983, the same date that So received the phone call instructing her to pre-terminate Lim Sio Wan’s placement, the manager’s check in
the name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of FCC’s money market
placement with Producers Bank.17 In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers
Bank’s payment of its obligation to FCC.

To clear the check and in compliance with the requirements of the Philippine Clearing House Corporation (PCHC) Rules and
Regulations, Metrobank stamped a guaranty on the check, which reads: "All prior endorsements and/or lack of endorsement
guaranteed."18

The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even without checking the
authenticity of Lim Sio Wan’s purported indorsement. Thus, the amount on the face of the check was credited to the account of FCC.19

On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to mature on January 9, 1984.20

On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to withdraw it.21 She
was then informed that the placement had been pre-terminated upon her instructions. She denied giving any instructions and receiving
the proceeds thereof. She desisted from further complaints when she was assured by the bank’s manager that her money would be
recovered.22
When Lim Sio Wan’s second placement matured on January 9, 1984, So called Lim Sio Wan to ask for the latter’s instructions on the
second placement. Lim Sio Wan instructed So to roll-over the placement for another 30 days.23 On January 24, 1984, Lim Sio Wan,
realizing that the promise that her money would be recovered would not materialize, sent a demand letter to Allied asking for the
payment of the first placement.24 Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the
placement and its subsequent release to Santos.25

Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198426 docketed as Civil Case No. 6757 against Allied
to recover the proceeds of her first money market placement. Sometime in February 1984, she withdrew her second placement from
Allied.

Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank filed a fourth party complaint28 against FCC. FCC
for its part filed a fifth party complaint29 against Producers Bank. Summonses were duly served upon all the parties except for Santos,
who was no longer connected with Producers Bank.30

On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the signature on the check was
forged.31 Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank agreed to release the amount
to FCC after the latter executed an Undertaking, promising to indemnify Metrobank in case it was made to reimburse the amount.32

Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along with Allied.33 The RTC admitted
the amended complaint despite the opposition of Metrobank.34 Consequently, Allied’s third party complaint against Metrobank was
converted into a cross-claim and the latter’s fourth party complaint against FCC was converted into a third party complaint.35

After trial, the RTC issued its Decision, holding as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of P1,158,648.49 plus 12% interest per annum
from March 16, 1984 until fully paid;

2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of moral damages;

3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of attorney’s fees; and,

4. Ordering defendant Allied Bank to pay the costs of suit.

Defendant Allied Bank’s cross-claim against defendant Metrobank is DISMISSED.

Likewise defendant Metrobank’s third-party complaint as against Filipinas Cement Corporation is DISMISSED.

Filipinas Cement Corporation’s fourth-party complaint against Producer’s Bank is also DISMISSED.

SO ORDERED.36

The Decision of the Court of Appeals

Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, modifying the RTC Decision, as follows:

WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and sentencing
defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust
Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral
damages, attorney’s fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus modified, the decision
appealed from is AFFIRMED.

SO ORDERED.37

Hence, Allied filed the instant petition.

The Issues

Allied raises the following issues for our consideration:

The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to pre-terminate the initial placement and to
deliver the check to Deborah Santos.

The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the reimbursement of amount adjudged
demandable.

The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount adjudged demandable in clear disregard
to the ultimate liability of Metrobank as guarantor of all endorsement on the check, it being the collecting bank.38

The petition is partly meritorious.

A Question of Fact

Allied questions the finding of both the trial and appellate courts that Allied was not authorized to release the proceeds of Lim Sio Wan’s
money market placement to Santos. Allied clearly raises a question of fact. When the CA affirms the findings of fact of the RTC, the
factual findings of both courts are binding on this Court.39

We also agree with the CA when it said that it could not disturb the trial court’s findings on the credibility of witness So inasmuch as it
was the trial court that heard the witness and had the opportunity to observe closely her deportment and manner of testifying. Unless
the trial court had plainly overlooked facts of substance or value, which, if considered, might affect the result of the case,40 we find it
best to defer to the trial court on matters pertaining to credibility of witnesses.

Additionally, this Court has held that the matter of negligence is also a factual question.41 Thus, the finding of the RTC, affirmed by the
CA, that the respective parties were negligent in the exercise of their obligations is also conclusive upon this Court.

The Liability of the Parties

As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that the relationship
between a bank and a client is one of debtor-creditor.

Articles 1953 and 1980 of the Civil Code provide:

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to
the creditor an equal amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum.42 More succinctly, in Citibank,
N.A. (Formerly First National City Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan or
mutuum.43 Further, we defined a money market in Cebu International Finance Corporation v. Court of Appeals, as follows:

[A] money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a middleman or dealer.

In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan.44

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon maturity of the
placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan
remains unextinguished.

Art. 1231 of the Civil Code enumerates the instances when obligations are considered extinguished, thus:

Art. 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

 (4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are
governed elsewhere in this Code. (Emphasis supplied.)

From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her money market
placement to Santos and the bank had been negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio Wan
had not been extinguished. Art. 1240 of the Code states that "payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive it." As commented by Arturo Tolentino:

Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence
which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the person of his creditor, or
through error induced by the fraud of a third person, the payment to one who is not in fact his creditor, or authorized to receive such
payment, is void, except as provided in Article 1241. Such payment does not prejudice the creditor, and accrual of interest is not
suspended by it.45 (Emphasis supplied.)

Since there was no effective payment of Lim Sio Wan’s money market placement, the bank still has an obligation to pay her at six
percent (6%) interest from March 16, 1984 until the payment thereof.

We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.

Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wan’s money. It points out that Metrobank guaranteed all
prior indorsements inscribed on the manager’s check, and without Metrobank’s guarantee, the present controversy would never have
occurred. According to Allied:

Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the proper party is, aside from being an
efficient intervening cause, also the last negligent act, x x x contributory to the injury caused in the present case, which thereby leads to
the conclusion that it is the collecting bank, Metrobank that is the proximate cause of the alleged loss of the plaintiff in the instant
case.46

We are not persuaded.

Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred."47 Thus, there is an efficient supervening event if the event breaks the
sequence leading from the cause to the ultimate result. To determine the proximate cause of a controversy, the question that needs to
be asked is: If the event did not happen, would the injury have resulted? If the answer is NO, then the event is the proximate cause.

In the instant case, Allied avers that even if it had not issued the check payment, the money represented by the check would still be lost
because of Metrobank’s negligence in indorsing the check without verifying the genuineness of the indorsement thereon.

Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:

Section 66. Liability of general indorser.—Every indorser who indorses without qualification, warrants to all subsequent holders in due
course;

a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and

b) That the instrument is at the time of his indorsement valid and subsisting;

And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be according to its tenor,
and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or
to any subsequent indorser who may be compelled to pay it.

Section 65. Warranty where negotiation by delivery, so forth.—Every person negotiating an instrument by delivery or by a qualified
indorsement, warrants:

a) That the instrument is genuine and in all respects what it purports to be;
 b) That he has a good title of it;

c) That all prior parties had capacity to contract;

d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation securities, other than bills and
notes. (Emphasis supplied.)

The warranty "that the instrument is genuine and in all respects what it purports to be" covers all the defects in the instrument affecting
the validity thereof, including a forged indorsement. Thus, the last indorser will be liable for the amount indicated in the negotiable
instrument even if a previous indorsement was forged. We held in a line of cases that "a collecting bank which indorses a check bearing
a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor."48

However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself was attended with
negligence. Thus, in the cases cited above where the collecting bank is generally held liable, in two of the cases where the checks were
negligently issued, this Court held the institution issuing the check just as liable as or more liable than the collecting bank.

In isolated cases where the checks were deposited in an account other than that of the payees on the strength of forged indorsements,
we held the collecting bank solely liable for the whole amount of the checks involved for having indorsed the same. In Republic Bank v.
Ebrada,49 the check was properly issued by the Bureau of Treasury. While in Banco de Oro Savings and Mortgage Bank (Banco de
Oro) v. Equitable Banking Corporation,50 Banco de Oro admittedly issued the checks in the name of the correct payees. And in Traders
Royal Bank v. Radio Philippines Network, Inc.,51 the checks were issued at the request of Radio Philippines Network, Inc. from Traders
Royal Bank.1avvphi1

However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is liable for 60% of the amount on the face
of the negotiable instrument and the collecting bank is liable for 40%. We also noted the relative negligence exhibited by two banks, to
wit:

Both banks were negligent in the selection and supervision of their employees resulting in the encashment of the forged checks by an
impostor. Both banks were not able to overcome the presumption of negligence in the selection and supervision of their employees. It
was the gross negligence of the employees of both banks which resulted in the fraud and the subsequent loss. While it is true that
petitioner BPI’s negligence may have been the proximate cause of the loss, respondent CBC’s negligence contributed equally to the
success of the impostor in encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil
Code to the effect that while respondent CBC may recover its losses, such losses are subject to mitigation by the courts. (See Phoenix
Construction Inc. v. Intermediate Appellate Courts, 148 SCRA 353 [1987]).

Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are satisfied by allocating
the loss of P2,413,215.16 and the costs of the arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40
ratio.52

Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the collecting bank should equally share the
liability for the loss of amount represented by the checks concerned due to the negligence of both parties:

The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due to the negligence of the Province
of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the
checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was
collecting checks for the payee hospital in addition to the hospital’s real cashier, respondent Province contributed to the loss amounting
to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB.

The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as
indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements,
including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the
genuineness of the payee’s indorsement.53

A reading of the facts of the two immediately preceding cases would reveal that the reason why the bank or institution which issued the
check was held partially liable for the amount of the check was because of the negligence of these parties which resulted in the
issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the manager’s check and in transmitting it to Santos without
even a written authorization.54 In fact, Allied did not even ask for the certificate evidencing the money market placement or call up Lim
Sio Wan at her residence or office to confirm her instructions. Both actions could have prevented the whole fraudulent transaction from
unfolding. Allied’s negligence must be considered as the proximate cause of the resulting loss.

To reiterate, had Allied exercised the diligence due from a financial institution, the check would not have been issued and no loss of
funds would have resulted. In fact, there would have been no issuance of indorsement had there been no check in the first place.

The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank indorsed the
check in compliance with the PCHC Rules and Regulations55 without verifying the authenticity of Lim Sio Wan’s indorsement and when
it accepted the check despite the fact that it was cross-checked payable to payee’s account only,56 its negligent and cavalier
indorsement contributed to the easier release of Lim Sio Wan’s money and perpetuation of the fraud. Given the relative participation of
Allied and Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of
Allied and Metrobank, as ruled by the CA, must be upheld.

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wan’s indorsement, can raise the real defense
of forgery as against both banks.57

As to Producers Bank, Allied Bank’s argument that Producers Bank must be held liable as employer of Santos under Art. 2180 of the
Civil Code is erroneous. Art. 2180 pertains to the vicarious liability of an employer for quasi-delicts that an employee has committed.
Such provision of law does not apply to civil liability arising from delict.

One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code in the instant case. Such liability on the
part of the employer for the civil aspect of the criminal act of the employee is based on the conviction of the employee for a crime. Here,
there has been no conviction for any crime.

As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct. Allied correctly claims in its petition
that Producers Bank should reimburse Allied for whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil
Code, which provides: "Every person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just cause or legal ground, shall return the same to him."1avvphi1

The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust enrichment when a person unjustly
retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of
justice, equity and good conscience."58

In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22 of the Civil Code, there is unjust
enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another."59

In the instant case, Lim Sio Wan’s money market placement in Allied Bank was pre-terminated and withdrawn without her consent.
Moreover, the proceeds of the placement were deposited in Producers Bank’s account in Metrobank without any justification. In other
words, there is no reason that the proceeds of Lim Sio Wans’ placement should be deposited in FCC’s account purportedly as payment
for FCC’s money market placement and interest in Producers Bank.lavvphil With such payment, Producers Bank’s indebtedness to
FCC was extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan.
Based on the facts and circumstances of the case, Producers Bank should reimburse Allied and Metrobank for the amounts the two
latter banks are ordered to pay Lim Sio Wan.

It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having been unjustly enriched. It must be
remembered that FCC’s money market placement with Producers Bank was already due and demandable; thus, Producers Bank’s
payment thereof was justified. FCC was entitled to such payment. As earlier stated, the fact that the indorsement on the check was
forged cannot be raised against FCC which was not a part in any stage of the negotiation of the check. FCC was not unjustly enriched.

From the facts of the instant case, we see that Santos could be the architect of the entire controversy. Unfortunately, since summons
had not been served on Santos, the courts have not acquired jurisdiction over her.60 We, therefore, cannot ascribe to her liability in the
instant case.

Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check plus 12% interest per annum, moral
damages, attorney’s fees, and costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of
60:40.

WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R. CV No. 46290 and the November 15,
1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with MODIFICATION.

Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:

WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and sentencing
defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust
Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral
damages, attorney’s fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking Corporation and
defendant-appellee Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus modified, the decision
appealed from is AFFIRMED.

SO ORDERED.

Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and Metrobank the aforementioned
amounts. The liabilities of the parties are concurrent and independent of each other.

SO ORDERED.
 11. G.R. No. 176664               July 21, 2008

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
SPOUSES REYNALDO AND VICTORIA ROYECA, Respondents.

DECISION

NACHURA, J.:

Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) Decision1 dated July 12, 2006, and Resolution2 dated
February 13, 2007, which dismissed its complaint for replevin and damages and granted the respondents’ counterclaim for damages.

The case stems from the following undisputed facts:

On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw, Inc. a Promissory
Note3 for ₱577,008.00 payable in 48 equal monthly installments of ₱12,021.00, with a maturity date of August 18, 1997. The
Promissory Note provides for a penalty of 3% for every month or fraction of a month that an installment remains unpaid.

To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage4 in favor of Toyota over a certain motor
vehicle, more particularly described as follows:
<
p>Make and Type 1993 Toyota Corolla 1.3 XL

Motor No. 2E-2649879

Serial No. EE100-9512571

Color D.B. Gray Met.

Toyota, with notice to respondents, executed a Deed of Assignment5 transferring all its rights, title, and interest in the Chattel Mortgage
to Far East Bank and Trust Company (FEBTC).

Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from May 18, 1997 to August 18, 1997,
FEBTC sent a formal demand to respondents on March 14, 2000 asking for the payment thereof, plus penalty.6 The respondents
refused to pay on the ground that they had already paid their obligation to FEBTC.

On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the respondents with the Metropolitan Trial Court
(MeTC) of Manila praying for the delivery of the vehicle, with an alternative prayer for the payment of ₱48,084.00 plus interest and/or
late payment charges at the rate of 36% per annum from May 18, 1997 until fully paid. The complaint likewise prayed for the payment
of ₱24,462.73 as attorney’s fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the vehicle. The
complaint was later amended to substitute BPI as plaintiff when it merged with and absorbed FEBTC.7

In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto Financing Department of FEBTC eight (8)
postdated checks in different amounts totaling ₱97,281.78. The Acknowledgment Receipt,8 which they attached to the Answer, showed
that FEBTC received the following checks:
DATE BANK CHECK NO. AMOUNT
26 May 97 Landbank #610945 ₱13,824.15
6 June 97 Head Office #610946 12,381.63
30 May 97 FEBTC #17A00-11550P 12,021.00
15 June 97 Shaw Blvd. #17A00-11549P 12,021.00
30 June 97 " #17A00-11551P 12,021.00
18 June 97 Landbank #610947 11,671.00
18 July 97 Head Office #610948 11,671.00
18 August
#610949 11,671.00
97
The respondents further averred that they did not receive any notice from the drawee banks or from FEBTC that these checks were
dishonored. They explained that, considering this and the fact that the checks were issued three years ago, they believed in good faith
that their obligation had already been fully paid. They alleged that the complaint is frivolous and plainly vexatious. They then prayed
that they be awarded moral and exemplary damages, attorney’s fees and costs of suit.9

During trial, Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and had assumed the position of
Account Analyst since its merger with BPI. He admitted that they had, in fact, received the eight checks from the respondents.
However, two of these checks (Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to ₱23,692.00 were
dishonored. He recalled that the remaining two checks were not deposited anymore due to the previous dishonor of the two checks. He
said that after deducting these payments, the total outstanding balance of the obligation was ₱48,084.00, which represented the last
four monthly installments.

On February 23, 2005, the MeTC dismissed the case and granted the respondents’ counterclaim for damages, thus:

WHEREFORE, judgment is hereby rendered dismissing the complaint for lack of cause of action, and on the counterclaim, plaintiff is
ordered to indemnify the defendants as follows:

a) The sum of PhP30,000.00 as and by way of moral damages;

b) The sum of PhP30,000.00 as and by way of exemplary damages;

c) The sum of PhP20,000.00 as and by way of attorney’s fees; and

d) To pay the costs of the suit.

SO ORDERED.10

On appeal, the Regional Trial Court (RTC) set aside the MeTC Decision and ordered the respondents to pay the amount claimed by the
petitioner. The dispositive portion of its Decision11 dated August 11, 2005 reads:

WHEREFORE, premises considered, the Decision of the Metropolitan Trial Court, Branch 9 dated February 23, 2005 is REVERSED
and a new one entered directing the defendants-appellees to pay the plaintiff-appellant, jointly and severally,

1. The sum of ₱48,084.00 plus interest and/or late payment charges thereon at the rate of 36% per annum from May 18, 1997
until fully paid;

2. The sum of ₱10,000.00 as attorney’s fees; and

3. The costs of suit.

SO ORDERED.12

The RTC denied the respondents’ motion for reconsideration.13

The respondents elevated the case to the Court of Appeals (CA) through a petition for review. They succeeded in obtaining a favorable
judgment when the CA set aside the RTC’s Decision and reinstated the MeTC’s Decision on July 12, 2006.14 On February 13, 2007, the
CA denied the petitioner’s motion for reconsideration.15

The issues submitted for resolution in this petition for review are as follows:

I. WHETHER OR NOT RESPONDENTS WERE ABLE TO PROVE FULL PAYMENT OF THEIR OBLIGATION AS ONE OF
THEIR AFFIRMATIVE DEFENSES.

II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES PAYMENT.

III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S
FEES.16

The petitioner insists that the respondents did not sufficiently prove the alleged payment. It avers that, under the law and existing
jurisprudence, delivery of checks does not constitute payment. It points out that this principle stands despite the fact that there was no
notice of dishonor of the two checks and the demand to pay was made three years after default.
On the other hand, the respondents postulate that they have established payment of the amount being claimed by the petitioner and,
unless the petitioner proves that the checks have been dishonored, they should not be made liable to pay the obligation again.17

The petition is partly meritorious.

In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence, or evidence which is more
convincing to the court as worthy of belief than that which is offered in opposition thereto.18 Thus, the party, whether plaintiff or
defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment. For the
plaintiff, the burden to prove its positive assertions never parts. For the defendant, an affirmative defense is one which is not a denial of
an essential ingredient in the plaintiff’s cause of action, but one which, if established, will be a good defense – i.e. an "avoidance" of the
claim.19

In Jimenez v. NLRC,20 cited by both the RTC and the CA, the Court elucidated on who, between the plaintiff and defendant, has the
burden to prove the affirmative defense of payment:

As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general
rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The debtor has the
burden of showing with legal certainty that the obligation has been discharged by payment.

When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a defense to the claim of the creditor. Where the debtor introduces
some evidence of payment, the burden of going forward with the evidence - as distinct from the general burden of proof - shifts to the
creditor, who is then under a duty of producing some evidence to show non-payment.21

In applying these principles, the CA and the RTC, however, arrived at different conclusions. While both agreed that the respondents
had the burden of proof to establish payment, the two courts did not agree on whether the respondents were able to present sufficient
evidence of payment — enough to shift the burden of evidence to the petitioner. The RTC found that the respondents failed to
discharge this burden because they did not introduce evidence of payment, considering that mere delivery of checks does not
constitute payment.22 On the other hand, the CA concluded that the respondents introduced sufficient evidence of payment, as opposed
to the petitioner, which failed to produce evidence that the checks were in fact dishonored. It noted that the petitioner could have easily
presented the dishonored checks or the advice of dishonor and required respondents to replace the dishonored checks but none was
presented. Further, the CA remarked that it is absurd for a bank, such as petitioner, to demand payment of a failed amortization only
after three years from the due date.

The divergence in this conflict of opinions can be narrowed down to the issue of whether the Acknowledgment Receipt was sufficient
proof of payment. As correctly observed by the RTC, this is only proof that respondents delivered eight checks in payment of the
amount due. Apparently, this will not suffice to establish actual payment.

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid
tender of payment.23 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. 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.24

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but
also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could
have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good
faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed
since they issued the checks.1avvphi1

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove
non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is
lodged was able to adduce preponderant evidence to prove its claim.25

To stress, the obligation to prove that the checks were not dishonored, but were in fact encashed, fell upon the respondents who would
benefit from such fact. That payment was effected through the eight checks was the respondents’ affirmative allegation that they had to
establish with legal certainty. If the petitioner were seeking to enforce liability upon the check, the burden to prove that a notice of
dishonor was properly given would have devolved upon it.26 The fact is that the petitioner’s cause of action was based on the original
obligation as evidenced by the Promissory Note and the Chattel Mortgage, and not on the checks issued in payment thereof.

Further, it should be noted that the petitioner, as payee, did not have a legal obligation to inform the respondents of the dishonor of the
checks. A notice of dishonor is required only to preserve the right of the payee to recover on the check. It preserves the liability of the
drawer and the indorsers on the check. Otherwise, if the payee fails to give notice to them, they are discharged from their liability
thereon, and the payee is precluded from enforcing payment on the check. The respondents, therefore, cannot fault the petitioner for
not notifying them of the non-payment of the checks because whatever rights were transgressed by such omission belonged only to the
petitioner.
In all, we find that the evidence at hand preponderates in favor of the petitioner. The petitioner’s possession of the documents
pertaining to the obligation strongly buttresses its claim that the obligation has not been extinguished. The creditor’s possession of the
evidence of debt is proof that the debt has not been discharged by payment.27 A promissory note in the hands of the creditor is a proof
of indebtedness rather than proof of payment.28 In an action for replevin by a mortgagee, it is prima facie evidence that the promissory
note has not been paid.29 Likewise, an uncanceled mortgage in the possession of the mortgagee gives rise to the presumption that the
mortgage debt is unpaid.30

Finally, the respondents posit that the petitioner’s claim is barred by laches since it has been three years since the checks were issued.
We do not agree. Laches is a recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory
law. Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the New Civil Code.31 The
petitioner’s action was filed within the ten-year prescriptive period provided under Article 1144 of the New Civil Code. Hence, there is no
room for the application of laches.

Nonetheless, the Court cannot ignore what the respondents have consistently raised — that they were not notified of the non-payment
of the checks. Reasonable banking practice and prudence dictates that, when a check given to a creditor bank in payment of an
obligation is dishonored, the bank should immediately return it to the debtor and demand its replacement or payment lest it causes any
prejudice to the drawer. In light of this and the fact that the obligation has been partially paid, we deem it just and equitable to reduce
the 3% per month penalty charge as stipulated in the Promissory Note to 12% per annum.32 Although a court is not at liberty to ignore
the freedom of the parties to agree on such terms and conditions as they see fit, as long as they contravene no law, morals, good
customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or
unconscionable, or if the principal obligation has been partly or irregularly complied with.33

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated July 12, 2006, and
Resolution dated February 13, 2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court, dated August 11,
2005, is REINSTATED with the MODIFICATION that respondents are ordered to deliver the possession of the subject vehicle, or in the
alternative, pay the petitioner ₱48,084.00 plus late penalty charges/interest thereon at the rate of 12% per annum from May 18, 1997
until fully paid.

SO ORDERED.
 12. G.R. NO. 162074 : July 13, 2009

CECILLEVILLE REALTY AND SERVICE CORPORATION, Petitioner, v. SPOUSES TITO ACUÑA and OFELIA B.

ACUÑA, Respondents.

The Case

This is a Petition for Review 1 assailing the Amended Decision2 promulgated on 30 January 2004 of the Court of Appeals (appellate
court) in CA-G.R. CV No. 56623. The appellate court affirmed the Resolution3 dated 14 February 1997 of Branch 225, Regional Trial
Court of Quezon City (trial court) in Civil Case No. Q-96-27837 which dismissed the complaint of petitioner Cecilleville Realty and
Service Corporation (Cecilleville) against respondent spouses Tito and Ofelia Acuña (Acuña spouses) on the ground of prescription.

The Facts

The trial court summarized the facts of the case as follows:

Sometime in September 1981, the defendants [Acuña spouses] requested the plaintiff [Cecilleville] thru its President, Jose A.
Resurreccion, to lend to them for one (1) year, two (2) parcels of land owned by the plaintiff as collaterals to secure a credit line from
the Prudential Bank and Trust Company ["Prudential"]. On September 21, 1981, thru a secretary's certificate and by virtue of a board
resolution, the plaintiff lent to defendants the said owner's copies of certificate of title. However, on September 28, 1991, defendant
Ofelia B. Acuña forged the signature of Lucia R. Reyes as corporate secretary. By virtue of the fake secretary's certificate, the
defendants were able to obtain a personal loan from "Prudential" in the sum of P610,000.00 with said certificates as collaterals and
upon signing a Real Estate Mortgage dated September 30, 1981 and two Promissory Notes dated October 7, 1981 and October 15,
1981. Due to the defendants' default in the payment of their indebtedness, "Prudential" threatened to extrajudicially foreclose the real
estate mortgage on plaintiff's properties thru a notice of auction sale. To avoid foreclosure proceedings on its properties, the plaintiff
was forced to settle defendants' obligations to "Prudential" in the amount of P3,367,474.42. Subsequently, several written demands for
reimbursement were sent by the plaintiff to the defendants. Nevertheless, the defendants failed to pay their obligation. Hence, the filing
of the instant case.

In their motion, defendants contend that the instant complaint should be dismissed on the grounds of prescription, laches and res
judicata. The defendants insist that the action of the plaintiff is based on fraud or forgery of a secretary's certificate. The forgery
allegedly happened on September 28, 1981 or fifteen (15) years ago. Therefore, the plaintiff should have brought the instant action
within the period provided for in Article 1146 of the Civil Code. Moreover, the defendants argue that the plaintiff's inordinate delay in the
filing of the instant suit clearly shows that it has abandoned its claim against the defendants and therefore guilty of laches.
Consequently, the defendants aver that the forgery issue has been passed upon in CA-G.R. CV No. 35452. The same was litigated in
Civil Case No. Q-59789, Branch 78, Regional Trial Court, Quezon City "where the plaintiff tried unsuccessfully to have the contract of
real estate mortgage involving the same properties, between defendant Ofelia Acuña and the Prudential Bank and Trust Company,
annulled on the same ground raised here." Hence, the principle of res judicata applies.4

This Court, in its resolution in G.R. No. 109488, affirmed the appellate court's decision in CA-G.R. CV No. 35452 that Cecilleville ratified
the mortgage contract between the Acuña spouses and Prudential. The dispositive portion of the decision in CA-G.R. CV No. 35452
reads:

WHEREFORE, the appeal of appellant Cecilleville Realty and Service Corporation should be, as it is hereby, DISMISSED. Finding
merit to the appeal of Prudential Bank & Trust Company, the writ of preliminary injunction heretofore issued by the trial court is
hereby LIFTED, and appellant Bank can now proceed with the foreclosure proceedings of the mortgaged properties.

As a corollary thereto, appellant Cecilleville is hereby ordered to pay appellant Prudential Bank the interests, penalty and service
charges stipulated in the promissory notes secured by the mortgage, accruing from the time the writ of preliminary injunction was
issued until the said promissory notes are fully paid. No costs.

SO ORDERED.5

After Cecilleville paid Prudential, Cecilleville filed the present action to claim reimbursement from the Acuña spouses.

The Ruling of the Trial Court

In its Resolution dated 14 February 1997, the trial court dismissed Cecilleville's complaint on the ground of prescription. The trial court
found that the complaint expressly alleged that Cecilleville discovered the fraud on 28 September 1981. Therefore, Cecilleville had only
four years from discovery of the fraud within which to file the appropriate action. The present action was filed on 20 June 1996, clearly
beyond the prescriptive period.

The Ruling of the Appellate Court

Cecilleville lodged an appeal before the appellate court. In its Decision promulgated on 14 January 2003, the appellate court reversed
and set aside the trial court's ruling and decided in favor of Cecilleville. The appellate court stated that Cecilleville has two causes of
action against the Acuña spouses: reimbursement of a sum of money and damages arising from fraud. Cecilleville's action for
reimbursement was filed on 20 June 1996, barely two months after 23 April 1996, when Cecilleville made an extrajudicial demand to
pay. Two months is well within the five-year prescriptive period prescribed in Article 1149 of the Civil Code. On the other hand, the
appellate court declared that the complaint did not mention the date of Cecilleville's discovery of Ofelia Acuña's forgery of Lucia Reyes'
signature. The appellate court concluded that the trial court erred in declaring Cecilleville's claim for damages barred by prescription
and laches. The appellate court also declared that there is no identity of parties, subject matter and causes of action between the
present case and that of G.R. No. 109488 between Cecilleville and Prudential. Hence, the principle of res judicata does not apply.

The dispositive portion of the appellate court's 14 January 2003 Decision reads:

WHEREFORE, the instant appeal is GRANTED and the assailed resolution of the Regional Trial Court of Quezon City, Branch 225, in
Civil Case No. Q-96-27837 is hereby REVERSED and SET ASIDE. Let this case be remanded to the trial court for further proceedings.

SO ORDERED.6

On motion for reconsideration filed by the Acuña spouses, the appellate court promulgated an amended decision on 30 January 2004
which affirmed the trial court's decision. The appellate court ruled that Cecilleville's claim for reimbursement of its payment to Prudential
is predicated on the fraud allegedly committed by the Acuña spouses. Without the alleged personal loan of the Acuña spouses, there
would be no foreclosure to forestall and no basis for Cecilleville's claim for reimbursement. Actions for relief on the ground of fraud may
be brought within four years from discovery of the fraud. In its brief filed before the appellate court, Cecilleville stated that it learned of
the existence of the falsified Secretary's Certificate on 20 January 1987. Cecilleville filed the present case on 20 June 1996, or more
than nine years after the discovery of the fraud. Thus, Cecilleville's action is barred by prescription. The dispositive portion of the
appellate court's amended decision reads:

WHEREFORE, the instant motion for reconsideration is GRANTED. The decision, dated 14 January 2003, of this Court is accordingly,
RECONSIDERED and SET ASIDE. The assailed resolution, dated 14 February 1997, of the Regional Trial Court of Quezon City,
Branch 225, in Civil Case No. Q-96-27837, is hereby AFFIRMED.

SO ORDERED.7

The Issues

Cecilleville mentions two grounds in its appeal before this Court. First, the appellate court gravely erred because its amended decision
is premised on a misapprehension of facts. Cecilleville alleges that its claim for reimbursement is not based on fraud but on a ratified
third-party real estate mortgage contract to accommodate the Acuña spouses. Second, the appellate court's amended decision is not in
accord with law or with this Court's decisions. Cecilleville theorizes that its ratification extinguished the action to annul the real estate
mortgage and made the real estate mortgage valid and enforceable. Thus, Cecilleville demands reimbursement on the basis of a
ratified real estate mortgage.

The Ruling of the Court

We see merit in the petition.

The facts of the case are simple: The Acuña spouses obtained a loan from Prudential secured by a real estate mortgage on
Cecilleville's property. The Acuña spouses defaulted on their loan, and Prudential initiated foreclosure proceedings. Cecilleville tried to
annul the real estate mortgage but failed when the Court ruled that Cecilleville had ratified the real estate mortgage. In effect,
Cecilleville became a third-party accommodation mortgagor. Cecilleville paid Prudential to avoid foreclosure of its mortgaged
properties. Cecilleville repeatedly asked the Acuña spouses to reimburse what it paid Prudential, but the Acuña spouses refused to do
so.

From the facts above, we see that Cecilleville paid the debt of the Acuña spouses to Prudential as an interested third party. The second
paragraph of Article 1236 of the Civil Code reads:

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the
will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

Even if the Acuña spouses insist that Cecilleville's payment to Prudential was without their knowledge or against their will, Article
1302(3) of the Civil Code states that Cecilleville still has a right to reimbursement, thus:

When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the
effects of confusion as to the latter's share.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Cecilleville clearly has an interest in the fulfillment of the obligation because it owns the properties mortgaged to secure the Acuña
spouses' loan. When an interested party pays the obligation, he is subrogated in the rights of the creditor.8 Because of its payment of
the Acuña spouses' loan, Cecilleville actually steps into the shoes of Prudential and becomes entitled, not only to recover what it has
paid, but also to exercise all the rights which Prudential could have exercised. There is, in such cases, not a real extinguishment of the
obligation, but a change in the active subject.9

Cecilleville's cause of action against the Acuña spouses is one created by law; hence, the action prescribes in ten years.10 Prescription
accrues from the date of payment by Cecilleville to Prudential of the Acuña spouses' debt on 5 April 1994. Cecilleville's present
complaint against the Acuña spouses was filed on 20 June 1996, which was almost two months from the extrajudicial demands to pay
on 9 and 23 April 1996. Whether we use the date of payment, the date of the last written demand for payment, or the date of judicial
demand, it is clear that Cecilleville's cause of action has not yet prescribed.

Finally, considering the length of time of litigation and the fact that the records of the case are before this Court, we deem it prudent to
declare the Acuña spouses' liability to Cecilleville in the following amounts:

A. P3,367,474.42, representing the amount paid by Cecilleville to Prudential; andcralawlibrary

b. interest on the P3,367,474.42 at 16% per annum, this being the interest rate upon default on the promissory note to Prudential to
which Cecilleville is subrogated. Interest shall be calculated from 9 April 1996, the date of Cecilleville's first written demand to the
Acuña spouses after its payment to Prudential.

The Acuña spouses shall also pay attorney's fees to Cecilleville equivalent to 5% of the total award.11

WHEREFORE, we GRANT the petition. We SET ASIDE the Amended Decision promulgated on 30 January 2004 of the Court of
Appeals in CA-G.R. CV No. 56623. Respondent spouses Tito Acuña and Ofelia B. Acuña shall pay petitioner Cecilleville Realty and
Service Corporation the following: P3,367,474.42, representing the amount paid by Cecilleville Realty and Service Corporation to
Prudential Bank and Trust Company; and interest on the P3,367,474.42 at 16% per annum. Interest shall be calculated from 9 April
1996 until full payment. Spouses Tito Acuña and Ofelia B. Acuña shall also pay attorney's fees to Cecilleville Realty and Service
Corporation equivalent to 5% of the total award.

SO ORDERED.
 13. G.R. No. 164401    June 25, 2008

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS; THE HONORABLE PRESIDING JUDGE, Regional Trial Court, Branch 11, Sindangan,
Zamboanga Del Norte; THE REGIONAL TRIAL COURT SHERIFF, Branch 11, Sindangan, Zamboanga Del Norte; THE CLERK
OF COURT OF MANILA, as Ex-Officio Sheriff; and LAMBERTO T. CHUA, respondents.

DECISION

VELASCO, JR., J.:

The Case

Before us is a petition for review under Rule 45, seeking to nullify and set aside the Decision1 and Resolution dated November 6, 2003
and July 6, 2004, respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 75688. The impugned CA Decision and Resolution
denied the petition for certiorari interposed by petitioners assailing the Resolutions2 dated November 6, 2002 and January 7, 2003,
respectively, of the Regional Trial Court (RTC), Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, a suit for
winding up of partnership affairs, accounting, and recovery of shares commenced thereat by respondent Lamberto T. Chua.

The Facts

In 1977, Chua and Jacinto Sunga formed a partnership to engage in the marketing of liquefied petroleum gas. For convenience, the
business, pursued under the name, Shellite Gas Appliance Center (Shellite), was registered as a sole proprietorship in the name of
Jacinto, albeit the partnership arrangement called for equal sharing of the net profit.

After Jacinto’s death in 1989, his widow, petitioner Cecilia Sunga, and married daughter, petitioner Lilibeth Sunga-Chan, continued with
the business without Chua’s consent. Chua’s subsequent repeated demands for accounting and winding up went unheeded, prompting
him to file on June 22, 1992 a Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal and Recovery of Shares and
Damages with Writ of Preliminary Attachment, docketed as Civil Case No. S-494 of the RTC in Sindangan, Zamboanga del Norte and
raffled to Branch 11 of the court.

After trial, the RTC rendered, on October 7, 1997, judgment finding for Chua, as plaintiff a quo. The RTC’s decision would subsequently
be upheld by the CA in CA-G.R. CV No. 58751 and by this Court per its Decision dated August 15, 2001 in G.R. No. 143340.3 The
corresponding Entry of Judgment4 would later issue declaring the October 7, 1997 RTC decision final and executory as of December
20, 2001. The fallo of the RTC’s decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of
the properties, assets, income and profits of [Shellite] since the time of death of Jacinto L. Sunga, from whom
they continued the business operations including all businesses derived from [Shellite]; submit an inventory, and
appraisal of all these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits
they misapplied and converted to their own use and advantage that legally pertain to the plaintiff and account for
the properties mentioned in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the plaintiff in the partnership of
the listed properties, assets and good will in schedules A, B and C, on pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from
1988 to May 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with
legal rate of interest until fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law,
after delivering to the plaintiff all the ½ interest, shares, participation and equity in the partnership, or the value thereof
in money or money’s worth, if the properties are not physically divisible;

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the
plaintiff the sum of P50,000.00 as moral and exemplary damages; and,
 (7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney’s [fee] and P25,000.00 as litigation
expenses.

NO special pronouncements as to COSTS.

SO ORDERED.5 (Emphasis supplied.)

Via an Order6 dated January 16, 2002, the RTC granted Chua’s motion for execution. Over a month later, the RTC, acting on another
motion of Chua, issued an amended writ of execution.7

It seems, however, that the amended writ of execution could not be immediately implemented, for, in an omnibus motion of April 3,
2002, Chua, inter alia, asked the trial court to commission a certified public accountant (CPA) to undertake the accounting work and
inventory of the partnership assets if petitioners refuse to do it within the time set by the court. Chua later moved to withdraw his motion
and instead ask the admission of an accounting report prepared by CPA Cheryl A. Gahuman. In the report under the
heading, Computation of Claims,8 Chua’s aggregate claim, arrived at using the compounding-of-interest method, amounted to PhP
14,277,344.94. Subsequently, the RTC admitted and approved the computation of claims in view of petitioners’ failure and refusal,
despite notice, to appear and submit an accounting report on the winding up of the partnership on the scheduled hearings on April 29
and 30, 2002.9

After another lengthy proceedings, petitioners, on September 24, 2002, submitted their own CPA-certified valuation and accounting
report. In it, petitioners limited Chua’s entitlement from the winding up of partnership affairs to an aggregate amount of PhP
3,154,736.65 only.10 Chua, on the other hand, submitted a new computation,11 this time applying simple interest on the various items
covered by his claim. Under this methodology, Chua’s aggregate claim went down to PhP 8,733,644.75.

On November 6, 2002, the RTC issued a Resolution,12 rejecting the accounting report petitioners submitted, while approving the new
computation of claims Chua submitted. The fallo of the resolution reads:

WHEREFORE, premises considered, this Court resolves, as it is hereby resolved, that the Computation of Claims submitted
by the plaintiff dated October 15, 2002 amounting to P8,733,644.75 be APPROVED in all respects as the final computation
and accounting of the defendants’ liabilities in favor of the plaintiff in the above-captioned case, DISAPPROVING for the
purpose, in its entirety, the computation and accounting filed by the defendants.

SO RESOLVED.13

Petitioners sought reconsideration, but their motion was denied by the RTC per its Resolution of January 7, 2003.14

In due time, petitioners went to the CA on a petition for certiorari15 under Rule 65, assailing the November 6, 2002 and January 7, 2003
resolutions of the RTC, the recourse docketed as CA-G.R. SP No. 75688.

The Ruling of the CA

As stated at the outset, the CA, in the herein assailed Decision of November 6, 2003, denied the petition for certiorari, thus:

WHEREFORE, the foregoing considered, the Petition is hereby DENIED for lack of merit.

SO ORDERED.16

The CA predicated its denial action on the ensuing main premises:

1. Petitioners, by not appearing on the hearing dates, i.e., April 29 and 30, 2002, scheduled to consider Chua’s computation of claims,
or rendering, as required, an accounting of the winding up of the partnership, are deemed to have waived their right to interpose any
objection to the computation of claims thus submitted by Chua.

2. The 12% interest added on the amounts due is proper as the unwarranted keeping by petitioners of Chua’s money passes as an
involuntary loan and forbearance of money.

3. The reiterative arguments set forth in petitioners’ pleadings below were part of their delaying tactics. Petitioners had come to the
appellate court at least thrice and to this Court twice. Petitioners had more than enough time to question the award and it is now too late
in the day to change what had become final and executory.

Petitioners’ motion for reconsideration was rejected by the appellate court through the assailed Resolution17 dated July 6, 2004.
Therein, the CA explained that the imposition of the 12% interest for forbearance of credit or money was proper pursuant to paragraph
1 of the October 7, 1997 RTC decision, as the computation done by CPA Gahuman was made in "acceptable form under accounting
procedures and standards of the properties, assets, income and profits of [Shellite]."18 Moreover, the CA ruled that the imposition of
interest is not based on par. 3 of the October 7, 1997 RTC decision as the phrase "shares and interests" mentioned therein refers not to
an imposition of interest for use of money in a loan or credit, but to a legal share or right. The appellate court also held that the
imposition of interest on the partnership assets falls under par. 2 in relation to par. 1 of the final RTC decision as the restitution
mentioned therein does not simply mean restoration but also reparation for the injury or damage committed against the rightful owner of
the property.

Finally, the CA declared the partnership assets referred to in the final decision as "liquidated claim" since the claim of Chua is
ascertainable by mathematical computation; therefore, interest is recoverable as an element of damage.

The Issues

Hence, the instant petition with petitioners raising the following issues for our consideration:

I.

Whether or not the Regional Trial Court can [impose] interest on a final judgment of unliquidated claims.

II.

Whether or not the Sheriff can enforce the whole divisible obligation under judgment only against one Defendant.

III.

Whether or not the absolute community of property of spouses Lilibeth Sunga Chan with her husband Norberto Chan can be
lawfully made to answer for the liability of Lilibeth Chan under the judgment.19

Significant Intervening Events

In the meantime, pending resolution of the instant petition for review and even before the resolution by the CA of its CA-G.R. SP No.
75688, the following relevant events transpired:

1. Following the RTC’s approval of Chua’s computation of claims in the amount of PhP 8,733,644.75, the sheriff of Manila
levied upon petitioner Sunga-Chan’s property located along Linao St., Paco, Manila, covered by Transfer Certificate of Title
(TCT) No. 208782,20 over which a building leased to the Philippine National Bank (PNB) stood. In the auction sale of the levied
lot, Chua, with a tender of PhP 8 million,21 emerged as the winning bidder.

2. On January 21, 2005, Chua moved for the issuance of a final deed of sale and a writ of possession. He also asked the RTC
to order the Registry of Deeds of Manila to cancel TCT No. 208782 and to issue a new certificate. Despite petitioners’
opposition on the ground of prematurity, a final deed of sale22 was issued on February 16, 2005.

3. On February 18, 2005, Chua moved for the confirmation of the sheriff’s final deed of sale and for the issuance of an order
for the cancellation of TCT No. 208782. Petitioners again interposed an opposition in which they informed the RTC that this
Court had already granted due course to their petition for review on January 31, 2005;

4. On April 11, 2005, the RTC, via a Resolution, confirmed the sheriff’s final deed of sale, ordered the Registry of Deeds of
Manila to cancel TCT No. 208782, and granted a writ of possession23 in favor of Chua.

5. On May 3, 2005, petitioners filed before this Court a petition for the issuance of a temporary restraining order (TRO). On
May 24, 2005, the sheriff of Manila issued a Notice to Vacate24 against petitioners, compelling petitioners to repair to this Court
anew for the resolution of their petition for a TRO.

6. On May 31, 2005, the Court issued a TRO,25 enjoining the RTC and the sheriff from enforcing the April 11, 2005 writ of
possession and the May 24, 2005 Notice to Vacate. Consequently, the RTC issued an Order26 on June 17, 2005, suspending
the execution proceedings before it.

7. Owing to the clashing ownership claims over the leased Paco property, coupled with the filing of an unlawful detainer suit
before the Metropolitan Trial Court (MeTC) in Manila against PNB, the Court, upon the bank’s motion, allowed, by
Resolution27 dated April 26, 2006, the consignation of the monthly rentals with the MeTC hearing the ejectment case.

The Court’s Ruling

The petition is partly meritorious.

First Issue: Interest Proper in Forbearance of Credit

Petitioners, citing Article 221328 of the Civil Code, fault the trial court for imposing, in the execution of its final judgment, interests on
what they considered as unliquidated claims. Among these was the claim for goodwill upon which the RTC attached a monetary value
of PhP 250,000. Petitioners also question the imposition of 12% interest on the claimed monthly profits of PhP 35,000, reckoned from
1988 to October 15, 1992. To petitioners, the imposable rate should only be 6% and computed from the finality of the RTC’s underlying
decision, i.e., from December 20, 2001.

Third on the petitioners’ list of unliquidated claims is the yet-to-be established value of the one-half partnership share and interest
adjudicated to Chua, which, they submit, must first be determined with reasonable certainty in a judicial proceeding. And in this regard,
petitioners, citing Eastern Shipping Lines, Inc. v. Court of Appeals,29 would ascribe error on the RTC for adding a 12% per annum
interest on the approved valuation of the one-half share of the assets, inclusive of goodwill, due Chua.

Petitioners are partly correct.

For clarity, we reproduce the summary valuations and accounting reports on the computation of claims certified to by the parties’
respective CPAs. Chua claimed the following:
A 50% share on assets (exclusive of goodwill) at fair market value
(Schedule 1) P 1,613,550.00
B 50% share in the monetary value of goodwill (P500,000 x 50%) 250,000.00
C Legal interest on share of assets from June 1, 1992 to Oct. 15,
2002 at 12% interest per year (Schedule 2) 2,008,869.75
D Unreceived profits from 1988 to 1992 and its corresponding
interest from Jan. 1, 1988 to Oct. 15, 2002 (Schedule 3) 4,761,225.00
E Damages 50,000.00
F Attorney’s fees 25,000.00
G Litigation fees 25,000.00
TOTAL AMOUNT P 8,733,644.75

On the other hand, petitioners acknowledged the following to be due to Chua:

Total Assets – Schedule 1 P2,431,956.35

50% due to Lamberto Chua P1,215,978.16

Total Alleged Profit, Net of Payments Made,

May 1992-Sch. 2 1,613,758.49

50% share in the monetary value of goodwill

(500,000 x 50%) 250,000.00

Moral and Exemplary Damages 50,000.00

Attorney’s Fee 25,000.00

Litigation Fee 25,000.00

TOTAL AMOUNT P3,154,736.65

As may be recalled, the trial court admitted and approved Chua’s computation of claims amounting to PhP 8,733,644.75, but rejected
that of petitioners, who came up with the figure of only PhP 3,154,736.65. We highlight the substantial differences in the accounting
reports on the following items, to wit: (1) the aggregate amount of the partnership assets bearing on the 50% share of Chua thereon; (2)
interests added on Chua’s share of the assets; (3) amount of profits from 1988 through May 30, 1992, net of alleged payments made to
Chua; and (4) interests added on the amount entered as profits.

From the foregoing submitted valuation reports, there can be no dispute about the goodwill earned thru the years by Shellite. In fact,
the parties, by their own judicial admissions, agreed on the monetary value, i.e., PhP 250,000, of this item. Clearly then, petitioners
contradict themselves when they say that such amount of goodwill is without basis. Thus, the Court is loathed to disturb the trial court’s
approval of the amount of PhP 250,000, representing the monetary value of the goodwill, to be paid to Chua.
Neither is the Court inclined to interfere with the CA’s conclusion as to the total amount of the partnership profit, that is, PhP 1,855,000,
generated for the period January 1988 through May 30, 1992, and the total partnership assets of PhP 3,227,100, 50% of which, or PhP
1,613,550, pertains to Chua as his share. To be sure, petitioners have not adduced adequate evidence to belie the above CA’s factual
determination, confirmatory of the trial court’s own. Needless to stress, it is not the duty of the Court, not being a trier of facts, to
analyze or weigh all over again the evidence or premises supportive of such determination, absent, as here, the most compelling and
cogent reasons.

This brings us to the question of the propriety of the imposition of interest and, if proper, the imposable rate of interest applicable.

In Reformina v. Tomol, Jr.,30 the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No. 416 shall be
adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment of indemnities in the
concept of damages arising from default in the performance of obligations in general and/or for money judgment not involving a loan or
forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209
pertinently provides:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.

The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or creditor to refrain,
during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.31

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,"32 with the application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount is
fully paid."33 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."34

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:

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.

2. When an obligation not constituting loans or forbearance of money is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.35

Guided by the foregoing rules, the award to Chua of the amount representing earned but unremitted profits, i.e.. PhP 35,000 monthly,
from January 1988 until May 30, 1992, must earn interest at 6% per annum reckoned from October 7, 1997, the rendition date of the
RTC decision, until December 20, 2001, when the said decision became final and executory. Thereafter, the total of the monthly profits
inclusive of the add on 6% interest shall earn 12% per annum reckoned from December 20, 2001 until fully paid, as the award for that
item is considered to be, by then, equivalent to a forbearance of credit. Likewise, the PhP 250,000 award, representing the goodwill
value of the business, the award of PhP 50,000 for moral and exemplary damages, PhP 25,000 attorney’s fee, and PhP 25,000
litigation fee shall earn 12% per annum from December 20, 2001 until fully paid.
Anent the impasse over the partnership assets, we are inclined to agree with petitioners’ assertion that Chua’s share and interest on
such assets partake of an unliquidated claim which, until reasonably determined, shall not earn interest for him. As may be noted, the
legal norm for interest to accrue is "reasonably determinable," not, as Chua suggested and the CA declared, determinable by
mathematical computation.

The Court has certainly not lost sight of the fact that the October 7, 1997 RTC decision clearly directed petitioners to render an
accounting, inventory, and appraisal of the partnership assets and then to wind up the partnership affairs by restituting and delivering to
Chua his one-half share of the accounted partnership assets. The directive itself is a recognition that the exact share and interest of
Chua over the partnership cannot be determined with reasonable precision without going through with the inventory and accounting
process. In fine, a liquidated claim cannot validly be asserted without accounting. In net effect, Chua’s interest and share over the
partnership asset, exclusive of the goodwill, assumed the nature of a liquidated claim only after the trial court, through its November 6,
2002 resolution, approved the assets inventory and accounting report on such assets.

Considering that Chua’s computation of claim, as approved by the trial court, was submitted only on October 15, 2002, no interest in his
favor can be added to his share of the partnership assets. Consequently, the computation of claims of Chua should be as follows:
(1) 50% share on assets (exclusive of goodwill)
at fair market value PhP 1,613,550.00
(2) 50% share in the monetary value of goodwill
(PhP 500,000 x 50%) 250,000.00
(3) 12% interest on share of goodwill from December 20, 2001 to
October 15, 2000
[PhP 250,000 x 0.12 x 299/365 days] 24,575.34
(4) Unreceived profits from 1988 to May 30, 1992 1,855,000.00
(5) 6% interest on unreceived profits from January 1, 1988 to
December 20, 200136 1,360,362.50
(6) 12% interest on unreceived profits from December

20, 2001 to October 15, 2002

[PhP 3,215,362.50 x 12% x 299/365 days] 316,074.54
(7) Moral and exemplary damages 50,000.00
(8) Attorney’s fee 25,000.00
(9) Litigation fee 25,000.00
(10) 12% interest on moral and exemplary damages,

attorney’s fee, and litigation fee from December 20, 2001 to October
15, 2002
[PhP 100,000 x 12% x 299/365 days] 9,830.14
TOTAL AMOUNT PhP 5,529,392.52

Second Issue: Petitioners’ Obligation Solidary

Petitioners, on the submission that their liability under the RTC decision is divisible, impugn the implementation of the amended writ of
execution, particularly the levy on execution of the absolute community property of spouses petitioner Sunga-Chan and Norberto Chan.
Joint, instead of solidary, liability for any and all claims of Chua is obviously petitioners’ thesis.

Under the circumstances surrounding the case, we hold that the obligation of petitioners is solidary for several reasons.

For one, the complaint of Chua for winding up of partnership affairs, accounting, appraisal, and recovery of shares and damages is
clearly a suit to enforce a solidary or joint and several obligation on the part of petitioners. As it were, the continuance of the business
and management of Shellite by petitioners against the will of Chua gave rise to a solidary obligation, the acts complained of not being
severable in nature. Indeed, it is well-nigh impossible to draw the line between when the liability of one petitioner ends and the liability
of the other starts. In this kind of situation, the law itself imposes solidary obligation. Art. 1207 of the Civil Code thus provides:

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

Any suggestion that the obligation to undertake an inventory, render an accounting of partnership assets, and to wind up the
partnership affairs is divisible ought to be dismissed.
For the other, the duty of petitioners to remit to Chua his half interest and share of the total partnership assets proceeds from
petitioners’ indivisible obligation to render an accounting and inventory of such assets. The need for the imposition of a solidary liability
becomes all the more pronounced considering the impossibility of quantifying how much of the partnership assets or profits was
misappropriated by each petitioner.

And for a third, petitioners’ obligation for the payment of damages and attorney’s and litigation fees ought to be solidary in nature, they
having resisted in bad faith a legitimate claim and thus compelled Chua to litigate.

Third Issue: Community Property Liable

Primarily anchored as the last issue is the erroneous theory of divisibility of petitioners’ obligation and their joint liability therefor. The
Court needs to dwell on it lengthily.

Given the solidary liability of petitioners to satisfy the judgment award, respondent sheriff cannot really be faulted for levying upon and
then selling at public auction the property of petitioner Sunga-Chan to answer for the whole obligation of petitioners. The fact that the
levied parcel of land is a conjugal or community property, as the case may be, of spouses Norberto and Sunga-Chan does not per se
vitiate the levy and the consequent sale of the property. Verily, said property is not among those exempted from execution under
Section 13,37 Rule 39 of the Rules of Court.

And it cannot be overemphasized that the TRO issued by the Court on May 31, 2005 came after the auction sale in question.

Parenthetically, the records show that spouses Sunga-Chan and Norberto were married on February 4, 1992, or after the effectivity of
the Family Code on August 3, 1988. Withal, their absolute community property may be held liable for the obligations contracted by
either spouse. Specifically, Art. 94 of said Code pertinently provides:

Art. 94. The absolute community of property shall be liable for:

(1) x x x x

(2) All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the
community, or by both spouses, or by one spouse with the consent of the other.

(3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may
have been benefited. (Emphasis ours.)

Absent any indication otherwise, the use and appropriation by petitioner Sunga-Chan of the assets of Shellite even after the business
was discontinued on May 30, 1992 may reasonably be considered to have been used for her and her husband’s benefit.

It may be stressed at this juncture that Chua’s legitimate claim against petitioners, as readjusted in this disposition, amounts to only
PhP 5,529,392.52, whereas Sunga-Chan’s auctioned property which Chua acquired, as the highest bidder, fetched a price of PhP 8
million. In net effect, Chua owes petitioner Sunga-Chan the amount of PhP 2,470,607.48, representing the excess of the purchase price
over his legitimate claims.

Following the auction, the corresponding certificate of sale dated January 15, 2004 was annotated on TCT No. 208782. On January 21,
2005, Chua moved for the issuance of a final deed of sale (1) to order the Registry of Deeds of Manila to cancel TCT No. 208782; (2) to
issue a new TCT in his name; and (3) for the RTC to issue a writ of possession in his favor. And as earlier stated, the RTC granted
Chua’s motion, albeit the Court restrained the enforcement of the RTC’s package of orders via a TRO issued on May 31, 2005.

Therefore, subject to the payment by Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, we affirm the RTC’s April 11, 2005
resolution, confirming the sheriff’s final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No.
208782, and issuing a writ of possession in favor of Chua.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the assailed decision and resolution of the CA in CA-G.R. SP No.
75688 are hereby AFFIRMED with the following MODIFICATIONS:

(1) The Resolutions dated November 6, 2002 and January 7, 2003 of the RTC, Branch 11 in Sindangan, Zamboanga Del Norte in Civil
Case No. S-494, as effectively upheld by the CA, are AFFIRMED with the modification that the approved claim of respondent Chua is
hereby corrected and adjusted to cover only the aggregate amount of PhP 5,529,392.52;

(2) Subject to the payment by respondent Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, the Resolution dated April 11, 2005 of
the RTC, confirming the sheriff’s final deed of sale of the levied property, ordering the Registry of Deeds of Manila to cancel TCT No.
208782, and issuing a writ of possession in favor of respondent Chua, is AFFIRMED; and
The TRO issued by the Court on May 31, 2005 in the instant petition is LIFTED.

No pronouncement as to costs.

SO ORDERED.
 14. G.R. No. 160545               March 9, 2010

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON, Petitioners,

vs.
ARTHUR F. MENCHAVEZ, Respondent.

DECISION

BRION, J.:

We resolve in this Decision the petition for review on certiorari1 filed by petitioners Prisma Construction & Development Corporation
(PRISMA) and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside the Decision2 dated May
5, 2003 and the Resolution3 dated October 22, 2003 of the Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV No.
69627. The assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No.
97-4552 that held the petitioners liable for payment of ₱3,526,117.00 to respondent Arthur F. Menchavez (respondent), but modified
the interest rate from 4% per month to 12% per annum, computed from the filing of the complaint to full payment. The assailed CA
Resolution denied the petitioners’ Motion for Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a ₱1,000,000.004 loan from the
respondent, with a monthly interest of ₱40,000.00 payable for six months, or a total obligation of ₱1,240,000.00 to be paid within six (6)
months,5 under the following schedule of payments:
January 8, 1994 …………………. ₱40,000.00
February 8, 1994 ………………... ₱40,000.00
March 8, 1994 …………………... ₱40,000.00
April 8, 1994 ……………………. ₱40,000.00
May 8, 1994 …………………….. ₱40,000.00
June 8, 1994 ………………… ₱1,040,000.006
Total ₱1,240,000.00

To secure the payment of the loan, Pantaleon issued a promissory note7 that states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS
(P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-month loan payable according to the following
schedule:
January 8, 1994 …………………. ₱40,000.00
February 8, 1994 ………………... ₱40,000.00
March 8, 1994 …………………... ₱40,000.00
April 8, 1994 ……………………. ₱40,000.00
May 8, 1994 …………………….. ₱40,000.00
June 8, 1994 ………………… ₱1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged.8

and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal
capacity,9 and as duly authorized by the Board of Directors of PRISMA.10 The petitioners failed to completely pay the loan within the
stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent:
September 8, 1994 ……………… ₱320,000.00
October 8, 1995…………………. ₱600,000.00
 November 8, 1995……………. ₱158,772.00
January 4, 1997 …………………. ₱30,000.0011

As of January 4, 1997, the petitioners had already paid a total of ₱1,108,772.00. However, the respondent found that the petitioners still
had an outstanding balance of ₱1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest.12 Thus, on August 28,
1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest,
₱30,000.00 in attorney’s fees, ₱1,000.00 per court appearance and costs of suit.13

In their Answer dated October 6, 1998, the petitioners admitted the loan of ₱1,240,000.00, but denied the stipulation on the 4% monthly
interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable
and that he made representations that the loan would be repaid within six (6) months.14

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for ₱1,000,000.00 in favor of the
petitioners for a loan that would earn an interest of 4% or ₱40,000.00 per month, or a total of ₱240,000.00 for a 6-month period. It
noted that the petitioners made several payments amounting to ₱1,228,772.00, but they were still indebted to the respondent for
₱3,526,117.00 as of February 11,15 1999 after considering the 4% monthly interest. The RTC observed that PRISMA was a one-man
corporation of Pantaleon and used this circumstance to justify the piercing of the veil of corporate fiction. Thus, the RTC ordered the
petitioners to jointly and severally pay the respondent the amount of ₱3,526,117.00 plus 4% per month interest from February 11, 1999
until fully paid.16

The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there was no
express stipulation on the 4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally based on the
board resolution that authorized Pantaleon to transact a loan with an approved interest of not more than 4% per month. The appellate
court, however, noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per
annum. The CA affirmed the RTC’s finding that PRISMA was a mere instrumentality of Pantaleon that justified the piercing of the veil of
corporate fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum interest, computed from the filing of the
complaint until finality of judgment, and thereafter, 12% from finality until fully paid.17

After the CA's denial18 of their motion for reconsideration,19 the petitioners filed the present petition for review on certiorari under Rule
45 of the Rules of Court.

THE PETITION

The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4% monthly
interest because the board resolution was not an evidence of a loan or forbearance of money, but merely an authorization for
Pantaleon to perform certain acts, including the power to enter into a contract of loan. The expressed mandate of Article 1956 of the
Civil Code is that interest due should be stipulated in writing, and no such stipulation exists. Even assuming that the loan is subject to
4% monthly interest, the interest covers the six (6)-month period only and cannot be interpreted to apply beyond it. The petitioners also
point out the glaring inconsistency in the CA Decision, which reduced the interest from 4% per month or 48% per annum to 12% per
annum, but failed to consider that the amount of ₱3,526,117.00 that the RTC ordered them to pay includes the compounded 4%
monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board resolution is
attached to, and an integral part of, the promissory note based on which the petitioners obtained the loan. The respondent further
contends that the petitioners are estopped from assailing the 4% monthly interest, since they agreed to pay the 4% monthly interest on
the principal amount under the promissory note and the board resolution.

THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to
the 6-month payment period only or until full payment of the loan?

OUR RULING
We find the petition meritorious.

Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good
faith.20 When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its
stipulations governs.21 In such cases, courts have no authority to alter the contract by construction or to make a new contract for the
parties; a court's duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or
folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain.22 It is only when the
contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties’ intent.

In the present case, the respondent issued a check for ₱1,000,000.00.23 In turn, Pantaleon, in his personal capacity and as authorized
by the Board, executed the promissory note quoted above. Thus, the ₱1,000,000.00 loan shall be payable within six (6) months, or
from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of ₱40,000.00 per month, for a total
obligation of ₱1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month,
but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that "no interest shall be due unless it has been expressly stipulated in writing."
Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza24 and Ching v. Nicdao25 that
collection of interest without any stipulation in writing is prohibited by law.1avvphi1

Applying this provision, we find that the interest of ₱40,000.00 per month corresponds only to the six (6)-month period of the loan, or
from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should
be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:26

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 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." (Emphasis supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,27 Sulit v. Court of Appeals,28 Crismina Garments, Inc. v.
Court of Appeals, 29 Eastern Assurance and Surety Corporation v. Court of Appeals, 30 Sps.  Catungal v. Hao, 31 Yong v. Tiu,32 and Sps.
Barrera v. Sps. Lorenzo.33 Thus, the RTC and the CA misappreciated the facts of the case; they erred in finding that the parties agreed
to a 4% interest, compounded by the application of this interest beyond the promissory note’s six (6)-month period. The facts show that
the parties agreed to the payment of a specific sum of money of ₱40,000.00 per month for six months, not to a 4% rate of interest
payable within a six (6)-month period.

Medel v. Court of Appeals not applicable

The CA misapplied Medel v. Court of Appeals34 in finding that a 4% interest per month was unconscionable.

In Medel, the debtors in a ₱500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum,
and a penalty charge of 1% per month, plus attorney’s fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in
conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be excessive, iniquitous,
unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and void.

Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar35 of 6% per month or 72% per
annum interest on a ₱60,000.00 loan; in Ruiz v. Court of Appeals,36 of 3% per month or 36% per annum interest on a ₱3,000,000.00
loan; in Imperial v. Jaucian,37 of 16% per month or 192% per annum interest on a ₱320,000.00 loan; in Arrofo v. Quiño,38 of 7% interest
per month or 84% per annum interest on a ₱15,000.00 loan; in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per annum interest on a
₱2,500,000.00 loan; and in Chua v. Timan,40 of 7% and 5% per month for loans totalling ₱964,000.00. We note that in all these cases,
the terms of the loans were open-ended; the stipulated interest rates were applied for an indefinite period.

Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific
sum of ₱40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on the excessiveness of the
stipulated amount of ₱40,000.00 per month was ever put in issue by the petitioners;41 they only assailed the application of a 4% interest
rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they
have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not
contrary to law, morals, public order or public policy.42 The payment of the specific sum of money of ₱40,000.00 per month was
voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation
showing that petitioners were victims of fraud when they entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of ₱1,000,000.00 shall earn ₱40,000.00 per month for a period of six (6) months, or from
December 8, 1993 to June 8, 1994, for a total principal and interest amount of ₱1,240,000.00. Thereafter, interest at the rate of 12%
per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting to ₱1,228,772.00 as of
February 12, 1999,43 should be deducted from the total amount due, computed as indicated above. We remand the case to the trial
court for the actual computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month stipulated
period, since they agreed to pay this interest on the principal amount under the promissory note and the board resolution.

We disagree with the respondent’s contention.

We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record, negate
its application. Under the promissory note,44 what the petitioners agreed to was the payment of a specific sum of ₱40,000.00 per
month for six months – not a 4% rate of interest per month for six (6) months – on a loan whose principal is ₱1,000,000.00, for
the total amount of ₱1,240,000.00. Thus, no reason exists to place the petitioners in estoppel, barring them from raising their present
defenses against a 4% per month interest after the six-month period of the agreement. The board resolution,45 on the other hand,
simply authorizes Pantaleon to contract for a loan with a monthly interest of not more than 4%. This resolution merely embodies the
extent of Pantaleon’s authority to contract and does not create any right or obligation except as between Pantaleon and the board.
Again, no cause exists to place the petitioners in estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct corporate
personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in
fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases,
i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.46 In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer
cannot be made personally liable for corporate liabilities.47

In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part of PRISMA to
justify piercing its corporate veil. While Pantaleon denied personal liability in his Answer, he made himself accountable in the
promissory note "in his personal capacity and as authorized by the Board Resolution" of PRISMA.48 With this statement of personal
liability and in the absence of any representation on the part of PRISMA that the obligation is all its own because of its separate
corporate identity, we see no occasion to consider piercing the corporate veil as material to the case.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court of
Appeals in CA-G.R. CV No. 69627. The petitioners’ loan of ₱1,000,000.00 shall bear interest of ₱40,000.00 per month for six (6)
months from December 8, 1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the end of the six-month
payment period, shall thereafter bear interest at 12% per annum. The total amount due and unpaid, including accrued interests, shall
bear interest at 12% per annum from the finality of this Decision. Let this case be REMANDED to the Regional Trial Court, Branch 73,
Antipolo City for the proper computation of the amount due as herein directed, with due regard to the payments the petitioners have
already remitted. Costs against the respondent.

SO ORDERED.
 15. G.R. No. 208984, September 16, 2015

WT CONSTRUCTION, INC., Petitioner, v. THE PROVINCE OF CEBU, Respondent.

G.R. No. 209245

PROVINCE OF CEBU, Petitioner, v. WT CONSTRUCTION, INC., Respondent.

DECISION

PERLAS-BERNABE, J.:

Before this Court are consolidated petitions for review on certiorari1 assailing the Decision2 dated December 19, 2012 and the
Resolution3 dated August 8, 2013 of the Court of Appeals (CA) in CA-G.R. CEB-CV No. 03791, which affirmed the Order4 dated
September 22, 2009 of the Regional Trial Court of Cebu City, Branch 6 (RTC) in Civil Case No. CEB-34012 finding the Province of
Cebu liable to pay WT Construction, Inc. (WTCI) the amount of P257,413,911.73, but reduced the legal interest rate imposable thereon
from 12% to 6% per annum.
The Facts

Sometime in 2005, the Province of Cebu was chosen by former President Gloria Macapagal-Arroyo to host the 12th Association of
Southeast Asian Nations (ASEAN) Summit scheduled on December 10, 2006. To cater to the event, it decided to construct the Cebu
International Convention Center (CICC or the project) at the New Mandaue Reclamation Area, Mandaue City, Cebu, which would serve
as venue for the ASEAN Summit.5

Accordingly, the Province of Cebu conducted a public bidding for the project and, on February 22, 2006, WTCI emerged as the winning
bidder for the construction of Phase I thereof which consists of the substructure of CICC. On July 26, 2006, after completing Phase I
and receiving payment therefor, WTCI again won the bidding for Phase II of the project involving the adjacent works on CICC.6

As Phase II neared completion, the Province of Cebu caused WTCI to perform additional works on the project which included site
development, and additional structural, architectural, electric, and plumbing works (additional works). Cognizant of the need to complete
the project in time for the ASEAN Summit, and with the repeated assurances that it would be promptly paid, WTCI agreed to perform
the additional works notwithstanding the lack of public bidding.7

In November 2006, weeks before the scheduled ASEAN Summit, WTCI completed the project, including the additional works and,
accordingly, demanded payment therefor.8 In a letter9 dated February 8, 2007, WTCI billed the Province of Cebu the amount of
P175,951,478.69 corresponding to the added cost for the site development and extended structural and architectural works. In a
separate letter dated February 12, 2007,10 WTCI billed the Province of Cebu the amount of P85,266,407.97 representing the cost for
the additional electrical and plumbing works. The Province of Cebu, however, refused to pay,11 thereby prompting WTCI to send a
Final Billing12 dated February 21, 2007 where it demanded payment of the aggregate sum of P261,217,886.66.

In the letters dated March 20, 200713 and September 11, 2007,14 WTCI again reiterated its demand for payment but the Province of
Cebu still refused to pay. Thus, on January 22, 2008, WTCI filed a complaint15 for collection of sum of money before the RTC which
was docketed as Civil Case No. CEB-34012.

For its defense, the Province of Cebu admitted the existence of the additional works but maintained that there was no contract between
it and WTCI therefor. It also claimed that the additional works did not undergo public bidding as required by Republic Act No. (RA)
9184,16 otherwise known as the "Government Procurement Reform Act."17 Upon joint verification by the parties, the value of the
additional works was pegged at P263,263,261.41.18

The RTC Ruling

In a Judgment19 dated May 20, 2009, the RTC ruled in favor of WTCI and ordered the Province of Cebu to pay the following amounts:
(a) P263,263,261.41 representing the cost of the additional works, with legal interest at the rate of 12% per annum computed from the
filing of the complaint on January 22, 2008 until fully paid; (b) P50,000.00 as attorney's fees; and (c) costs of suit.20 The RTC found
that there was a perfected oral contract between the parties for the additional works on CICC, and that WTCI must be duly
compensated therefor under the doctrine of quantum meruit; otherwise, the Province of Cebu would be unjustly enriched.21

The Province of Cebu sought a reconsideration22 of the foregoing and argued that its valuation of the additional works was only
P257,413,911.73.23 Further, it maintained that it was not liable to pay interests as WTCI performed the additional works at its own risk,
given that there was no public bidding.24
WTCI, on the other hand, neither filed an appeal nor a motion for reconsideration of the May 20, 2009 Judgment of the RTC.

In an Order25 dated September 22, 2009, the RTC granted in part the motion for reconsideration and reduced the amount of actual
damages from P263,263,261.41 to P257,413,911.73, in accordance with the cost standards for the year 2006 provided by the
Commission on Audit (COA), the National Statistics Office (NSO), the Department of Trade and Industry (DTI), and the Province of
Cebu itself. On all other points, including the award of 12% legal interest from the filing of the complaint, as well as the award of
attorney's fees and costs of suit, the RTC sustained its earlier ruling.26

Dissatisfied, the Province of Cebu appealed27 to the CA.

The CA Ruling

In a Decision28 dated December 19, 2012, the CA affirmed the RTC's Order dated September 22, 2009 but reduced the interest rate to
6% per annum.29 It remarked that the issue of whether or not a contract existed between the parties for the additional works has been
rendered immaterial in view of the admission by the Province of Cebu that it was liable for the amount of P257,413,911.73, and that it
had paid the same to WTCI; hence, only the award of interest, attorney's fees, and costs of suit are at issue.30 In this regard, the CA
pointed out that the reduction of the interest rate from 12% to 6% per annum is warranted given that the liability of the Province of Cebu
did not arise from a loan or forbearance of money but from the non¬payment of services rendered by WTCI.31 Anent the award of
attorney's fees and costs of suit, the CA affirmed the same after finding that the Province of Cebu acted maliciously and in bad faith
when it refused to pay the value of the additional works.32

On January 24, 2013, the Province of Cebu moved for reconsideration33 which was, however, denied by the CA in a
Resolution34 dated August 8, 2013.

WTCI, on the other hand, did not seek for a reconsideration of the CA's December 19, 2012 Decision but filed, on November 13, 2013,
a petition for review on certiorari35 before this Court, docketed as G.R. No. 208984. In said petition, WTCI maintained that the
obligation is one for forbearance of money since its performance of the additional works was a mere financial accommodation to the
Province of Cebu, thereby warranting the imposition of legal interest at the rate of 12% per annum, as originally decreed by the
RTC.36 It further claimed that the interest should be computed from the date of extrajudicial demand, i.e., from the date of receipt of the
Province of Cebu of its February 8 and 12, 2007 billing letters.37

On November 13, 2013, the Province of Cebu filed its own petition for review on certiorari38 before this Court, docketed as G.R. No.
209245. It contended that there was no perfected contract between the parties and that even if there was, the same is void for lack of
public bidding as required under RA 9184.39 While it admitted paying P257,413,911.73 to WTCI, the Province of Cebu averred that it
did so only under the principle of quantum meruit,40 adding too that it could not be held liable for interest, attorney's fees, and costs of
suit because there was no valid contract and that, at any rate, even if it wanted to pay WTCI sooner, it could not do so owing to the lack
of documentation.41

In a Resolution42 dated December 4, 2013, the Court consolidated the present petitions.

The Issues Before the Court

The issues for the resolution of the Court are: (a) whether or not the liability of the Province of Cebu is in the nature of a loan or
forbearance of money; and (b) whether or not the interest due should be computed from the date of the filing of the complaint or from
the time extrajudicial demand was made.

The Court's Ruling

At the outset, it must be pointed out that a determination of whether or not there wras a perfected oral contract between the Province of
Cebu and WTCI is a question of fact which is beyond the scope of the Court's power in a petition for review on certiorari, subject to
certain exceptions which do not obtain in this case. It is a settled rule that questions of law may be brought before this Court on petition
for review on certiorari under Rule 45 of the Rules of Court. This Court is not a trier of facts and factual findings of the RTC, when
affirmed by the CA, as in this case, are entitled to great weight and respect by this Court and are deemed final and conclusive when
supported by the evidence on record.43 Accordingly, the Court affirms the liability of the Province of Cebu to WTCI in the amount of
P257,413,911.73 which corresponds to the value of the additional works.

The Court now proceeds to determine the nature of the liability of the Province of Cebu to WTCI.
There is no question that the present case does not involve an obligation arising from a loan; what is at issue is whether the liability of
the Province of Cebu involves a forbearance of money, based on WTCI's claim that it merely advanced the cost of the additional works.
In Sunga-Chan v. CA,44 the Court characterized a transaction involving forbearance of money as follows:

The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or creditor to refrain,
during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.45

In Estores v. Supangan,46 the Court explained that forbearance of money, goods, or credit refers to arrangements other than loan
agreements where a person acquiesces to the temporary use of his money, goods or credits pending the happening of certain events
or fulfilment of certain conditions such that if these conditions are breached, the said person is entitled not only to the return of the
principal amount given, but also to compensation for the use of his money equivalent to the legal interest since the use or deprivation of
funds is akin to a loan.47

Applying the foregoing standards to the case at hand, the Court finds that the liability of the Province of Cebu to WTCI is not in the
nature of a forbearance of money as it does not involve an acquiescence to the temporary use of WTCI's money, goods or credits.
Rather, this case involves WTCI's performance of a particular service, i.e., the performance of additional works on CICC, consisting of
site development, additional structural, architectural, plumbing, and electrical works thereon.

Verily, the Court has repeatedly recognized that liabilities arising from construction contracts do not partake of loans or forbearance of
money but are in the nature of contracts of service. In Federal Builders, Inc. v. Foundation Specialists, Inc.,48 the Court ruled that the
liability arising from the non-payment for the construction works, specifically the construction of a diaphragm wall, capping beam, and
guide walls of the Trafalgar Plaza in Makati City, do not partake of a loan or forbearance of money but is more in the nature of a
contract of service.49 The Court, therefore, sustains the CA's ruling that the rate of legal interest imposable on the liability of the
Province of Cebu to WTCI is 6% per annum, in accordance with the guidelines laid down in Eastern Shipping Lines, Inc. v. Court of
Appeals50 (Eastern Shipping Lines, Inc.), viz.:

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 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 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.51 (Emphases supplied)

The foregoing guidelines have been updated in Nacar v. Gallery Frames52 (Nacar), pursuant to Bangko Sentral ng Pilipinas (BSP)
Circular No. 799, series of 2013, which reduced the rate of legal interest for loans or transactions involving forbearance of money,
goods, or credit from 12% to 6% per annum.53 Nevertheless, the rate of legal interest for obligations not constituting loans or
forbearance such as the one subject of this case remains unchanged at 6% per annum.

Coming now to the issue of whether the RTC and the CA erred in computing the interest due WTCI from the time of the filing of the
complaint, the Court finds merit in WTCI's argument that the same should be reckoned from the time WTCI made the extrajudicial
demand for the payment of the principal, i.e., upon receipt of the Province of Cebu of WTCI's February 8, 2007 and February 12, 2007
letters demanding payment for the additional structural and architectural works, and additional electrical and plumbing works,
respectively. The Court observes, however, that WTCI neither appealed from nor sought a reconsideration of the May 20, 2009
Judgment of the RTC which awarded interest to it computed from the time of the filing of the complaint on January 22, 2008.
Accordingly, the RTC's determination of the interest's reckoning point had already become final as against WTCI since it was not one of
the assigned errors considered on appeal. It is settled that a decision becomes final as against a party who does not appeal the
same.54 Consequently, the present petition of WTCI questioning the RTC's determination on the reckoning point of the legal interest
awarded can no longer be given due course. The Court is, therefore, constrained to uphold the rulings of the RTC and the CA that the
legal interest shall be computed from the time of the filing of the complaint.

Lastly, the Court agrees with the CA that the legal interest rate of 6% shall be imposed from the finality of the herein judgment until
satisfaction thereof. This is in view of the principle that in the interim, the obligation assumes the nature of a forbearance of credit which,
pursuant to Eastern Shipping Lines, Inc. as modified by Nacar, is subject to legal interest at the rate of 6% per annum.

WHEREFORE, the petitions are DENIED. The Decision dated December 19, 2012 and the Resolution dated August 8, 2013 of the
Court of Appeals in CA-G.R. CEB-CV No. 03791 are hereby AFFIRMED.

SO ORDERED.
 16. G.R. No. 193723               July 20, 2011

GENERAL MILLING CORPORATION, Petitioner,

vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.

DECISION

VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses
Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the May 31, 2005 Decision of the Regional
Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or Declaration of Nullity of Extrajudicial
Foreclosure Sale with Damages.

The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios Ramos
(Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land in Barangay
Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate
Mortgage over a piece of real property upon which their conjugal home was built. The spouses further agreed to put up a surety bond at
the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses Ramos a
maximum credit line of PhP 215,000 payable within an indefinite period with an interest of twelve percent (12%) per annum.2

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of
[MORTGAGORS’] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of
land and the improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa City, Province of Batangas,
Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the Province
of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00), Philippine Currency, which the maximum credit
line payable within a x x x day term and to secure the payment of the same plus interest of twelve percent (12%) per annum.

Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses because of
the negligence of GMC and its violation of the Growers Contract.3

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their
mortgaged property.4

On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of the
foreclosure was subsequently sold by public auction to GMC after the required posting and publication.5 It was foreclosed for PhP
935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per annum and attorney’s fees.6 To
complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness Division had closed its business and poultry
operations.7

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale
with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no
compliance with the requirements of posting and publication of notices under Act No. 3135, as amended, or An Act to Regulate the
Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. They likewise claimed that there was no
sheriff’s affidavit to prove compliance with the requirements on posting and publication of notices. It was further alleged that the Deed of
Real Estate Mortgage had no fixed term. A prayer for moral and exemplary damages and attorney’s fees was also included in the
complaint.8 Librado Ramos alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure.9

During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate Mortgage; (2) the
validity of the extrajudicial foreclosure; and (3) the party liable for damages.10

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It argued that it
was compelled to foreclose the mortgage because of Spouses Ramos’ failure to pay their obligation. GMC insisted that it had observed
all the requirements of posting and publication of notices under Act No. 3135.11

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if its term was not fixed.
Since the duration of the term was made to depend exclusively upon the will of the debtors-spouses, the trial court cited jurisprudence
and said that "the obligation is not due and payable until an action is commenced by the mortgagee against the mortgagor for the
purpose of having the court fix the date on and after which the instrument is payable and the date of maturity is fixed in pursuance
thereto."12

The trial court held that the action of GMC in moving for the foreclosure of the spouses’ properties was premature, because the latter’s
obligation under their contract was not yet due.

The trial court awarded attorney’s fees because of the premature action taken by GMC in filing extrajudicial foreclosure proceedings
before the obligation of the spouses became due.

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:

1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;

3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos attorney’s fees
in the total amount of P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial
dates or a total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.

IT IS SO ORDERED.13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null and void; (2) ordering
GMC to pay Spouses Ramos attorney’s fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the findings of the trial court,
the CA ruled that the requirements of posting and publication of notices under Act No. 3135 were complied with. The CA, however, still
found that GMC’s action against Spouses Ramos was premature, as they were not in default when the action was filed on May 7,
1997.14

The CA ruled:

In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to spouses Ramos for
the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit constituting the direct testimony of
Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were sent to spouses Ramos, the documentary
evidence proves otherwise. A perusal of the letters presented and offered as evidence by defendant-appellant GMC did not "demand"
but only request spouses Ramos to go to the office of GMC to "discuss" the settlement of their account.15

According to the CA, however, the RTC erroneously awarded attorney’s fees to Spouses Ramos, since the presumption of good faith
on the part of GMC was not overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch 12, dated May
21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorney’s fees to plaintiffs-appellees spouses Librado
Ramos and Remedios Ramos.16

Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT AND
LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH
LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.
 B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT SPOUSES
FOR THE FULL PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF
PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS. 17

The Ruling of this Court

Can the CA consider matters not alleged?

GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by considering such
issue, violated the basic requirements of fair play, justice, and due process.18

In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not assigned as errors on appeal if
these are indispensable or necessary to the just resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment,20 We explained that an appellate court has a broad discretionary power in
waiving the lack of assignment of errors in the following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;

(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete
resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;

(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some
bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent.

Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there is a ruling on
whether the Spouses Ramos were actually in default of their obligation to GMC.

Was there sufficient demand?

We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was made on
Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a demand.

We disagree.

There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor
delays performance; and third, the creditor judicially or extrajudicially requires the debtor’s performance.21

According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMC’s office to discuss the
settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure
proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the
mortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the
fulfilment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree with the
appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant case:

The issue of whether demand was made before the foreclosure was effected is essential.1avvphi1 If demand was made and duly
received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if
demand was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted in
their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment
of his obligation.22

In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of Court shall raise only
questions of law. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.24 It need not be reiterated
that this Court is not a trier of facts.25 We will defer to the factual findings of the trial court, because petitioner GMC has not shown any
circumstances making this case an exception to the rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.

SO ORDERED.
 17. G.R. No. 154670               January 30, 2012

FONTANA RESORT AND COUNTRY CLUB, INC. AND RN DEVELOPMENT CORP., Petitioners,

vs.
SPOUSES ROY S. TAN AND SUSAN C. TAN, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

For review under Rule 45 of the Rules of Court is the Decision1 dated May 30, 2002 and Resolution2 dated August 12, 2002 of the Court
Appeals in CA-G.R. SP No. 67816. The appellate court affirmed with modification the Decision3 dated July 6, 2001 of the Securities and
Exchange Commission (SEC) En Banc in SEC AC Case No. 788 which, in turn, affirmed the Decision4 dated April 28, 2000 of Hearing
Officer Marciano S. Bacalla, Jr. (Bacalla) of the SEC Securities Investigation and Clearing Department (SICD) in SEC Case No. 04-99-
6264.

Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan bought from petitioner RN Development Corporation
(RNDC) two class "D" shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI), worth ₱387,300.00, enticed by the
promises of petitioners’ sales agents that petitioner FRCCI would construct a park with first-class leisure facilities in Clark Field,
Pampanga, to be called Fontana Leisure Park (FLP); that FLP would be fully developed and operational by the first quarter of 1998;
and that FRCCI class "D" shareholders would be admitted to one membership in the country club, which entitled them to use park
facilities and stay at a two-bedroom villa for "five (5) ordinary weekdays and two (2) weekends every year for free."5

Two years later, in March 1999, respondents filed before the SEC a Complaint6 for refund of the ₱387,300.00 they spent to purchase
FRCCI shares of stock from petitioners. Respondents alleged that they had been deceived into buying FRCCI shares because of
petitioners’ fraudulent misrepresentations. Construction of FLP turned out to be still unfinished and the policies, rules, and regulations
of the country club were obscure.

Respondents narrated that they were able to book and avail themselves of free accommodations at an FLP villa on September 5, 1998,
a Saturday. They requested that an FLP villa again be reserved for their free use on October 17, 1998, another Saturday, for the
celebration of their daughter’s 18th birthday, but were refused by petitioners. Petitioners clarified that respondents were only entitled to
free accommodations at FLP for "one week annually consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday[,]" and
that respondents had already exhausted their free Saturday pass for the year. According to respondents, they were not informed of said
rule regarding their free accommodations at FLP, and had they known about it, they would not have availed themselves of the free
accommodations on September 5, 1998. In January 1999, respondents attempted once more to book and reserve an FLP villa for their
free use on April 1, 1999, a Thursday. Their reservation was confirmed by a certain Murphy Magtoto. However, on March 3, 1999,
another country club employee named Shaye called respondents to say that their reservation for April 1, 1999 was cancelled because
the FLP was already fully booked.

Petitioners filed their Answer7 in which they asserted that respondents had been duly informed of the privileges given to them as
shareholders of FRCCI class "D" shares of stock since these were all explicitly provided in the promotional materials for the country
club, the Articles of Incorporation, and the By-Laws of FRCCI. Petitioners called attention to the following paragraph in their ads:

GUEST ROOMS

As a member of the Fontana Resort and Country Club, you are entitled to 7 days stay consisting of 5 weekdays, one Saturday and one
Sunday. A total of 544 elegantly furnished villas available in two and three bedroom units.8

Petitioners also cited provisions of the FRCCI Articles of Incorporation and the By-Laws on class "D" shares of stock, to wit:

Class D shares may be sold to any person, irrespective of nationality or Citizenship. Every registered owner of a class D share may be
admitted to one (1) Membership in the Club and subject to the Club’s rules and regulations, shall be entitled to use a Two (2) Bedroom
Multiplex Model Unit in the residential villas provided by the Club for one week annually consisting of five (5) ordinary days, one (1)
Saturday and one (1) Sunday. (Article Seventh, Articles of Incorporation)

Class D shares – which may be sold to any person, irrespective of nationality or Citizenship. Every registered owner of a class D share
may be admitted to one (1) Membership in the Club and subject to the Club’s rules and regulations, shall be entitled to use a Two (2)
Bedroom Multiplex Model Unit in the residential villas provided by the Club for one week annually consisting of five (5) ordinary days,
one (1) Saturday and one (1) Sunday. [Section 2(a), Article II of the By-Laws.]9

Petitioners further denied that they unjustly cancelled respondents’ reservation for an FLP villa on April 1, 1999, explaining that:

6. There is also no truth to the claim of [herein respondents] that they were given and had confirmed reservations for April 1, 1998.
There was no reservation to cancel since there was no confirmed reservations to speak of for the reason that April 1, 1999, being Holy
Thursday, all reservations for the Holy Week were fully booked as early as the start of the current year. The Holy Week being a peak
season for accommodations, all reservations had to be made on a priority basis; and as admitted by [respondents], they tried to make
their reservation only on January 4, 1999, a time when all reservations have been fully booked. The fact of [respondents’] non-
reservation can be attested by the fact that no confirmation number was issued in their favor.

If at all, [respondents] were "wait-listed" as of January 4, 1999, meaning, they would be given preference in the reservation in the event
that any of the confirmed members/guests were to cancel. The diligence on the part of the [herein petitioners] to inform [respondents] of
the status of their reservation can be manifested by the act of the Club’s personnel when it advised [respondents] on March 3, 1999
that there were still no available villas for their use because of full bookings.10

Lastly, petitioners averred that when respondents were first accommodated at FLP, only minor or finishing construction works were left
to be done and that facilities of the country club were already operational.

SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and trial proper in the case. Respondents filed separate sworn
Question and Answer depositions.11 Esther U. Lacuna, a witness for respondents, also filed a sworn Question and Answer
deposition.12 When petitioners twice defaulted, without any valid excuse, to present evidence on the scheduled hearing dates, Hearing
Officer Bacalla deemed petitioners to have waived their right to present evidence and considered the case submitted for resolution.13

Based on the evidence presented by respondents, Hearing Officer Bacalla made the following findings in his Decision dated April 28,
2000:

To prove the merits of their case, both [herein respondents] testified. Ms. Esther U. Lacuna likewise testified in favor of [respondents].

As established by the testimonies of [respondents’] witnesses, Ms. Esther U. Lacuna, a duly accredited sales agent of [herein
petitioners] who went to see [respondents] for the purpose of inducing them to buy membership shares of Fontana Resort and Country
Club, Inc. with promises that the park will provide its shareholders with first class leisure facilities, showing them brochures (Exhibits
"V", "V-1" and "V-2") of the future development of the park.

Indeed [respondents] bought two (2) class "D" shares in Fontana Resort and Country Club, Inc. paying ₱387,000.00 to [petitioners] as
evidenced by provisional and official receipts (Exhibits "A" to "S"), and signing two (2) documents designated as Agreement to Sell and
Purchase Shares of Stock (Exhibits "T" to "U-2").

It is undisputed that many of the facilities promised were not completed within the specified date. Ms. Lacuna even testified that less
than 50% of what was promised were actually delivered.

What was really frustrating on the part of [respondents] was when they made reservations for the use of the Club’s facilities on the
occasion of their daughter’s 18th birthday on October 17, 1998 where they were deprived of the club’s premises alleging that the two
(2) weekend stay which class "D" shareholders are entitled should be on a Saturday and on a Sunday. Since [respondents] have
already availed of one (1) weekend stay which was a Saturday, they could no longer have the second weekend stay also on a
Saturday.

Another occasion was when [respondents] were again denied the use of the club’s facilities because they did not have a confirmation
number although their reservation was confirmed.

All these rules were never communicated to [respondents] when they bought their membership shares.

It would seem that [petitioners], through their officers, would make up rules as they go along. A clever ploy for [petitioners] to hide the
lack of club facilities to accommodate the needs of their members.

[Petitioners’] failure to finish the development works at the Fontana Leisure Park within the period they promised and their failure or
refusal to accommodate [respondents] for a reservation on October 17, 1998 and April 1, 1999, constitute gross misrepresentation
detrimental not only to the [respondents] but to the general public as well.

All these empty promises of [petitioners] may well be part of a scheme to attract, and induce [respondents] to buy shares because
surely if [petitioners] had told the truth about these matters, [respondents] would never have bought shares in their project in the first
place.14

Consequently, Hearing Officer Bacalla adjudged:

WHEREFORE, premises considered, judgment is hereby rendered directing [herein petitioners] to jointly and severally pay [herein
respondents]:
1) The amount of ₱387,000.00 plus interest at the rate of 21% per annum computed from August 28, 1998 when demand was first
made, until such time as payment is actually made.15

Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla before the SEC en banc. In its Decision dated July 6, 2001, the
SEC en banc held:

WHEREFORE, the instant appeal is hereby DENIED and the Decision of Hearing Officer Marciano S. Bacalla, Jr. dated April 28, 2000
is hereby AFFIRMED.16

In an Order17 dated September 19, 2001, the SEC en banc denied petitioners’ Motion for Reconsideration for being a prohibited
pleading under the SEC Rules of Procedure.

Petitioners filed before the Court of Appeals a Petition for Review under Rule 43 of the Rules of Court. Petitioners contend that even on
the sole basis of respondents’ evidence, the appealed decisions of Hearing Officer Bacalla and the SEC en banc are contrary to law
and jurisprudence.

The Court of Appeals rendered a Decision on March 30, 2002, finding petitioners’ appeal to be partly meritorious.

The Court of Appeals brushed aside the finding of the SEC that petitioners were guilty of fraudulent misrepresentation in inducing
respondents to buy FRCCI shares of stock. Instead, the appellate court declared that:

What seems clear rather is that in "inducing" the respondents to buy the Fontana shares, RN Development Corporation merely
repeated to the spouses the benefits promised to all holders of Fontana Class "D" shares. These inducements were in fact contained in
Fontana’s promotion brochures to prospective subscribers which the spouses must obviously have read.18

Nonetheless, the Court of Appeals agreed with the SEC that the sale of the two FRCCI class "D" shares of stock by petitioners to
respondents should be rescinded. Petitioners defaulted on their promises to respondents that FLP would be fully developed and
operational by the first quarter of 1998 and that as shareholders of said shares, respondents were entitled to the free use of first-class
leisure facilities at FLP and free accommodations at a two-bedroom villa for "five (5) ordinary weekdays and two (2) weekends every
year."

The Court of Appeals modified the appealed SEC judgment by ordering respondents to return their certificates of shares of stock to
petitioners upon the latter’s refund of the price of said shares since "[t]he essence of the questioned [SEC] judgment was really to
declare as rescinded or annulled the sale or transfer of the shares to the respondents."19 The appellate court additionally clarified that
the sale of the FRCCI shares of stock by petitioners to respondents partakes the nature of a forbearance of money, since the amount
paid by respondents for the shares was used by petitioners to defray the construction of FLP; hence, the interest rate of 12% per
annum should be imposed on said amount from the date of extrajudicial demand until its return to respondents. The dispositive portion
of the Court of Appeals judgment reads:

WHEREFORE, premises considered, the appealed judgment is MODIFIED: a) petitioner Fontana Resort and Country Club is hereby
ordered to refund and pay to the respondents Spouses Roy S. Tan and Susana C. Tan the amount of ₱387,000.00, Philippine
Currency, representing the price of two of its Class "D" shares of stock, plus simple interest at the rate of 12% per annum computed
from August 28, 1998 when demand was first made, until payment is completed; b) the respondent spouses are ordered to surrender to
petitioner Fontana Resort and Country Club their two (2) Class "D" shares issued by said petitioner upon receipt of the full refund with
interest as herein ordered.20

Petitioners filed a Motion for Reconsideration, but it was denied by the Court of Appeals in its Resolution dated August 12, 2002.

Hence, the instant Petition for Review.

Petitioners, in their Memorandum,21 submit for our consideration the following issues:

a. Was the essence of the judgment of the SEC – which ordered the return of the purchase price but not of the thing sold – a
declaration of rescission or annulment of the contract of sale between RNDC and respondents?

b. Was the order of the Court of Appeals to FRCCI – which was not the seller of the thing sold (the seller was RNDC) – to
return the purchase price to the buyers (the respondents) in accordance with law?

c. Was the imposition of 12% interest per annum from the date of extra-judicial demand on an obligation which is not a loan or
forbearance of money in accordance with law?22

Petitioners averred that the ruling of the Court of Appeals that the essence of the SEC judgment is the rescission or annulment of the
contract of sale of the FRCCI shares of stock between petitioners and respondents is inconsistent with Articles 1385 and 1398 of the
Civil Code. The said SEC judgment did not contain an express declaration that it involved the rescission or annulment of contract or an
explicit order for respondents to return the thing sold. Petitioners also assert that respondents’ claim for refund based on fraud or
misrepresentation should have been directed only against petitioner RNDC, the registered owner and seller of the FRCCI class "D"
shares of stock. Petitioner FRCCI was merely the issuer of the shares sold to respondents. Petitioners lastly question the order of the
Court of Appeals for petitioners to pay 12% interest per annum, the same being devoid of legal basis since their obligation does not
constitute a loan or forbearance of money.

In their Memorandum,23 respondents chiefly argue that petitioners have posited mere questions of fact and none of law, precluding this
Court to take cognizance of the instant Petition under Rule 45 of the Rules of Court. Even so, respondents maintain that the Court of
Appeals did not err in ordering them to return the certificates of shares of stock to petitioners upon the latter’s refund of the price thereof
as the essence of respondents’ claim for refund is to rescind the sale of said shares. Furthermore, both petitioners should be held liable
since they are the owners and developers of FLP. Petitioner FRCCI is primarily liable for respondents’ claim for refund, and petitioner
RNDC, at most, is only subsidiarily liable considering that petitioner RNDC is a mere agent of petitioner FRCCI. Respondents finally
insist that the imposition of the interest rate at 12% per annum, computed from the date of the extrajudicial demand, is correct since the
obligation of petitioners is in the nature of a forbearance of money.

We find merit in the Petition.

We address the preliminary matter of the nature of respondents’ Complaint against petitioners. Well-settled is the rule that the
allegations in the complaint determine the nature of the action instituted.24

Respondents alleged in their Complaint that:

16. [Herein petitioners’] failure to finish the development works at the Fontana Leisure Park within the time frame that they
promised, and [petitioners’] failure/refusal to accom[m]odate [herein respondents’] request for reservations on 17 October
1998 and 1 April 1999, constitute gross misrepresentation and a form of deception, not only to the [respondents], but the
general public as well.

17. [Petitioners’] deliberately and maliciously misrepresented that development works will be completed when they knew fully
well that it was impossible to complete the development works by the deadline. [Petitioners] also deliberately and maliciously
deceived [respondents] into believing that they have the privilege to utilize Club facilities, only for [respondents] to be later on
denied such use of Club facilities. All these acts are part of [petitioners’] scheme to attract, induce and convince [respondents]
to buy shares, knowing that had they told the truth about these matters, [respondents] would never have bought shares in their
project.

18. On 28 August 1998, [respondents] requested their lawyer to write [petitioner] Fontana Resort and Country Club, Inc. a
letter demanding for the return of their payment. x x x.

19. [Petitioner] Fontana Resort and Country Club, Inc. responded to this letter, with a letter of its own dated 10 September
1998, denying [respondents’] request for a refund. x x x.

20. [Respondents] replied to [petitioner] Fontana Resort and Country Club’s letter with a letter dated 13 October 1998, x x x.
But despite receipt of this letter, [petitioners] failed/refused and continue to fail /refuse to refund/return [respondents’]
payments.

xxxx

22. [Petitioners] acted in bad faith when it sold membership shares to [respondents], promising development work will be
completed by the first quarter of 1998 when [petitioners] knew fully well that they were in no position and had no intention to
complete development work within the time they promised. [Petitioners] also were maliciously motivated when they promised
[respondents] use of Club facilities only to deny [respondents] such use later on.

23. It is detrimental to the interest of [respondents] and quite unfair that they will be made to suffer from the delay in the
completion of the development work, while [petitioners] are already enjoying the purchase price paid by [respondents].

xxxx

26. Apart from the refund of the amount of ₱387,300.00, [respondents] are also entitled to be paid reasonable interest from
their money. Afterall, [petitioners] have already benefitted from this money, having been able to use it, if not for the Fontana
Leisure Park project, for their other projects as well. And had [respondents] been able to deposit the money in the bank, or
invested it in some worthwhile undertaking, they would have earned interest on the money at the rate of at least 21% per
annum.25
The aforequoted allegations in respondents’ Complaint sufficiently state a cause of action for the annulment of a voidable contract of
sale based on fraud under Article 1390, in relation to Article 1398, of the Civil Code, and/or rescission of a reciprocal obligation under
Article 1191, in relation to Article 1385, of the same Code. Said provisions of the Civil Code are reproduced below:

Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting
parties:

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

2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.

Article 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the
subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.

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.

Article 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be
obliged to return.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons
who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

It does not matter that respondents, in their Complaint, simply prayed for refund of the purchase price they had paid for their FRCCI
shares,26 without specifically mentioning the annulment or rescission of the sale of said shares. The Court of Appeals treated
respondents’ Complaint as one for annulment/rescission of contract and, accordingly, it did not simply order petitioners to refund to
respondents the purchase price of the FRCCI shares, but also directed respondents to comply with their correlative obligation of
surrendering their certificates of shares of stock to petitioners.

Now the only issue left for us to determine – whether or not petitioners committed fraud or defaulted on their promises as would justify
the annulment or rescission of their contract of sale with respondents – requires us to reexamine evidence submitted by the parties and
review the factual findings by the SEC and the Court of Appeals.

As a general rule, "the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions of law and not
issues of fact. This rule, however, is inapplicable in cases x x x where the factual findings complained of are absolutely devoid of
support in the records or the assailed judgment of the appellate court is based on a misapprehension of facts."27 Another well-
recognized exception to the general rule is when the factual findings of the administrative agency and the Court of Appeals are
contradictory.28 The said exceptions are applicable to the case at bar.

There are contradictory findings below as to the existence of fraud: while Hearing Officer Bacalla and the SEC en banc found that there
is fraud on the part of petitioners in selling the FRCCI shares to respondents, the Court of Appeals found none.

There is fraud when one party is induced by the other to enter into a contract, through and solely because of the latter’s insidious words
or machinations. But not all forms of fraud can vitiate consent. "Under Article 1330, fraud refers to dolo causante or causal fraud, in
which, prior to or simultaneous with the execution of a contract, one party secures the consent of the other by using deception, without
which such consent would not have been given."29 "Simply stated, the fraud must be the determining cause of the contract, or must
have caused the consent to be given."30
"[T]he general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a
person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly."31 One who alleges
defect or lack of valid consent to a contract by reason of fraud or undue influence must establish by full, clear and convincing evidence
such specific acts that vitiated a party’s consent, otherwise, the latter’s presumed consent to the contract prevails.32

In this case, respondents have miserably failed to prove how petitioners employed fraud to induce respondents to buy FRCCI shares. It
can only be expected that petitioners presented the FLP and the country club in the most positive light in order to attract investor-
members. There is no showing that in their sales talk to respondents, petitioners actually used insidious words or machinations, without
which, respondents would not have bought the FRCCI shares. Respondents appear to be literate and of above-average means, who
may not be so easily deceived into parting with a substantial amount of money. What is apparent to us is that respondents knowingly
and willingly consented to buying FRCCI shares, but were later on disappointed with the actual FLP facilities and club membership
benefits.

Similarly, we find no evidence on record that petitioners defaulted on any of their obligations that would have called for the rescission of
the sale of the FRCCI shares to respondents.

"The right to rescind a contract arises once the other party defaults in the performance of his obligation."33 "Rescission of a contract will
not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the
parties in making the agreement."34 In the same case as fraud, the burden of establishing the default of petitioners lies upon
respondents, but respondents once more failed to discharge the same.

Respondents decry the alleged arbitrary and unreasonable denial of their request for reservation at FLP and the obscure and ever-
changing rules of the country club as regards free accommodations for FRCCI class "D" shareholders.

Yet, petitioners were able to satisfactorily explain, based on clear policies, rules, and regulations governing FLP club memberships, why
they rejected respondents’ request for reservation on October 17, 1998. Respondents do not dispute that the Articles of Incorporation
and the By-Laws of FRCCI, as well as the promotional materials distributed by petitioners to the public (copies of which respondents
admitted receiving), expressly stated that the subscribers of FRCCI class "D" shares of stock are entitled free accommodation at an
FLP two-bedroom villa only for "one week annually consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday." Thus,
respondents cannot claim that they were totally ignorant of such rule or that petitioners have been changing the rules as they go along.
Respondents had already availed themselves of free accommodations at an FLP villa on September 5, 1998, a Saturday, so that there
was basis for petitioners to deny respondents’ subsequent request for reservation of an FLP villa for their free use on October 17, 1998,
another Saturday.

Neither can we rescind the contract because construction of FLP facilities were still unfinished by 1998. Indeed, respondents’ allegation
of unfinished FLP facilities was not disputed by petitioners, but respondents themselves were not able to present competent proof of the
extent of such incompleteness. Without any idea of how much of FLP and which particular FLP facilities remain unfinished, there is no
way for us to determine whether petitioners were actually unable to deliver on their promise of a first class leisure park and whether
there is sufficient reason for us to grant rescission or annulment of the sale of FRCCI shares. Apparently, respondents were still able to
enjoy their stay at FLP despite the still ongoing construction works, enough for them to wish to return and again reserve
accommodations at the park.

Respondents additionally alleged the unreasonable cancellation of their confirmed reservation for the free use of an FLP villa on April 1,
1999. According to respondents, their reservation was confirmed by a Mr. Murphy Magtoto, only to be cancelled later on by a certain
Shaye. Petitioners countered that April 1, 1999 was a Holy Thursday and FLP was already fully-booked. Petitioners, however, do not
deny that Murphy Magtoto and Shaye are FLP employees who dealt with respondents. The absence of any confirmation number issued
to respondents does not also discount the possibility that the latter’s reservation was mistakenly confirmed by Murphy Magtoto despite
FLP being fully-booked. At most, we perceive a mix-up in the reservation process of petitioners. This demonstrates a mere negligence
on the part of petitioners, but not willful intention to deprive respondents of their membership benefits. It does not constitute default that
would call for rescission of the sale of FRCCI shares by petitioners to respondents. For the negligence of petitioners as regards
respondents’ reservation for April 1, 1999, respondents are at least entitled to nominal damages in accordance with Articles 2221 and
2222 of the Civil Code.35

In Almeda v. Cariño,36 we have expounded on the propriety of granting nominal damages as follows:

[N]ominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of
vindicating or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him. Its award is thus not for the
purpose of indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in name
only and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition of
the existence of a technical injury. A violation of the plaintiff's right, even if only technical, is sufficient to support an award of nominal
damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an award of nominal damages is proper.37

It is also settled that "the amount of such damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances."38 1âwphi1
In this case, we deem that the respondents are entitled to an award of ₱5,000.00 as nominal damages in recognition of their confirmed
reservation for the free use of an FLP villa on April 1, 1999 which was inexcusably cancelled by petitioner on March 3, 1999.

In sum, the respondents’ Complaint sufficiently alleged a cause of action for the annulment or rescission of the contract of sale of
FRCCI class "D" shares by petitioners to respondents; however, respondents were unable to establish by preponderance of evidence
that they are entitled to said annulment or rescission.

WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The Decision dated May 30, 2002 and Resolution dated
August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816 are REVERSED and SET ASIDE. Petitioners are ORDERED to pay
respondents the amount of ₱5,000.00 as nominal damages for their negligence as regards respondents’ cancelled reservation for April
1, 1999, but respondents’ Complaint, in so far as the annulment or rescission of the contract of sale of the FRCCI class "D" shares of
stock is concerned, is DISMISSED for lack of merit.

SO ORDERED.
 18. G.R. Nos. 180631-33               February 22, 2012

PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioner,

vs.
CENTRAL COLLEGES OF THE PHILIPPINES and DYNAMIC PLANNERS AND CONSTRUCTION CORPORATION, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure challenging the June 29, 2007
Decision1 and November 19, 2007 Resolution2 of the Court of Appeals (CA) in the consolidated cases CA-G.R. SP Nos. 90361, 90383
and 90384.

THE FACTS

On May 16, 2000, Central Colleges of the Philippines (CCP), an educational institution, contracted the services of Dynamic Planners
and Construction Corporation (DPCC) to be its general contractor for the construction of its five (5)-storey school building at No. 39
Aurora Boulevard, Quezon City, with a total contract price of ₱248,000,000.00. As embodied in a Contract Agreement,3 the construction
of the entire building would be done in two phases with each phase valued at ₱124,000,000.00.

To guarantee the fulfillment of the obligation, DPCC posted three (3) bonds, all issued by the Philippine Charter Insurance
Corporation (PCIC), namely: (1) Surety Bond No. PCIC-45542, dated June 25, 2003, amounting to ₱7,031,460.74;4 (2) Performance
Bond No. PCIC-455415 in the amount of ₱2,929,775.31 which was subsequently increased to ₱6,199,999.99 through Bond
Endorsement No. E-2003/12527;6 and (3) Performance Bond No. PCIC-46172 for ₱692,890.74.7 All the bonds were callable on demand
and set to expire on October 30, 2003.

The Phase 1 of the project was completed without issue. Thereafter, CCP paid DPCC ₱14,880,000.00 or 12% of the agreed price of
₱124,000,000.00 with a check dated March 14, 2002 as downpayment for the Phase 2 of the project.

The Phase 2 of the project, however, encountered numerous delays. When CCP audited DPCC on July 25, 2003, only 47% of the work
to be done was actually finished.

Thus, in a letter dated October 29, 2003 addressed to DPCC and PCIC, CCP informed them of the breach in the contract and its plan to
claim on the construction bonds. Pertinent portions of the letter are herein quoted:

You are both hereby NOTIFIED that the Bonds referred to above for the faithful performance of a Contract, dated 16 May 2000 for the
construction of CCP EXTENSION BLDG. (Phase 2) at 39 Aurora Blvd., Quezon City, Metro Manila and the Variation Order No. 2 has
been breached by the CONTRACTOR for which reason, the CENTRAL COLLEGES OF THE PHILIPPINES, as owner, hereby gives
NOTICE that it will file an action on the said performance and surety bonds.8

On November 6, 2003, CCP notified DPCC and PCIC that only 51% of the project was completed, which was way behind the
construction schedule, prompting it to declare the occurrence of default against DPCC. It formally requested PCIC to remit the proceeds
of the bonds.9

On November 14, 2003, DPCC wrote PCIC confirming the finding that Phase 2 was only 51% finished and, at the same time,
requesting for the extension of its performance and surety bonds because the supposed revision of the plans would require more
days.10

In a letter dated November 21, 2003, CCP notified PCIC that because of DPCC’s inability to complete the project on time, it decided to
terminate its contract with the latter and to continue the construction on its own. The full text of the letter is herein reproduced:

We acknowledge the receipt of your letter dated November 14, 2003 and we are in the process of compiling the documents you
requested. The said documents will be submitted as soon as possible.

Furthermore, we would like to reiterate that your principal, the Dynamic Planners & Construction Corporation has breached the Contract
of Agreement dated May 16, 2000 by having completed only an estimated 51% of the construction of the 5-storey CCP Extension
Building, Phase 2 and has therefore failed to perform the work within the agreed schedule.

In view thereof, as stated in our earlier letter of 6 November 2003, we were compelled to declare the occurrence of a default on the part
of your principal, and have terminated their contract. Please remit to us the proceeds of the captioned Bonds within the earliest possible
time.
The Central Colleges of the Philippines will complete the construction of the 5-storey CCP Extension Building, Phase 2 on its own.11

Meanwhile, on December 5, 2003, PCIC informed DPCC that it had approved its request for extension of the bonds.12

Eventually, negotiations to continue on with the construction between CCP and DPCC reached a dead end. CCP hired another
contractor to work on the school site.

On August 13, 2004, CCP sent a letter to PCIC of its final demand for the payment of ₱13,924,351.47 as indicated in the bonds.13

On August 20, 2004, PCIC denied CCP’s claims against the three bonds.14

Thus, on October 28, 2004, CCP filed a complaint with request for arbitration before the Construction Industry Arbitration Commission
(CIAC) against DPCC and PCIC.15 In its complaint, CCP prayed that CIAC hold DPCC and PCIC, jointly and severally liable, against the
following bonds:

1. Under Surety Bond No. 45542, the amount of Php7,031,460.74 plus legal interest from the date of demand until full
payment thereof;

2. Under Performance Bond Nos. PCIC-45541 [Bond Endorsement Nos. E-2003/12527] and PCIC-46172, the amount of
Php6,892,890.73 plus legal interest from the date of demand until full payment thereof; and

3. Php100,000.00 as and for attorney’s fees.16

In their Answer,17 DPCC and PCIC denied any liability and proffered that CCP unlawfully withheld the materials, equipment, formworks
and scaffoldings left at the premises amounting to ₱4,232,264.12.

On June 3, 2005, the CIAC rendered a decision in favor of CCP. It gave the following reasons:

1. Claimant was legally justified in terminating the Contract;

2. On the issue of whether claimant faithfully complied with its contractual obligation in respect of (a) the release of the
downpayment, (b) the delivery of the drawings for construction, and (c) the payment of progress billings, there is no record that
Dynamic protested the delay in the delivery of the site, the delay in the submission of technical plans and demanded as a
result thereof the corresponding adjustment of the Contract Period or the Contract Price. The issue of delay in the reduction of
the down payment is moot since Dynamic acquiesced in the reduction of the down payment from 15% to 12% and the issue of
payment of the 12th progress billing arose as a consequence of a legitimate issue as to the percentage of completion of the
work by Dynamic as of August 2003.

3. Dynamic’s percentage of accomplishment as of the date of the termination of the Contract was 57.33% at ₱71,089,200.

4. The original Contract Price was ₱124,000,000. To this amount shall be added the price of Variation Order No. 2 of
₱13,857,814.87 or an adjusted Contract Price of ₱137,857,814.87. Deducting ₱110,000,792.87, the overpayment to Dynamic
is ₱27,779,022.00. However, Claimant is entitled to an award not exceeding the amount of its claims in its Complaint and in
the Terms of Reference.

5. Dynamic failed to produce evidence to show that it was not paid the balance of the Contract Price for Phase 1 of the Project.

6. Surety is liable to Claimant under the Performance and Surety Bonds it issued in favor of Claimant. The liability of Surety is
to indemnify Claimant for the un-recouped down payment [which] shall not exceed ₱7,031,460.74 under the Surety Bond and
for not more than ₱6,892,890.73 under the Performance Bonds.

7. If Surety is obliged to pay these amounts to Claimant, it is entitled, on its cross-claim, to indemnity from Dynamic.

8. Claimant’s claims under the Surety and Performance Bonds are not time-barred.

9. Surety is not barred by estoppel from denying liability under the Surety and Performance Bonds.

10. Claimant’s request to Dynamic to extend the term of these bonds, Dynamic’s request to Surety to extend their terms and
Surety’s grant of the extension requested have no adverse legal effect upon the rights and obligations of the parties.

11. The contractual time-bar embodied in the bonds is valid and binding.
 12. Dynamic is entitled to its claims for the payment of ₱1,732,264.14 for materials and of ₱2,500,000.00 for the equipment,
formworks and scaffolding left at the site.

13. The claims for payment of moral, exemplary and temperate damages and for attorney’s fees are denied.

14. The parties shall bear their own cost of arbitration.18

Thus, CIAC disposed of the case finding DPCC liable to pay CCP ₱7,031,460.74 from the Surety Bond representing the unrecouped
downpayment and ₱6,892,890.73 from its Performance Bond for a total of ₱13,924,351.47. The CIAC likewise ordered CCP to pay
DPCC ₱1,732,264.12 corresponding to the construction materials left at the site and ₱2,500,000.00 for the cost of equipment,
formworks and scaffoldings appropriated by CCP or a total of ₱4,232,264.12. The fallo reads:

WHEREFORE, award is hereby made against Respondent Dynamic Planners and Construction Corporation and Respondent
Philippine Charter Insurance Corporation, ordering them, jointly and severally, to pay Claimant, Central Colleges of the Philippines the
amount of ₱7,031,460.74 under the Surety Bond as un-recouped down payment, and the amount of ₱6,892,890.73 under the
Performance Bond or the total amount of ₱13,924,351.47.

Award is likewise made against Claimant, Central Colleges of the Philippines, ordering the latter to pay Respondent Dynamic Planners
and Construction Corporation, the amount of ₱1,732,264.12 for the latter’s materials left at the Project Site and the amount of
₱2,500,000.00 as the cost of its equipment, formworks and scaffoldings which were appropriated by the former or the total amount of
₱4,232,264.12.

Offsetting the amount due claimant Central Colleges of the Philippines from Respondent Dynamic Planners and Construction
Corporation and that due the latter from the former, there is a net amount of ₱9,692,087.37 which Respondent Dynamic Planners and
Construction Corporation is hereby ordered to pay Claimant Central Colleges of the Philippines with interest at the rate of 6% per
annum from the date of this Final Award and 12% per annum from the time this Final Award becomes final and executory and until it is
fully paid in accordance with Eastern Shipping Lines, Inc. vs. Court of Appeals (1994) 234 SCRA 78.

The joint and several liability of Respondent Philippine Charter Insurance Corporation with Respondent Dynamic Planners and
Construction Corporation is accordingly reduced to ₱9,692,087.37. In the event of payment by Respondent Philippine Charter
Insurance Corporation, the latter is entitled to indemnity from its co-Respondent Dynamic Planners and Construction Corporation up to
the full amount of such payment. In the event of delay in making payment to indemnify Respondent Philippine Charter Insurance
Corporation, Respondent Dynamic Planners Charter Insurance Corporation shall pay interest at the rate of 21% per annum in
accordance with the Indemnity Agreement between them.

All other claims, counterclaims and cross-claims not otherwise determined in this Final Award are deemed denied for lack of merit.

SO ORDERED.19

All the parties appealed the CIAC decision to the CA. PCIC’s appeal was docketed as CA-G.R. SP No. 90361; 20 CCP’s appeal was
docketed as CA-G.R. SP No. 90383;21 and DPCC’s appeal was docketed as CA-G.R. SP No. 90384.22 Eventually, the cases were
consolidated.23

On June 29, 2007, the CA modified CIAC’s earlier decision.24 The CA found that DPCC was already in delay for managing to complete
only 51% of the construction work necessary to finish the Phase 2 of the project. It held that due to DPCC’s inexcusable delay, CCP
was legally within its rights to terminate the contract with it. It likewise did not give weight to PCIC’s defense that Bond No. 46172 was
already released because the said issue was never raised before the CIAC and was raised for the first time on appeal.25 The CA,
however, deleted the award of cost of the materials, equipment, formworks and scaffoldings allegedly left by DPCC at the work site for
its failure to prove the actual costs of said materials.26 It added, "In any event, the cost of such materials, equipment, formworks and
scaffoldings cannot be deducted from Philippine Charter’s liability on the bond, as the credit does not belong to the latter but to
Dynamic."27 Accordingly, the decretal portion of the CA decision reads:

WHEREFORE, the Final Award, dated 03 June 2005, of the Construction Industry Arbitration Commission (CIAC) in CIAC Case No.
36-2004 is AFFIRMED with MODIFICATION, in that the award to Dynamic Planners and Construction Corporation of its counterclaim
for materials, equipment, formworks and scaffoldings left at the work site in the total amount of ₱4,232,264.12 is DELETED.

Philippine Charter Insurance Corporation and Dynamic Planners and Construction Corporation are ORDERED jointly and severally to
pay Central Colleges of the Philippines the total amount of ₱13,924,351.47 under Surety Bond No. PCIC-45542, Performance Bond
No. PCIC-45541 (as modified by Bond Endorsement No. E-2003/12527), and Performance Bond No. PCIC-46172. Said amount shall
bear interest at the rate of 6% per annum from the date of demand made on 29 October 2003. However, for any amount not yet paid
after the date of the finality of this decision, the rate of interest on the payable amount shall be increased to 12% per annum from the
date when this decision becomes final and executory until it is fully paid.

SO ORDERED.28
PCIC moved for the reconsideration of the said decision, but the CA disposed of it with a denial in its November 19, 2007 Resolution.

Hence, this petition.29

In its Memorandum,30 PCIC submits the following issues for resolution:

1st Issue: Whether or not the CA grossly erred in sustaining the CIAC award finding petitioner liable to respondent CCP under the
performance bonds and the surety bond?

2nd Issue: Whether or not the CA grossly erred in upholding the CIAC award pronouncing respondent CCP as rightfully and justifiably
entitled to terminate the contract agreement?

3rd Issue: Whether or not the CA grossly erred in deleting the counterclaim of respondent DPCC covering the costs of materials,
equipment, formworks and scaffoldings left at site and in denying petitioner to benefit from the counterclaim?31

PCIC argues that the CA erred in sustaining the award of ₱692,890.74 representing Performance Bond PCIC-46172 because the
obligation guaranteed by said performance bond was already completed, therefore, no liability should attach against the said bond.32

In this regard, the petitioner has a point.

Although this particular issue was not expressly raised in the parties’ Terms of Reference,33 nevertheless, the issue on Performance
Bond PCIC- 46172 was extensively discussed during the arbitral tribunal’s hearing of February 21, 2005. To accurately reflect what
transpired on said hearing, relevant portions of the transcript of stenographic notes are herein quoted:

ATTY. G. Q. ENRIQUEZ:34

I am calling your attention to Bond PCIC-45542.

MR. CRISPINO P. REYES:35

You are calling my attention where?

ATTY. G. Q. ENRIQUEZ:

In the terms of Reference, can we please get the copy of that so that we can be reminded?

ATTY. B.G. FAJARDO:

There are only two, Counsel-the Performance and the Surety Bond.

ATTY. G. Q. ENRIQUEZ:

Performance Bond in the amount of-

MR. CRISPINO P. REYES:

We’re interested in 45542 and we’re interested in 45541. What we’re no longer interested in, we have to be candid to this
Honorable Tribunal, we are no longer interested, [we] no longer want to collect on Performance Bond 46172.

ATTY. A.V. CAMARA:36

At this point in time, we would like to be of record that although that Bond 46172 covering the amount of ₱692,890.74 per their
declaration had already been satisfied that is why only two bonds now are being…

ATTY. J.N. RABOCA:

May I make a qualification with that, your Honor? It’s not that it was satisfied. It’s that the Claimant is not claiming anymore because all
the works under this bond were already accomplished.

ATTY. G. Q. ENRIQUEZ:
Yes, because you have already a Certificate of Acceptance.

ATTY. J.N. RABOCA:

Correct.

ATTY. G. Q. ENRIQUEZ:

So, we’re just narrowing down into two bonds.

ATTY. A.V. CAMARA:

The two bonds.

ATTY. G. Q. ENRIQUEZ:

Okay.

ATTY. A.V. CAMARA:

Then therefore the liability on 46172 should be released. They are only covered by the pleadings especially the Complaint.

MR. CRISPINO P. REYES:

We do not dispute this.37 [Emphases supplied]

It is clear from the testimony of Crispino P. Reyes, CCP’s President, that the school no longer wants to collect on Performance Bond
PCIC 46172 (with a value of ₱692,890.74). This statement before the arbitral tribunal is a judicial admission effectively settling the issue
with respect to PCIC 46172. Section 4, Rule 129 of the Rules of Court provides:

Sec. 4. Judicial admissions. – An admission, verbal or written, made by a party in the course of the proceedings in the same case, does
not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such
admission was made.

A party may make judicial admissions in (a) the pleadings; (b) during the trial, either by verbal or written manifestations or stipulations;
or (c) in other stages of the judicial proceeding.38 It is an established principle that judicial admissions cannot be contradicted by the
admitter who is the party himself39 and binds the person who makes the same, and absent any showing that this was made thru
palpable mistake, no amount of rationalization can offset it.40

Since CCP, through its President, judicially admitted that it is no longer interested in pursuing PCIC-46172, the scope of its claim will
just be confined to Surety Bond No. PCIC-45542 and Performance Bond No. PCIC-45541.

PCIC claims that DPCC was already in default as early as September 4, 2003,41 hence, the ten-day reglementary period to file a claim
on the bonds should have been reckoned from such date and filed on September 14, 2003. PCIC claims that CCP notified them only on
October 29, 2003 which is already beyond the limitation that any claim on the bonds should be presented in writing within ten (10) days
from the expiration of the bond or from the occurrence of the default or failure of the principal, whichever is earliest.42

The Court finds itself unable to agree. Article 1169 of the New Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.

The civil law concept of delay or default commences from the time the obligor demands, judicially or extrajudicially, the fulfillment of the
obligation from the obligee. In legal parlance, demand is the assertion of a legal or procedural right.43 Hence, DPCC incurred delay from
the time CCP called its attention that it had breached the contract and extrajudicially demanded the fulfillment of its commitment against
the bonds.

It is the obligor’s culpable delay, not merely the time element, which gives the obligee the right to seek the performance of the
obligation. As such, CCP’s cause of action accrued from the time that DPCC became in culpable delay as contemplated in the surety
and performance bonds. In fact, Surety Bond PCIC-45542,44 Performance Bond PCIC-4554145 and PCIC-46172 each specified how
claims should be made against it:
Surety Bond PCIC-4554246

The liability of PHILIPPINE CHARTER INSURANCE CORPORATION, under this bond will expire on October 30, 2003; Furthermore, it
is hereby agreed and understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not be liable for any claim not
presented to it in writing within FIFTEEN (15) DAYS from the expiration of this bond, and that the Obligee hereby waives its right to
claim or file any court action against the surety after the termination of FIFTEEN (15) DAYS from the time its cause of action accrues.

Performance Bond PCIC-4554147 and PCIC-46172:48

The liability of PHILIPPINE CHARTER INSURANCE CORPORATION, under this bond will expire on October 30, 2003; Furthermore, it
is hereby agreed and understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not be liable for any claim not
presented to it in writing within TEN (10) DAYS from the expiration of this bond or from the occurrence of the default or failure of the
Principal, whichever is the earliest, and the Obligee hereby waives its right to file any claims against the Surety after termination of the
period of ten (10) DAYS above mentioned after which time this bond shall definitely terminate and be deemed absolutely cancelled.

Thus, DPCC became in default on October 29, 2003 when CCP informed it in writing of the breach of the contract agreement and
demanded the fulfillment of its obligation against the bonds. Consequently, the November 6, 2003 letter that CCP sent to PCIC properly
complied with the notice of claim requirement set forth in the said bonds.

Upon notice of default of obligor DPCC, PCIC’s liability, as surety, was already attached. A surety under Article 2047 of the New Civil
Code solidarily binds itself with the principal debtor to assure the fulfillment of the obligation:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship. [Emphasis supplied]

The case of Asset Builders Corporation v. Stronghold Insurance Company, Inc.49 explains how a surety agreement works:

As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety
agreement an ancillary contract as it presupposes the existence of a principal contract.1âwphi1 Although the contract of a surety is in
essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses
no direct or personal interest over the obligations nor does it receive any benefit therefrom.50 Let it be stressed that notwithstanding the
fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.51

Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation,52 reiterating the ruling in Garcia v. Court of
Appeals,53 expounds on the nature of the surety’s liability:

x x x. The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to
the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he
is directly and equally bound with the principal.

Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee and the obligor, and the
accessory surety relationship between the principal and the surety. In this arrangement, the obligee accepts the surety’s solidary
undertaking to pay if the obligor does not pay. Such acceptance, however, does not change in any material way the obligee’s
relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor
relationship. Thus, the acceptance does not give the surety the right to intervene in the principal contract. The surety’s role
arises only upon the obligor’s default, at which time, it can be directly held liable by the obligee for payment as a solidary
obligor.54 [Emphases supplied]

Having acted as a surety, PCIC is duty bound to perform what it has guaranteed on its surety and performance bonds, all of which are
callable on demand, occasioned by its principal’s default.

PCIC also proffers that CCP did not file any claim against the bonds after its extension.55

The Court is not persuaded. CCP need not file another claim as to the supposed extended bonds because the October 29, 2003 letter
was sufficient notice to PCIC and DPCC of the latter’s default and its intention to proceed against the surety and performance bonds.
Moreover, the extension of the bonds was only approved and relayed by PCIC to DPCC on December 5, 2003 or after the October 29,
2003 Notice of Default.
As to whether CCP was legally warranted in terminating the contract with DPCC for its failure to comply with its obligation, the Court
affirms the CA’s disquisition. The option to terminate the contract is clearly apparent in the parties’ agreement. Specifically, Article 16 of
the Contract Agreement provides:

ARTICLE 16
Termination

16.1 The OWNER shall have the right to terminate this CONTRACT after giving fifteen (15) days notice in writing for any of the
following causes:

16.1.1. Substantial failure on the part of the CONTRACTOR in fulfilling its obligation;

16.1.2. Assignment or sub-contracting of any of the works herein by the CONTRACTOR without approval by the OWNER;

16.1.3 The CONTRACTOR is willfully violating any of the material conditions, stipulations and covenants of this CONTRACT
and/or the attachments hereto. In the event of termination of this CONTRACT pursuant to the above, any amount owing to the
CONTRACTOR at the time of such termination for services already rendered and/or materials delivered and taken over by the
OWNER shall be withheld by the OWNER pending the determination of value of damages sustained by the OWNER by
reason of such termination and payment of such damages by the CONTRACTOR.

The Court also finds nothing improper in the deletion by the CA of the award of actual damages in favor of DPCC. Actual or
compensatory damages means the adequate compensation for pecuniary loss suffered and for profits the obligee failed to obtain. To
be entitled to actual or compensatory damages, it is basic that there must be pleading and proof of actual damages suffered.56 Equally
vital to the fact that the amount of loss must be capable of proof, such loss must also be actually proven with a reasonable degree of
certainty, premised upon competent proof or the best evidence obtainable.57 The burden of proof of the damage suffered is,
consequently, imposed on the party claiming it58 who, in turn, should present the best evidence available in support of his claim. It could
include sales and delivery receipts, cash and check vouchers and other pieces of documentary evidence of the same nature pertaining
to the items he is seeking to recover. In the absence of corroborative evidence, it has been held that self-serving statements of account
are not sufficient basis for an award of actual damages.59 Moreover, a claim for actual damages cannot be predicated on flimsy, remote,
speculative, and insubstantial proof.60 Thus, courts are required to state the factual bases of the award.61

In this case, DPCC was not able to establish that it is entitled to the actual damages that it prayed for in its counterclaim. As the CA put
it, "while Dynamic (DPCC) presented receipts issued by its suppliers of materials, equipment, formworks and scaffoldings, it failed to
prove that the items in the receipts correspond to the items allegedly left at the work site."62 Besides, the Court cannot grant a relief in its
favor because DPCC did not appeal the decision of the CA.

WHEREFORE, the petition is PARTLY GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. SP Nos. 90361,
90383 and 90384 is MODIFIED to read as follows:

Philippine Charter Insurance Corporation and Dynamic Planners and Construction Corporation are ordered to, jointly and severally, pay
Central Colleges of the Philippines the total amount of ₱13,231,460.73 under Surety Bond No. PCIC-45542 and Performance Bond No.
PCIC-45541 (as modified by Bond Endorsement No. E-2003/12527). Said amount shall bear interest at the rate of 6% per annum from
the date of demand made on October 29, 2003. For any amount not yet paid after the date of the finality of this decision, however, the
rate of interest on the payable amount shall be increased to 12% per annum from the date when this decision becomes final and
executory until it is fully paid.

SO ORDERED.
 19. G.R. No. 179395               December 15, 2010

MAXWELL HEAVY EQUIPMENT CORPORATION, Petitioner,

vs.
ERIC UYCHIAOCO YU, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 21 June 2007 Decision2 of the Court of Appeals in CA-G.R. CV No. 84522. The Court of Appeals
affirmed with modification the 11 January 2005 Decision3 of the Regional Trial Court, National Capital Judicial Region, Branch 167,
Pasig City. The trial court ordered, among others, the reimbursement by petitioner Maxwell Heavy Equipment Corporation (Maxwell) of
the amount of ₱8,888,932.33 to respondent Eric Uychiaoco Yu (Yu) for the latter’s payment of Maxwell’s loan obligation with the Bank
of Philippine Islands (BPI).

The Facts

On 3 April 2001 and 2 May 2001, Maxwell obtained loans from BPI, G. Araneta Avenue Branch, in the total sum of ₱8,800,000.00
covered by two Promissory Notes and secured by a real estate mortgage over two lots registered in Yu’s name. Promissory Note No. 1-
6743742-001 for ₱800,000.00 was due on 26 March 20024 while Promissory Note No. 1-6743742-002 for ₱8,000,000.00 was due on
24 April 2002.5 Yu signed as Maxwell’s co-maker in the Promissory Note covering the ₱8,000,000 loan. It appears that Yu did not sign
as co-maker in the Promissory Note for ₱800,000.

Maxwell defaulted in the payment of the loans, forcing Yu to pay BPI ₱8,888,932.33 representing the principal loan amounts with
interest, through funds borrowed from his mother, Mina Yu, to prevent the foreclosure of his real properties.

Thereafter, Yu demanded reimbursement from Maxwell of the entire amount paid to BPI. However, Maxwell failed to reimburse Yu.
Consequently, Yu filed with the trial court a complaint for sum of money and damages.

Maxwell denied liability for Yu’s claimed amount. Maxwell countered that the transactions with BPI were merely accommodation loans
purely for Yu’s benefit. Maxwell likewise pointed out that Yu, having signed as co-maker, is solidarily liable for the loans. Maxwell also
insisted that Yu’s mother is the real payor of the loans and thus, is the real party-in-interest to institute the complaint.

The trial court ruled in favor of Yu, disposing of the case as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Maxwell Heavy Equipment Corporation
ordering the latter to pay the former the following sums of money:

a) The sum of Php 8,888,932.33/00, representing the principal obligation, with legal interest thereon computed at the legal rate
from the time of default on 2 April 2002 until full payment thereof;

b) The sum of Php 200,000.00, for and as reasonable attorney’s fees and;

c) Costs of suit.

Bereft of evidence, the claim for moral as well as exemplary damages is hereby DENIED.

Also, for lack of sufficient factual and legal basis, the counterclaim is similarly DISMISSED.

SO ORDERED.6

On appeal, the Court of Appeals affirmed with modification the ruling of the trial court, by deleting the award of attorney’s fees and
specifying the rate of interest on the allegedly reimbursable amount from Maxwell.

Hence, this petition.

The Ruling of the Court of Appeals

In affirming the trial court’s ruling, the Court of Appeals rejected Maxwell’s contention that the transactions with BPI were
accommodation loans solely for Yu’s benefit since (1) Maxwell was paying for the loans’ interest and (2) various demand letters from
BPI were addressed to Maxwell as the borrower.

The Court of Appeals gave credence to the testimonies of Yu and his mother on the liability of Maxwell for the claimed amount. On the
other hand, it disbelieved the testimony of Caroline Yu, then president of Maxwell, denying Yu’s entitlement to reimbursement for the
payment he made to BPI since it was uncorroborated by any documentary evidence.1avvphi1

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

WHEREFORE, the appealed Decision dated January 11, 2005 is affirmed, subject to the modification that:

1. the award of attorney’s fees is deleted; and

2. the legal rate of interest on the principal amount of ₱8,800,000.00 is twelve per cent (12%) per annum from the filing of the
complaint on August 19, 2003 until the finality of this Decision. After this Decision becomes final and executory, the applicable
rate shall also be twelve per cent (12%) per annum until its full satisfaction.

SO ORDERED.7

The Issue

The main issue in this case is whether Yu is entitled to reimbursement from Maxwell for the loan payment made to BPI. This issue in
turn depends on whether the transactions with BPI were accommodation loans solely for Yu’s benefit.

The Ruling of the Court

The petition lacks merit.

This Court is not a trier of facts.8 It is not the Court’s function to analyze or weigh the evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court.9

In this case, the question of whether Maxwell’s transactions with BPI were accommodation loans for Yu’s benefit is clearly factual, and
thus, beyond the Court’s review.

Moreover, factual findings of the trial court, when affirmed by the Court of Appeals, will not be disturbed by this Court.10 As a rule, such
findings by the lower courts are entitled to great weight and respect, and are deemed final and conclusive on this Court when supported
by the evidence on record.11 The foregoing principle applies to the present controversy.

In this case, the Court of Appeals affirmed the trial court’s finding that "it was Yu who accommodated Maxwell by allowing the use of his
real properties as collateral [for Maxwell’s loans]." The appellate court concurred with the trial court that Maxwell is the principal
borrower since it was Maxwell which paid interest on the loans. Additionally, various documents designated Maxwell as borrower and
communications demanding payment of the loans sent by BPI were addressed to Maxwell as the borrower, with Yu indicated only as
the owner of the real properties as loan collateral.

Furthermore, we affirm the finding that Maxwell gravely failed to substantiate its claim that the loans were purely for Yu’s benefit.
Maxwell’s evidence consisting of the testimony of Caroline Yu, Yu’s spouse and then president of Maxwell, was uncorroborated.

On the other hand, Yu’s and his mother’s testimonies were supported by various documents establishing the real nature of the loan,
and belying Maxwell’s allegations. Yu presented the following: (1) Corporate Resolution to Borrow, dated 21 August 2000, where
Maxwell authorized Caroline Yu to loan from BPI on its behalf; (2) the two Promissory Notes, dated 3 April 2001 and 2 May 2001,
signed by Caroline Yu as Maxwell’s representative; and (3) two disclosure statements, dated 3 April 2001 and 2 May 2001, on
"loan/credit transaction" signed by Caroline Yu, designating Maxwell as the borrower. Based on the foregoing, it is clear that Maxwell is
the principal borrower solely liable for the payment of the loans.

While Maxwell is the real debtor, it was Yu who paid BPI the entire amount of Maxwell’s loans. Hence, contrary to Maxwell’s view,
Article 1236 of the Civil Code applies. This provision reads:

The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the
will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

The above provision grants the plaintiff (Yu) the right to recovery and creates an obligation on the part of the defendant (Maxwell) to
reimburse the plaintiff. In this case, Yu paid BPI ₱8,888,932.33, representing the amount of the principal loans with interest, thereby
extinguishing Maxwell’s loan obligation with BPI. Pursuant to Article 1236 of the Civil Code, Maxwell, which was indisputably benefited
by Yu’s payment, must reimburse Yu the same amount of ₱8,888,932.33.12

WHEREFORE, the Court DENIES the petition and AFFIRMS the 21 June 2007 Decision of the Court of Appeals in CA-G.R. CV No.
84522.

SO ORDERED.
 20. G.R. No. 190375               February 8, 2012

TAN SHUY, Petitioner,
vs.
Spouses GUILLERMO MAULAWIN and PARING CARIÑO-MAULAWIN, Respondents.

DECISION

SERENO, J.:

Before the Court is a Petition for Review on Certiorari filed under Rule 45 of the Rules of Court, assailing the 31 July 2009 Decision and
13 November 2009 Resolution of the Court of Appeals (CA).1

Facts

Petitioner Tan Shuy is engaged in the business of buying copra and corn in the Fourth District of Quezon Province. According to
Vicente Tan (Vicente), son of petitioner, whenever they would buy copra or corn from crop sellers, they would prepare and issue a
pesada in their favor. A pesada is a document containing details of the transaction, including the date of sale, the weight of the crop
delivered, the trucking cost, and the net price of the crop. He then explained that when a pesada contained the annotation "pd" on the
total amount of the purchase price, it meant that the crop delivered had already been paid for by petitioner.2

Guillermo Maulawin (Guillermo), respondent in this case, is a farmer-businessman engaged in the buying and selling of copra and corn.
On 10 July 1997, Tan Shuy extended a loan to Guillermo in the amount of ₱ 420,000. In consideration thereof, Guillermo obligated
himself to pay the loan and to sell lucad or copra to petitioner. Below is a reproduction of the contract:3
No2567 Lopez, Quezon July 10, 1997

Tinanggap ko kay G. TAN SHUY ang halagang

……………………………………………………………. (P420,000.00) salaping Filipino.
Inaako ko na isusulit sa kanya ang aking LUCAD at babayaran ko ang nasabing halaga.
Kung hindi ako makasulit ng LUCAD o makabayad bago sumapit ang …………………….,
19 …… maaari niya akong ibigay sa may kapangyarihan. Kung ang pagsisingilan ay
makakarating sa Juzgado ay sinasagutan ko ang lahat ng kaniyang gugol.

P………………………................ [Sgd. by respondent]

…………………………………….
Lagda

Most of the transactions involving Tan Shuy and Guillermo were coursed through Elena Tan, daughter of petitioner. She served as
cashier in the business of Tan Shuy, who primarily prepared and issued the pesada. In case of her absence, Vicente would issue the
pesada. He also helped his father in buying copra and granting loans to customers (copra sellers). According to Vicente, part of their
agreement with Guillermo was that they would put the annotation "sulong" on the pesada when partial payment for the loan was made.

Petitioner alleged that despite repeated demands, Guillermo remitted only ₱ 23,000 in August 1998 and ₱ 5,500 in October 1998, or a
total of ₱ 28,500.4 He claimed that respondent had an outstanding balance of ₱ 391,500. Thus, convinced that Guillermo no longer had
the intention to pay the loan, petitioner brought the controversy to the Lupon Tagapamayapa. When no settlement was reached,
petitioner filed a Complaint before the Regional Trial Court (RTC).

Respondent Guillermo countered that he had already paid the subject loan in full. According to him, he continuously delivered and sold
copra to petitioner from April 1998 to April 1999. Respondent said they had an oral arrangement that the net proceeds thereof shall be
applied as installment payments for the loan. He alleged that his deliveries amounted to ₱ 420,537.68 worth of copra. To bolster his
claim, he presented copies of pesadas issued by Elena and Vicente. He pointed out that the pesadas did not contain the notation "pd,"
which meant that actual payment of the net proceeds from copra deliveries was not given to him, but was instead applied as loan
payment. He averred that Tan Shuy filed a case against him, because petitioner got mad at him for selling copra to other copra buyers.

On 27 July 2007, the trial court issued a Decision, ruling that the net proceeds from Guillermo’s copra deliveries – represented in the
pesadas, which did not bear the notation "pd" – should be applied as installment payments for the loan. It gave weight and credence to
the pesadas, as their due execution and authenticity was established by Elena and Vicente, children of petitioner.5 However, the court
did not credit the net proceeds from 12 pesadas, as they were deliveries for corn and not copra. According to the RTC, Guillermo
himself testified that it was the net proceeds from the copra deliveries that were to be applied as installment payments for the loan.
Thus, it ruled that the total amount of ₱ 41,585.25, which corresponded to the net proceeds from corn deliveries, should be deducted
from the amount of ₱ 420,537.68 claimed by Guillermo to be the total value of his copra deliveries. Accordingly, the trial court found that
respondent had not made a full payment for the loan, as the total creditable copra deliveries merely amounted to ₱ 378,952.43, leaving
a balance of ₱ 41,047.57 in his loan.6
On 31 July 2009, the CA issued its assailed Decision, which affirmed the finding of the trial court. According to the appellate court,
petitioner could have easily belied the existence of the pesadas and the purpose for which they were offered in evidence by presenting
his daughter Elena as witness; however, he failed to do so. Thus, it gave credence to the testimony of respondent Guillermo in that the
net proceeds from the copra deliveries were applied as installment payments for the loan.7 On 13 November 2009, the CA issued its
assailed Resolution, which denied the Motion for Reconsideration of petitioner.

Petitioner now assails before this Court the aforementioned Decision and Resolution of the CA and presents the following issues:

Issues

1. Whether the pesadas require authentication before they can be admitted in evidence, and

2. Whether the delivery of copra amounted to installment payments for the loan obtained by respondents from petitioner.

Discussion

As regards the first issue, petitioner asserts that the pesadas should not have been admitted in evidence, since they were private
documents that were not duly authenticated.8 He further contends that the pesadas were fabricated in order to show that the goods
delivered were copra and not corn. Finally, he argues that five of the pesadas mentioned in the Formal Offer of Evidence of respondent
were not actually offered.9

With regard to the second issue, petitioner argues that respondent undertook two separate obligations – (1) to pay for the loan in cash
and (2) to sell the latter’s lucad or copra. Since their written agreement did not specifically provide for the application of the net
proceeds from the deliveries of copra for the loan, petitioner contends that he cannot be compelled to accept copra as payment for the
loan. He emphasizes that the pesadas did not specifically indicate that the net proceeds from the copra deliveries were to be used as
installment payments for the loan. He also claims that respondent’s copra deliveries were duly paid for in cash, and that the pesadas
were in fact documentary receipts for those payments.

We reiterate our ruling in a line of cases that the jurisdiction of this Court, in cases brought before it from the CA, is limited to reviewing
or revising errors of law.10 Factual findings of courts, when adopted and confirmed by the CA, are final and conclusive on this Court
except if unsupported by the evidence on record.11 There is a question of fact when doubt arises as to the truth or falsehood of facts; or
when there is a need to calibrate the whole evidence, considering mainly the credibility of the witnesses and the probative weight
thereof, the existence and relevancy of specific surrounding circumstances, as well as their relation to one another and to the whole,
and the probability of the situation.12

Here, a finding of fact is required in the ascertainment of the due execution and authenticity of the pesadas, as well as the
determination of the true intention behind the parties’ oral agreement on the application of the net proceeds from the copra deliveries as
installment payments for the loan.13 This function was already exercised by the trial court and affirmed by the CA. Below is a
reproduction of the relevant portion of the trial court’s Decision:

x x x The defendant further averred that if in the receipts or "pesadas" issued by the plaintiff to those who delivered copras to them
there is a notation "pd" on the total amount of purchase price of the copras, it means that said amount was actually paid or given by the
plaintiff or his daughter Elena Tan Shuy to the seller of the copras. To prove his averments the defendant presented as evidence two
(2) receipts or pesadas issued by the plaintiff to a certain "Cariño" (Exhibits "1" and "2" – defendant) showing the notation "pd" on the
total amount of the purchase price for the copras. Such claim of the defendant was further bolstered by the testimony of Apolinario
Cariño which affirmed that he also sell copras to the plaintiff Tan Shuy. He also added that he incurred indebtedness to the plaintiff and
whenever he delivered copras the amount of the copras sold were applied as payments to his loan. The witness also pointed out that
the plaintiff did not give any official receipts to those who transact business with him (plaintiff). This Court gave weight and credence to
the documents receipts (pesadas) (Exhibits "3" to "64") offered as evidence by the defendant which does not bear the notation "pd" or
paid on the total amount of the purchase price of copras appearing therein. Although said "pesadas" were private instrument their
execution and authenticity were established by the plaintiff’s daughter Elena Tan and sometimes by plaintiff’s son Vicente Tan. x x
x.14 (Emphasis supplied)

In affirming the finding of the RTC, the CA reasoned thus:

In his last assigned error, plaintiff-appellant herein impugns the conclusion arrived at by the trial court, particularly with respect to the
giving of evidentiary value to Exhs. "3" to "64" by the latter in order to prove the claim of defendant-appellee Guillermo that he had fully
paid the subject loan already.

The foregoing deserves scant consideration.

Here, plaintiff-appellant could have easily belied the existence of Exhs. "3" to "64", the pesadas or receipts, and the purposes for which
they were offered in evidence by simply presenting his daughter, Elena Tan Shuy, but no effort to do so was actually done by the
former given that scenario.15 (Emphasis supplied)
We found no clear showing that the trial court and the CA committed reversible errors of law in giving credence and according weight to
the pesadas presented by respondents. According to Rule 132, Section 20 of the Rules of Court, there are two ways of proving the due
execution and authenticity of a private document, to wit:

SEC. 20. Proof of private document. – Before any private document offered as authentic is received in evidence, its due execution and
authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be. (21a)

As reproduced above, the trial court found that the due execution and authenticity of the pesadas were "established by the plaintiff’s
daughter Elena Tan and sometimes by plaintiff’s son Vicente Tan."16 The RTC said:

On cross-examination, [Vicente] reiterated that he and her [sic] sister Elena Tan who acted as their cashier are helping their father in
their business of buying copras and mais. That witness agreed that in the business of buying copra and mais of their father, if a seller is
selling copra, a pesada is being issued by his sister. The pesada that she is preparing consists of the date when the copra is being sold
to the seller. Being familiar with the penmanship of Elena Tan, the witness was shown a sample of the pesada issued by his sister
Elena Tan. x x x

x x x           x x x          x x x

x x x. He clarified that in the "pesada" (Exh. "1") prepared by Elena and also in Exh "2", there appears on the lower right hand portion of
the said pesadas the letter "pd", the meaning of which is to the effect that the seller of the copra has already been paid during that day.
He also confirmed the penmanship and handwriting of his sister Ate Elena who acted as a cashier in the pesada being shown to him.
He was even made to compare the xerox copies of the pesadas with the original copies presented to him and affirmed that they are
faithful reproduction of the originals.17 (Emphasis supplied)

In any event, petitioner is already estopped from questioning the due execution and authenticity of the pesadas.1âwphi1 As found by
the CA, Tan Shuy "could have easily belied the existence of x x x the pesadas or receipts, and the purposes for which they were
offered in evidence by simply presenting his daughter, Elena Tan Shuy, but no effort to do so was actually done by the former given
that scenario." The pesadas having been admitted in evidence, with petitioner failing to timely object thereto, these documents are
already deemed sufficient proof of the facts contained therein.18 We hereby uphold the factual findings of the RTC, as affirmed by the
CA, in that the pesadas served as proof that the net proceeds from the copra deliveries were used as installment payments for the
debts of respondents.19

Indeed, pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or performance. There is payment when
there is delivery of money or performance of an obligation.20 Article 1245 of the Civil Code provides for a special mode of payment
called dation in payment (dación en pago). There is dation in payment when property is alienated to the creditor in satisfaction of a debt
in money.21 Here, the debtor delivers and transmits to the creditor the former’s ownership over a thing as an accepted equivalent of the
payment or performance of an outstanding debt.22 In such cases, Article 1245 provides that the law on sales shall apply, since the
undertaking really partakes – in one sense – of the nature of sale; that is, the creditor is really buying the thing or property of the debtor,
the payment for which is to be charged against the debtor’s obligation.23 Dation in payment extinguishes the obligation to the extent of
the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement – express
or implied, or by their silence – consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.24

The trial court found thus:

x x x [T]he preponderance of evidence is on the side of the defendant. x x x The defendant explained that for the receipts (pesadas)
from April 1998 to April 1999 he only gets the payments for trucking while the total amount which represent the total purchase price for
the copras that he delivered to the plaintiff were all given to Elena Tan Shuy as installments for the loan he owed to plaintiff. The
defendant further averred that if in the receipts or "pesadas" issued by the plaintiff to those who delivered copras to them there is a
notation "pd" on the total amount of purchase price of the copras, it means that said amount was actually paid or given by the plaintiff or
his daughter Elena Tan Shuy to the seller of the copras. To prove his averments the defendant presented as evidence two (2) receipts
or pesadas issued by the plaintiff to a certain "Cariño" (Exhibits "1" and "2" – defendant) showing the notation "pd" on the total amount
of the purchase price for the copras. Such claim of the defendant was further bolstered by the testimony of Apolinario Cariño which
affirmed that he also sell [sic] copras to the plaintiff Tan Shuy. He also added that he incurred indebtedness to the plaintiff and
whenever he delivered copras the amount of the copras sold were applied as payments to his loan. The witness also pointed out that
the plaintiff did not give any official receipts to those who transact business with him (plaintiff). x x x

Be that it may, this Court cannot however subscribe to the averments of the defendant that he has fully paid the amount of his loan to
the plaintiff from the proceeds of the copras he delivered to the plaintiff as shown in the "pesadas" (Exhibits "3" to "64"). Defendant
claimed that based on the said "pesadas" he has paid the total amount of P420,537.68 to the plaintiff. However, this Court keenly noted
that some of the "pesadas" offered in evidence by the defendant were not for copras that he delivered to the plaintiff but for "mais"
(corn). The said pesadas for mais or corn were the following, to wit:

x x x           x x x          x x x

To the mind of this Court the aforestated amount (P41,585.25) which the above listed pesadas show as payment for mais or corn
delivered by the defendant to the plaintiff cannot be claimed by the defendant to have been applied also as payment to his loan with the
plaintiff because he does not testify on such fact. He even stressed during his testimony that it was the proceeds from the copras that
he delivered to the plaintiff which will be applied as payments to his loan. x x x Thus, equity dictates that the total amount of P41,585.25
which corresponds to the payment for "mais" (corn) delivered by the plaintiff shall be deducted from the total amount of P420,537.68
which according to the defendant based on the pesadas (Exhibits "3" to "64") that he presented as evidence, is the total amount of the
payment that he made for his loan to the plaintiff. x x x

x x x           x x x          x x x

Clearly from the foregoing, since the total amount of defendant’s loan to the plaintiff is P420,000.00 and the evidence on record shows
that the actual amount of payment made by the defendant from the proceeds of the copras he delivered to the plaintiff is P378,952.43,
the defendant is still indebted to the plaintiff in the amount of P41,047.53 (sic) (P420,000.00-P378,952.43).25 (Emphasis supplied)

In affirming this finding of fact by the trial court, the CA cited the above-quoted portion of the RTC’s Decision and stated the following:

In fact, as borne by the records on hand, herein defendant-appellee Guillermo was able to describe and spell out the contents of Exhs.
"3" to "64" which were then prepared by Elena Tan Shuy or sometimes by witness Vicente Tan. Herein defendant-appellee Guillermo
professed that since the release of the subject loan was subject to the condition that he shall sell his copras to the plaintiff-appellant,
the former did not already receive any money for the copras he delivered to the latter starting April 1998 to April 1999. Hence, this Court
can only express its approval to the apt observation of the trial court on this matter[.]

x x x           x x x          x x x

Notwithstanding the above, however, this Court fully agrees with the pronouncement of the trial court that not all amounts indicated in
Exhs. "3" to "64" should be applied as payments to the subject loan since several of which clearly indicated "mais" deliveries on the part
of defendant-appellee Guillermo instead of "copras"[.]26 (Emphasis supplied)

The subsequent arrangement between Tan Shuy and Guillermo can thus be considered as one in the nature of dation in payment.
There was partial payment every time Guillermo delivered copra to petitioner, chose not to collect the net proceeds of his copra
deliveries, and instead applied the collectible as installment payments for his loan from Tan Shuy. We therefore uphold the findings of
the trial court, as affirmed by the CA, that the net proceeds from Guillermo’s copra deliveries amounted to ₱ 378,952.43. With this
partial payment, respondent remains liable for the balance totaling ₱ 41,047.57.27

WHEREFORE the Petition is DENIED. The 31 July 2009 Decision and 13 November 2009 Resolution of the Court of Appeals in CA-
G.R. CV No. 90070 are hereby AFFIRMED.

SO ORDERED.
 21. G.R. No. 185368               October 11, 2012

ARTHUR F. MENCHAVEZ, Petitioner,
vs.
MARLYN M. BERMUDEZ, Respondent.

DECISION

VELASCO, JR., J.:

This is a Petition for Review on Certiorari under Rule 45, questioning the Decision1 of the Court of Appeals (CA) dated May 30, 2008 in
CA-G.R. SP No. 99143, and the CA Resolution dated November 7, 2008, denying petitioner’s Motion for Reconsideration of the
Decision.

The facts of the case are as follows:

Petitioner Arthur F. Menchavez and respondent Marlyn M. Bermudez entered on November 17, 1993 into a loan agreement, covering
the amount of PhP500,000, with interest fixed at 5% per month.2 Respondent executed a promissory note, which reads as follows:

P500000. –

For value received I promise to pay ARTHUR F. MENCHAVEZ or order the sum of pesos five hundred thousand on or before Dec. 17,
1993 with interest of 5% per month.

I acknowledge receipt of BPI Check 60965.

MARLYN M. BERMUDEZ3

She then issued Prudential Bank Check No. 031994, to mature on December 17, 1993, in favor of petitioner, but with a request that
petitioner not present the check for payment on its maturity date.4 Respondent replaced Check No. 031994 with five postdated
Prudential Bank checks totaling PhP 565,000, as follows: (1) Check No. 039198 dated April 17, 1994 for PhP 125,000; (2) Check No.
039199 dated May 17, 1994 for PhP 120,000; (3) Check No. 039200 dated June 17, 1994 for PhP 115,000; (4) Check No. 039201
dated July 17, 1994 for PhP 110,000; and (5) Check No. 039202 dated August 17, 1994 for PhP 105,000.5 Four of the checks were
cleared and fully encashed when presented for payment, covering the sum of PhP 465,000. The July 17, 1994 check, while dishonored,
was partially paid by respondent with a replacement check for PhP 110,000 issued on June 12, 1995.6

Petitioner alleged entering into a verbal compromise agreement with respondent regarding the delay in payment and the accumulated
interest. Under the agreement, respondent would deliver 11 postdated Prudential Bank checks as payment. When presented for
payment, eight (8) of these checks were dishonored for the reason, "Drawn against Insufficient Funds."7

Nine criminal informations were filed against respondent Marlyn M. Bermudez before the Metropolitan Trial Court (MeTC) in Makati
City, each charging her with violations of Batas Pambansa Blg. 22, or the Bouncing Checks Law, raffled off to the MeTC, Branch 64 as
Criminal Case Nos. 306361 to 306369.8 Eight counts covered the dishonored checks issued pursuant to the compromise agreement,
while the ninth covered the adverted check issued on July 17, 1994. The checks involved in the charges were:

(a) Check No. 0000029595 dated March 31, 1997 for PhP 20,000;

(b) Check No. 0000029594 dated March 4, 1997 for PhP 20,000;

(c) Check No. 0000029592 dated December 17, 1996 for PhP 50,000;

(d) Check No. 0000029598 dated June 30, 1997 for PhP 20,000;

(e) Check No. 0000029597 dated June 3, 1997 for PhP 20,000.00;

(f) Check No. 0000029596 dated April 30, 1997 for PhP 20,000.00;

(g) Check No. 0000029602 dated November 4, 1997 for PhP 20,000;

(h) Check No. 0000029601 dated September 30, 1997 for PhP 20,000;
 and

(i) Check No. 039201 dated July 17, 1994 for PhP 110,000;

which were issued and drawn by respondent against the account of FLB Construction Corporation at Prudential Bank, Makati Branch,
payable to petitioner, covering the total sum of PhP 300,000. These checks were dishonored by the drawee bank upon presentment for
payment on their respective maturity dates for the reason, "Drawn Against Insufficient

Funds."9

The Ruling of the MeTC

Respondent raised the defense of payment, and proved paying petitioner the sum of PhP 925,000, or PhP 425,000 over the PhP
500,000 loan. The amount of PhP 925,000.00 was acknowledged by petitioner in the statement of account which he prepared, wherein
PhP 624,344 was credited to payment of interest, and PhP 300,656 was credited to payment of the principal.10

The MeTC acquitted respondent of the charges against her, the dispositive portion of the decision reading as follows:

WHEREFORE, in view of the foregoing premises, for failure to prove the guilt of the accused beyond reasonable doubt, MARILYN
BERMUDEZ y MELY is hereby ACQUITTED in all nine (9) counts on charge of Violation of Batas Pambansa Blg. 22.

No costs.

SO ORDERED.11

Petitioner then brought the matter on appeal to the Regional Trial Court (RTC), Branch 143 in Makati City, appealing the civil aspect of
the cases. The cases were docketed as Crim. Case Nos. 06-966 to 06-974.

The Ruling of the RTC

In a Decision dated November 5, 2006, the RTC held that the PhP 425,000 excess payment had not fully settled the respondent’s
obligations to the petitioner. It found that no evidence was presented as to the payment on the eight checks covering the amount of
PhP 190,000 in the compromise agreement, less partial payment of PhP 25,000. In fine, a total of PhP 165,000 remains
unpaid.12 However, the 5% monthly interest stipulated in the loan agreement could not be applied, as, according to the RTC, there was
no written agreement; thus, the rate of 12% per annum would be used.13

The dispositive portion of the RTC Decision reads as follows:

WHEREFORE PREMISES CONSIDERED, the Appeal filed by complainant-appellant is partially granted. The Decision appealed from
is modified, ordering accused-appellee Marilyn M. Bermudez to pay complainant-appellant the amount of P165,000.00 as civil liability
with legal interest at the rate of 12% per annum to be reckoned from October 6, 2000.

SO ORDERED.14

The Ruling of the CA

Respondent then raised the matter to the CA, on the issue of whether petitioner Menchavez could still demand payment on the original
loan of PhP 500,000 despite the payment by respondent of the total amount of PhP 925,000.

The CA found that petitioner had expressly admitted in a Statement of Account, prepared under his supervision, that respondent’s
payments had already covered the principal loan of PhP 500,000, and that he had also received excess payment in the amount of PhP
425,000, before the criminal charges were filed.15

The CA did not agree with the RTC that the issuance of the subject checks resulted from the compromise agreement, and not from the
loan transaction between petitioner and respondent. It held that the compromise agreement could not be detached from and taken
independently of the principal loan. It further held that the compromise agreement bound respondent to pay an exorbitant and
unconscionable amount in interest and charges, and that further, the principal loan had already been paid, with the sum of PhP 425,000
added by way of interest at the rate of 5% per month or 60% per annum, and that courts could reduce liquidated damages, if these are
iniquitous or unconscionable, and thus contrary to morals.16

The fallo of the CA Decision reads:

WHEREFORE, premises considered, the Petition for Review is GRANTED, and accordingly, the assailed November 5, 2006 Decision
and April 7, 2007 Order of the RTC are hereby REVERSED and SET ASIDE.

SO ORDERED.17

Thus, petitioner brought the matter to this Court.

Grounds in Support of Petition

RESPONDENT’S OBLIGATION BASED ON THE COMPROMISE AGREEMENT IS SEPARATE AND INDEPENDENT FROM HER
ORIGINAL LOAN OBLIGATION.

II

THE CA’S RULINGS WERE BASED ON MISAPPREHENSION OF FACTS – ALTHOUGH PAYMENT WAS MADE, RESPONDENT
WAS FAR FROM COMPLETELY SATISFYING HER OBLIGATION TO PETITIONER.

III

RESPONDENT VOLUNTARILY SIGNED A PROMISSORY NOTE AND VOLUNTARILY AGREED TO PAY 5% INTEREST PER
MONTH.18

The Ruling of this Court

The petition is without merit.

Petitioner argues that the compromise agreement created an obligation separate and distinct from the original loan, for which
respondent is now liable. It is undeniable that the compromise agreement is wholly intertwined with the original loan agreement, to the
extent that this compromise agreement was entered into to fulfill respondent’s payment on the original obligation, without which the
compromise agreement would not have existed.

By stating that the compromise agreement and the original loan transaction are separate and distinct, petitioner would now attempt to
exact payment on both. This goes against the very purpose of the parties entering into a compromise agreement, which was to
extinguish the obligation under the loan. Petitioner may not seek the enforcement of both the compromise agreement and payment of
the loan, even in the event that the compromise agreement remains unfulfilled. It is beyond cavil that if a party fails or refuses to abide
by a compromise agreement, the other party may either enforce the compromise or regard it as rescinded and insist upon his original
demand.19 It cannot, thus, be argued that there are two separate validly subsisting obligations to be fulfilled by respondent under both
the compromise agreement and the original loan transaction.

To allow petitioner to recover under the terms of the compromise agreement and to further seek enforcement of the original loan
transaction would constitute unjust enrichment. The compromise agreement was entered into precisely to extinguish the obligation
under the loan transaction, not to create two sources of obligation for respondent. There is unjust enrichment under Article 22 of the
Civil Code when (1) a person is unjustly benefited; and (2) such benefit is derived at the expense of or with damages to another.20 Since
respondent only entered into the compromise agreement to commit to payment of the original loan, petitioner cannot separate the two
and seek payment of both, especially as he has already recovered the amount of the original loan.

The second and third issues raised by petitioner are interrelated and shall be discussed jointly.

Petitioner’s claim that the payment made by respondent did not extinguish the obligation is based on his assessment that it is the rate
of 5% per month which should be the basis of computation. Furthermore, petitioner argues that respondent voluntarily agreed to the
interest rate of 5% per month.

These arguments fail to convince this Court.

Petitioner seeks to benefit from a 60% per annum rate of interest. This cannot be countenanced.

Castro v. Tan21 is instructive. Petitioners in that case also argued that lender and borrower could validly agree on any interest rate for
loans, and that the parties had voluntarily agreed upon the stipulated rate of interest.

The Court held in Castro:

While we agree with petitioners that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the
Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is also worth
stressing that interest rates whenever unconscionable may still be declared illegal. There is certainly nothing in said circular which
grants lenders carte blanche authority to raise interest rates to levels which either enslave their borrowers or lead to a hemorrhaging of
their assets.22

The Court, in said case, tagged the 5% monthly interest rate agreed upon as "excessive, iniquitous, unconscionable and exorbitant,
contrary to morals, and the law."23 And instead of allowing recovery at the stipulated rate, the Court, in Castro, imposed the legal
interest of 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3%
per month and higher are excessive, iniquitous, unconscionable, and exorbitant.24

In the present case, the CA scrutinized the Statement of Account25 prepared by petitioner, wherein it showed that respondent had
already paid PhP 925,000, or PhP 425,000 over the PhP 500,000 loan, and treated it as an admission by petitioner. The original
obligation of PhP 500,000 had already been satisfied, and the PhP 425,000 would be treated as interest paid, even at the iniquitous
rate of 60% per annum.

We agree with the CA that petitioner has been fully paid.

In the Statement of Account prepared by petitioner, which he said covered the period from November 17, 1993 to January 17, 2001,
respondent made the following payments:

(a) PhP 25,000 on February 1, 1994;

(b) PhP 25,000 on February 23, 1994;

(c) PhP 25,000 on March 28, 1994;

(d) PhP 125,000 on April 17, 1994;

(e) PhP 120,000 on June 3, 1994;

(f) PhP 115,000 on August 1, 1994;

(g) PhP 105,000 on October 23, 1994;

(h) PhP 110,000 on June 15, 1995;

(i) PhP 25,000 on March 5, 1997;

(j) PhP 20,000 on May 5, 1997;

(k) PhP 20,000 on August 2, 1997;

(l) PhP 20,000 on October 22, 1997;

(m) PhP 20,000 on December 19, 1997;

(n) PhP 50,000 on January 31, 2000;

(o) PhP 30,000 on March 29, 2000;

(p) PhP 30,000 on May 3, 2000;

(q) PhP 30,000 on July 5, 2000;

(r) PhP 30,000 on July 31, 2000.26

Totaling the amounts in the Statement of Account results in the sum of PhP 925,000, which petitioner admits that respondent has
already paid. But for him, it is still a contentious matter as he seeks to enforce the 5% per month interest rate, and would, thus, claim
that he has not been fully paid. As it has been ruled that the 5% per month interest rate is null and void, petitioner cannot recover the
grossly inflated amounts listed in the Statement of Account he prepared. Petitioner does not contest the amounts in the Statement of
Account he prepared, only the import, as in his Statement of Account he computes for interest based on the 5% per month interest rate.
The Statement of Account is evidence that he has already been paid the PhP 500,000 subject of the original loan agreement, and has
benefited further in the amount of PhP 425,000, and, thus, must not be allowed to recover further.

Parties may be free to contract and stipulates as they see fit, but that is not an absolute freedom. Art. 1306 of the Civil Code provides.
"The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy." While petitioner harps on the voluntariness with which the
parties agreed upon the 5% per month interest rate, voluntariness does not make the stipulation on interest valid. The 5% per month, or
6% per annum, rate of interest is, indeed, iniquitous, and must be struck down. Petitioner has been sufficiently compensated for the
loan and the interest earned, and cannot be allowed to further recover on an interest rate which is unconscionable. Since the stipulation
on the interest rate is void, it is as if there was no express contract on said interest rate. Hence, courts may reduce the interest rate as
reason and equity demand.27

WHEREFORE, the petition is DENIED. The CA’s Decision dated May 30, 2008 and Resolution dated November 7, 2008 in CA-G.R. SP
No. 99143 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
 22. G.R. No. 172825               October 11, 2012

SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ, Petitioners,

vs.
ANA MARIE CONCEPCION, Respondent.

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioners spouses Miniano B. Dela Cruz
and Leta L. Dela Cruz against respondent Ana Marie Concepcion are the Court of Appeals (CA) Decision1 dated March 31, 2005 and
Resolution2 dated May 24, 2006 in CA-G.R. CV No. 83030.

The facts of the case are as follows:

On March 25, 1996, petitioners (as vendors) entered into a Contract to Sell3 with respondent (as vendee) involving a house and lot in
Cypress St., Phase I, Town and Country Executive Village, Antipolo City for a consideration of P2,000,000.00 subject to the following
terms and conditions:

a) That an earnest money of P100,000.00 shall be paid immediately;

b) That a full down payment of Four Hundred Thousand Pesos (P400,000.00) shall be paid on February 29, 1996;

c) That Five Hundred Thousand Pesos (P500,000.00) shall be paid on or before May 5, 1996; and

d) That the balance of One Million Pesos (P1,000,000.00) shall be paid on installment with interest of Eighteen Percent (18%)
per annum or One and a half percent (1-1/2 %) interest per month, based on the diminishing balance, compounded monthly,
effective May 6, 1996. The interest shall continue to run until the whole obligation shall have been fully paid. The whole One
Million Pesos shall be paid within three years from May 6, 1996;

e) That the agreed monthly amortization of Fifty Thousand Pesos (P50,000.00), principal and interest included, must be paid
to the Vendors, without need of prior demand, on or before May 6, 1996, and every month thereafter. Failure to pay the
monthly amortization on time, a penalty equal to Five Percent (5%) of the amount due shall be imposed, until the account is
updated. In addition, a penalty of One Hundred Pesos per day shall be imposed until the account is updated;

f) That after receipt of the full payment, the Vendors shall execute the necessary Absolute Deed of Sale covering the house
and lot mentioned above x x x4

Respondent made the following payments, to wit: (1) P500,000.00 by way of downpayment; (2) P500,000.00 on May 30, 1996; (3)
P500,000.00 paid on January 22, 1997; and (4) P500,000.00 bounced check dated June 30, 1997 which was subsequently replaced by
another check of the same amount, dated July 7, 1997. Respondent was, therefore, able to pay a total of P2,000,000.00.5

Before respondent issued the P500,000.00 replacement check, she told petitioners that based on the computation of her accountant as
of July 6, 1997, her unpaid obligation which includes interests and penalties was only P200,000.00.6 Petitioners agreed with respondent
and said "if P200,000.00 is the correct balance, it is okay with us."7

Meanwhile, the title to the property was transferred to respondent. Petitioners later reminded respondent to pay P209,000.00 within
three months.8 They claimed that the said amount remained unpaid, despite the transfer of the title to the property to respondent.
Several months later, petitioners made further demands stating the supposed correct computation of respondent’s liabilities.9 Despite
repeated demands, petitioners failed to collect the amounts they claimed from respondent. Hence, the Complaint for Sum of Money
With Damages10 filed with the Regional Trial Court (RTC)11 of Antipolo, Rizal. The case was docketed as Civil Case No. 98-4716.

In her Answer with Compulsory Counterclaim,12 respondent claimed that her unpaid obligation to petitioners is only P200,000.00 as
earlier confirmed by petitioners and not P487,384.15 as later alleged in the complaint. Respondent thus prayed for the dismissal of the
complaint. By way of counterclaim, respondent prayed for the payment of moral damages and attorney’s fees. During the presentation
of the parties’ evidence, in addition to documents showing the statement of her paid obligations, respondent presented a receipt
purportedly indicating payment of the remaining balance of P200,000.00 to Adoracion Losloso (Losloso) who allegedly received the
same on behalf of petitioners.13

On March 8, 2004, the RTC rendered a Decision14 in favor of respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, this case is hereby DISMISSED. The plaintiff is hereby ordered to pay the defendant’s
counterclaim, amounting to wit:

a) P300,000 as moral damages; and

b) P100,000 plus P2,000 per court appearance as attorney’s fees.

SO ORDERED.15

The RTC noted that the evidence formally offered by petitioners have not actually been marked as none of the markings were recorded.
Thus, it found no basis to grant their claims, especially since the amount claimed in the complaint is different from that testified to. The
court, on the other hand, granted respondent’s counterclaim.16

On appeal, the CA affirmed the decision with modification by deleting the award of moral damages and attorney’s fees in favor of
respondent.17 It agreed with the RTC that the evidence presented by petitioners cannot be given credence in determining the correct
liability of respondent.18 Considering that the purchase price had been fully paid by respondent ahead of the scheduled date agreed
upon by the parties, petitioners were not awarded the excessive penalties and interests.19 The CA thus maintained that respondent’s
liability is limited to P200,000.00 as claimed by respondent and originally admitted by petitioners.20 This amount, however, had already
been paid by respondent and received by petitioners’ representative.21 Finally, the CA pointed out that the RTC did not explain in its
decision why moral damages and attorney’s fees were awarded. Considering also that bad faith cannot be attributed to petitioners
when they instituted the collection suit, the CA deleted the grant of their counterclaims.22

Aggrieved, petitioners come before the Court in this petition for review on certiorari under Rule 45 of the Rules of Court raising the
following errors:

I.

"THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND THAT PLAINTIFF FAILED TO
FORMALLY OFFER THEIR EVIDENCE AS DEFENDANT JUDICIALLY ADMITTED IN HER ANSWER WITH
COMPULS[O]RY COUNTERCLAIM HER OUTSTANDING OBLIGATION STILL DUE TO PLAINTIFFS AND NEED NO
PROOF.

II.

THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT FOR ALLEGED FAILURE OF PLAINTIFFS TO PRESENT
COMPUTATION OF THE AMOUNT BEING CLAIMED AS DEFENDANT JUDICIALLY ADMITTED HAVING RECEIVED THE
DEMAND LETTER DATED OCTOBER 22, 1997 WITH COMPUTATION OF THE BALANCE DUE.

III.

THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND THAT THE DEFENDANT FULLY PAID
THE CLAIMS OF PLAINTIFFS BASED ON THE ALLEGED RECEIPT OF PAYMENT BY ADORACION LOSLOSO FROM
ANA MARIE CONCEPCION MAGLASANG WHICH HAS NOTHING TO DO WITH THE JUDICIALLY ADMITTED
OBLIGATION OF APPELLEE."23

Invoking the rule on judicial admission, petitioners insist that respondent admitted in her Answer with Compulsory Counterclaim that she
had paid only a total amount of P2 million and that her unpaid obligation amounts to P200,000.00.24 They thus maintain that the RTC
and the CA erred in concluding that said amount had already been paid by respondent. Petitioners add that respondent’s total liability
as shown in the latter’s statement of account was erroneously computed for failure to compound the monthly interest agreed
upon.25 Petitioners also claim that the RTC and the CA erred in giving credence to the receipt presented by respondent to show that her
unpaid obligation had already been paid having been allegedly given to a person who was not armed with authority to receive
payment.26

The petition is without merit.

It is undisputed that the parties entered into a contract to sell a house and lot for a total consideration of P2 million. Considering that the
property was payable in installment, they likewise agreed on the payment of interest as well as penalty in case of default. It is likewise
settled that respondent was able to pay the total purchase price of P2 million ahead of the agreed term. Afterwhich, they agreed on the
remaining balance by way of interest and penalties which is P200,000.00. Considering that the term of payment was not strictly
followed and the purchase price had already been fully paid by respondent, the latter presented to petitioners her computation of her
liabilities for interests and penalties which was agreed to by petitioners. Petitioners also manifested their conformity to the statement of
account prepared by respondent.
In paragraph (9) of petitioners’ Complaint, they stated that:

9) That the Plaintiffs answered the Defendant as follows: "if P200,000 is the correct balance, it is okay with us." x x x.27

But in paragraph (17) thereof, petitioners claimed that defendant’s outstanding liability as of November 6, 1997 was
P487,384.15.28 Different amounts, however, were claimed in their demand letter and in their testimony in court.

With the foregoing factual antecedents, petitioners cannot be permitted to assert a different computation of the correct amount of
respondent’s liability.

It is noteworthy that in answer to petitioners’ claim of her purported unpaid obligation, respondent admitted in her Answer with
Compulsory Counterclaim that she paid a total amount of P2 million representing the purchase price of the subject house and lot. She
then manifested to petitioners and conformed to by respondent that her only balance was P200,000.00. Nowhere in her Answer did she
allege the defense of payment. However, during the presentation of her evidence, respondent submitted a receipt to prove that she had
already paid the remaining balance. Both the RTC and the CA concluded that respondent had already paid the remaining balance of
P200,000.00. Petitioners now assail this, insisting that the court should have maintained the judicial admissions of respondent in her
Answer with Compulsory Counterclaim, especially as to their agreed stipulations on interests and penalties as well as the existence of
outstanding obligations.

It is, thus, necessary to discuss the effect of failure of respondent to plead payment of its obligations.

Section 1, Rule 9 of the Rules of Court states that "defenses and objections not pleaded either in a motion to dismiss or in the answer
are deemed waived." Hence, respondent should have been barred from raising the defense of payment of the unpaid P200,000.00.
However, Section 5, Rule 10 of the Rules of Court allows the amendment to conform to or authorize presentation of evidence, to wit:

Section 5. Amendment to conform to or authorize presentation of evidence. – When issues not raised by the pleadings are tried with the
express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice
will be subserved thereby. The court may grant a continuance to enable the amendment to be made.

The foregoing provision envisions two scenarios, namely, when evidence is introduced in an issue not alleged in the pleadings and no
objection was interjected; and when evidence is offered on an issue not alleged in the pleadings but this time an objection was
raised.29 When the issue is tried without the objection of the parties, it should be treated in all respects as if it had been raised in the
pleadings.30 On the other hand, when there is an objection, the evidence may be admitted where its admission will not prejudice him.31

Thus, while respondent judicially admitted in her Answer that she only paid P2 million and that she still owed petitioners P200,000.00,
respondent claimed later and, in fact, submitted an evidence to show that she already paid the whole amount of her unpaid obligation. It
is noteworthy that when respondent presented the evidence of payment, petitioners did not object thereto. When the receipt was
formally offered as evidence, petitioners did not manifest their objection to the admissibility of said document on the ground that
payment was not an issue. Apparently, petitioners only denied receipt of said payment and assailed the authority of Losloso to receive
payment. Since there was an implied consent on the part of petitioners to try the issue of payment, even if no motion was filed and no
amendment of the pleading has been ordered,32 the RTC cannot be faulted for admitting respondent’s testimonial and documentary
evidence to prove payment.33

As stressed by the Court in Royal Cargo Corporation v. DFS Sports Unlimited, Inc.,34

The failure of a party to amend a pleading to conform to the evidence adduced during trial does not preclude adjudication by the court
on the basis of such evidence which may embody new issues not raised in the pleadings. x x x Although, the pleading may not have
been amended to conform to the evidence submitted during trial, judgment may nonetheless be rendered, not simply on the basis of
the issues alleged but also on the issues discussed and the assertions of fact proved in the course of the trial. The court may treat the
pleading as if it had been amended to conform to the evidence, although it had not been actually amended. x x x Clearly, a court may
rule and render judgment on the basis of the evidence before it even though the relevant pleading had not been previously amended,
so long as no surprise or prejudice is thereby caused to the adverse party. Put a little differently, so long as the basic requirements of
fair play had been met, as where the litigants were given full opportunity to support their respective contentions and to object to or
refute each other's evidence, the court may validly treat the pleadings as if they had been amended to conform to the evidence and
proceed to adjudicate on the basis of all the evidence before it. (Emphasis supplied)35

To be sure, petitioners were given ample opportunity to refute the fact of and present evidence to prove payment.

With the evidence presented by the contending parties, the more important question to resolve is whether or not respondent’s
obligation had already been extinguished by payment.
We rule in the affirmative as aptly held by the RTC and the CA.

Respondent’s obligation consists of payment of a sum of money. In order to extinguish said obligation, payment should be made to the
proper person as set forth in Article 1240 of the Civil Code, to wit:

Article 1240. 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)

The Court explained in Cambroon v. City of Butuan,36 cited in Republic v. De Guzman,37 to whom payment should be made in order to
extinguish an obligation:

Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it extinguishes the
obligation. When payment is made to the wrong party, however, the obligation is not extinguished as to the creditor who is without fault
or negligence even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or through error induced by
fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment must be
made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment. 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. The receipt of money due
on a judgment by an officer authorized by law to accept it will, therefore, satisfy the debt.38

Admittedly, payment of the remaining balance of P200,000.00 was not made to the creditors themselves. Rather, it was allegedly made
to a certain Losloso. Respondent claims that Losloso was the authorized agent of petitioners, but the latter dispute it.

Losloso’s authority to receive payment was embodied in petitioners’ Letter39 addressed to respondent, dated August 7, 1997, where
they informed respondent of the amounts they advanced for the payment of the 1997 real estate taxes. In said letter, petitioners
reminded respondent of her remaining balance, together with the amount of taxes paid. Taking into consideration the busy schedule of
respondent, petitioners advised the latter to leave the payment to a certain "Dori" who admittedly is Losloso, or to her trusted helper.
This is an express authority given to Losloso to receive payment.

Moreover, as correctly held by the CA:

Furthermore, that Adoracion Losloso was indeed an agent of the appellant spouses is borne out by the following admissions of plaintiff-
appellant Atty. Miniano dela Cruz, to wit:

Q: You would agree with me that you have authorized this Doiry Losloso to receive payment of whatever balance is due you coming
from Ana Marie Concepcion, that is correct?

A: In one or two times but not total authority, sir.

Q: Yes, but you have authorized her to receive payment?

A: One or two times, yes x x x. (TSN, June 28, 1999, pp. 16-17)40

Thus, as shown in the receipt signed by petitioners’ agent and pursuant to the authority granted by petitioners to Losloso, payment
made to the latter is deemed payment to petitioners. We find no reason to depart from the RTC and the CA conclusion that payment
had already been made and that it extinguished respondent's obligations.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of Appeals Decision dated March 31, 2005 and
Resolution dated May 24, 2006 in CA-G.R. CV No. 83030, are AFFIRMED.

SO ORDERED.
 23. G.R. No. 161539               April 24, 2009

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Petitioner,

vs.
FGU INSURANCE CORPORATION, HAPAG-LLOYD, HAPAG-LLOYD PHILS., INC., and DESMA CARGO HANDLERS,
INC., Respondents.

RESOLUTION

AUSTRIA-MARTINEZ, J.:

In a Decision dated June 27, 2008, the Court denied the petition filed in this case and affirmed the CA Decision dated October 22, 2003
and Resolution dated January 8, 2004, finding petitioner liable for the full amount of the shipment which was lost while in its charge.
Petitioner filed a motion for reconsideration, which was denied by the Court with finality per Resolution dated August 27, 2008.

Undaunted, petitioner filed the present second motion for partial reconsideration where it solely assails the award and reckoning date of
the 12% interest imposed by the RTC on it adjudged liability. Petitioner contends that the complaint filed before the RTC is not one for
loan or forbearance of money, but one for breach of contract or damages; hence, petitioner insists that the interest rate should be the
legal rate of 6%, and not 12%. Petitioner also argues that the RTC reckoned the date when interest should accrue on the date when
respondent FGU Insurance Corporation paid the amount insured, or on January 3, 1995. Petitioner contends that this is erroneous and
the date should be reckoned from the time when respondent filed the complaint with the RTC, which is on April 10, 1995.

A second look at petitioner’s arguments shows that indeed, the interest rate of 6% should have been imposed, and not 12%, as
affirmed by the Court. Also, it should have been reckoned from April 10, 1995, when respondent filed by the complaint for sum of
money, and not January 3, 1995, which was the date respondent paid the amount insured to the Republic Asahi Glass Corporation
(RAGC).

The claim in this case is one for reimbursement of the sum of money paid by FGU Insurance Corporation to RAGC. This is not one for
forbearance of money, goods or credit. Forbearance in the context of the usury law is a contractual obligation of lender or creditor to
refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable.1 Thus the
interest rate should be as it is hereby fixed at 6%. Moreover, the interest rate of 6% shall be computed from the date of filing of the
complaint, i.e., April 10, 1995. This is in accordance with the ruling that where the demand cannot be established with reasonable
certainty, 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.21avvphi1

WHEREFORE, the second motion for partial reconsideration is GRANTED. The Decision dated June 27, 2008 is MODIFIED. The rate
of interest on the principal amount of ₱1,875,068.88, as adjudged in the Regional Trial Court Decision dated July 1, 1999 in Civil Case
No. 95-73532, and affirmed in the Court’s Decision dated June 27, 2008, shall be six percent (6%) per annum computed from the date
of filing of the complaint or April 10, 1995 until finality of this judgment. From the time this Decision becomes final and executory and the
judgment amount remains unsatisfied, the same shall earn interest at the rate of 12% per annum until its satisfaction.

SO ORDERED.
 24. G.R. No. 164968               July 3, 2009

GLORIA OCAMPO and TERESITA TAN, Petitioners,

vs.
LAND BANK OF THE PHILIPPINES, URDANETA, PANGASINAN BRANCH and EX OFFICIO PROVINCIAL SHERIFF OF
PANGASINAN, Respondents.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari assails the Court of Appeals Decision1 dated July 21, 2004, in CA-G.R. CV No. 77683, which
reversed and set aside the March 18, 2002 Decision2 of the Regional Trial Court, Branch 45, Urdaneta City, Pangasinan, in Civil Case
No. U-7095.

The facts, as culled from the records, follow.

In 1991, Gloria Ocampo and her daughter, Teresita Tan, obtained from the Land Bank of the Philippines a ₱10,000,000.003 loan
(herein referred to as quedan loan), which was released to them on the following dates: ₱3,996,000.00 on January 31, 1991, upon the
issuance of promissory note (PN) Nos. 91-038 and 98-039,4 to mature on July 30, 1991; ₱6,000,000.00, on April 5, 1991, upon the
issuance of PN Nos. 91-054, 91-055 and 91-056,5 to mature on October 2, 1991.

Ocampo and Tan availed of the Quedan Financing Program for Grain Stocks of the Quedan and Rural Credit Guarantee
Corporation6 (Quedancor), whereby the latter guaranteed to pay the Land Bank their loan, upon maturity, in case of non-payment.
Pursuant thereto, they delivered to the Land Bank several grains warehouse receipts (quedans), and executed a Deed of
Assignment/Contract of Pledge covering 41,690 cavans of palay.7

The liability of Quedancor, however, was limited to eighty percent (80%) of the outstanding loan plus interests at the time of
maturity.8 Corollarily, the quedans delivered by Ocampo and Tan, as security, turned out to be insufficient. To address the matter, the
Land Bank wrote Ocampo a letter9 dated August 15, 1991, requiring her and Tan to give an additional security with respect to the (20%)
percent unsecured portion of the quedan loan.

Accordingly, Ocampo and Tan constituted a real estate mortgage10 over two parcels of unregistered land owned by Ocampo, as
evidenced by Tax Declaration (TD) Nos. 6958 and 695911 (subsequently canceled and replaced by TD No. 317-A).12 The mortgage was
executed on September 6, 1991 and delivered by Ocampo and Tan to the Land Bank, together with the TDs and survey plan of the
properties. Land Bank, in turn, registered the mortgage with the Register of Deeds of Lingayen, Pangasinan.

Meanwhile, Ocampo filed with the RTC, Branch 49, Urdaneta, Pangasinan, a case for the registration of the subject properties,
docketed as Land Registration Case No. U-1116. Land Bank filed therein a Motion,13 praying for the RTC to take into consideration the
mortgage over the properties, and to register the same in Ocampo's name bearing the said encumbrance.

On August 15, 1991, Ocampo signed debit advices amounting to ₱100,000.00 as partial payment of the quedan loan.14 After the
maturity of the remaining three (3) promissory notes on October 2, 1991, Ocampo failed to pay the balance for her quedan loan. Thus,
the Land Bank filed with Quedancor a claim for guarantee payment. It also filed with the RTC, Branch 46, Urdaneta, Pangasinan, a
criminal case for estafa15 against Ocampo for disposing the stocks of palay covered by the grains warehouse receipts, docketed as
Criminal Case No. U-7373.

As regards the 20% portion of the quedan loan, Land Bank filed on March 27, 2000 a petition16 for extrajudicial foreclosure of real
estate mortgage pursuant to Act No. 3135, as amended. On April 4, 2000, the Ex Officio Provincial Sheriff of Pangasinan issued a
Notice of Extrajudicial Sale,17 setting the sale at public auction on May 30, 2000, a copy of which was furnished to, and received by,
Ocampo.

On May 25, 2000, Ocampo and Tan filed with the RTC a Complaint18 for Declaration of Nullity and Damages with Application for a Writ
of Preliminary Injunction against the Land Bank of the Philippines and the Ex Officio Provincial Sheriff of Pangasinan, praying19 that
after due notice and hearing on the merits, the RTC: (1) declare the deed of real estate mortgage null and void; (2) declare the
extrajudicial foreclosure proceedings and notice of extrajudicial sale, null and void; (3) make the writ of preliminary injunction
permanent; and (4) order the defendants to pay, jointly and severally, moral damages in an amount to be fixed by the RTC, plus
attorney's fees, expenses of litigation, among others.

In their Complaint, Ocampo and Tan claimed that the real estate mortgage is a forgery, because Land Bank did not inform them that the
properties would be used to secure the payment of a ₱2,000,000.00 loan, which they never applied for, much less received its
proceeds. They also claimed that Tan could not have mortgaged the properties since she does not own the same.
During the trial,20 Ocampo narrated that, on August 29, 1991, she went to the Land Bank to apply for another loan amounting to
₱5,000,000.00, but only ₱1,000,000.00 was approved. Not amenable to the said amount, she decided not to pursue her loan
application. She further narrated that, in order to facilitate her ₱5,000,000.00 loan application, she signed a document denominated as
Real Estate Mortgage. She insisted, however, that when she affixed her signature thereon, some portions were still in blank.21 As for
the quedan loan, she contended that she had fully paid the same when she executed a Deed of Absolute Assignment22 dated July 3,
1991 in favor of Quedancor.23 Such payment she made known to Land Bank through a letter24 dated August 30, 1991.

In its Answer,25 Land Bank contended that Ocampo and Tan executed a Deed of Real Estate Mortgage dated September 6, 1991,
knowing fully well that the same would secure the 20% portion of their quedan loan, which was not guaranteed by Quedancor. They
even submitted the TDs covering the properties as well as the survey plan. Tan, on the other hand, signed, not as a co-owner of the
properties, but in her capacity as a co-borrower of the quedan loan.

Land Bank presented as its witness, Zenaida Dasig, the assigned account officer of Ocampo. Dasig testified26 that Ocampo and Tan
obtained a ₱10,000,000.00 quedan loan from the Land Bank, 80% of which was secured by quedan receipts. She stated that Ocampo
was required to submit an additional collateral for the 20% unsecured portion, which she did through the mortgage contract. As for
Ocampo's claim of full payment of the quedan loan, Land Bank insisted otherwise. It argued that the quedan loan was still not fully
satisfied because it was not made a party to the Deed of Absolute Assignment between Ocampo and Quedancor. Land Bank relayed
its position on the matter through a letter27 dated September 17, 1991 to Ocampo, wherein it acknowledged receipt of her August 30,
1991 letter and informed her of the subsisting balance in the quedan loan.

On May 29, 2000, the RTC issued a Writ of Temporary Restraining Order,28 effective for seventy-two (72) hours, to enjoin the Ex Officio
Provincial Sheriff from proceeding with the scheduled May 30, 2000 sale at public auction.

After the trial, the RTC rendered a Decision29 in favor of Ocampo and Tan, to wit:

WHEREFORE, in view of the foregoing, the Court renders judgment declaring the Real Estate Mortgage between the Plaintiffs and
Defendant [Land] Bank of the Philippines and signed by the Plaintiffs on September 6, 1991, null and void.30

Land Bank moved for reconsideration,31 but the RTC denied the same in its Order32 dated July 12, 2002.

Land Bank filed an appeal with the CA, which granted the same. Accordingly, it reversed the RTC and ordered the dismissal of the
complaint. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED and the Decision dated March 18, 2002 of the Regional
Trial Court, Branch 45 of Urdaneta City, Pangasinan, is hereby REVERSED and SET ASIDE. The complaint is ordered DISMISSED.

SO ORDERED.33

Ocampo and Tan did not file a motion for reconsideration of the CA decision. Instead, they elevated the matter before the Court via the
present petition,34 which involves the following issues: (1) whether or not the deed of real estate mortgage was void; and (2) assuming
that it was valid, whether or not the loan was already extinguished.

The resolution of the first issue is factual in nature and calls for a review of the evidence already considered in the proceedings below.
As a general rule, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the
contending parties during the trial of the case.35 Only errors of law are reviewable by the Supreme Court on petitions for
review.36 However, this rule admits of several exceptions, wherein We disregarded the aforesaid tenet and proceeded to review the
findings of facts of the lower courts.37 Two exceptions are present in this case, namely: (1) when the findings of facts are conflicting; and
(2) when the findings of fact of the Court of Appeals are contrary to those of the trial court.

Ocampo and Tan filed the complaint invoking the nullity of the real estate mortgage on the ground of forgery. To bolster their claim, they
averred that a physical examination of Ocampo's signature showed that the typewritten name "Gloria Ocampo" was superimposed, or it
overlapped the signature "Gloria Ocampo." They argued that this indicated that the signature "Gloria Ocampo" was affixed to the
printed form of the deed before the typewritten "Gloria Ocampo" was typed thereon. Such also confirmed the testimony of Ocampo that
she was made to sign a blank form before the typewritten parts thereof were typed.381avvphi1

Forgery is present when any writing is counterfeited by the signing of another’s name with intent to defraud.39 Here, Ocampo admitted
that she

had affixed her signature to a Deed of Real Estate Mortgage purportedly as a prefatory act to a ₱5,000,000.00 loan application. In her
direct examination,40 she testified as follows:

ATTY. TANOPO: DIRECT EXAMINATION

 Q. Mrs. Ocampo, I show you here a Deed of Real Estate Mortgage purportedly executed by you and the Land Bank of the
Philippines, which has already been marked for purposes of identification as Exhibit "6" for the defendants, and I point to you a
signature which overlapped (sic) the typewritten name Gloria Ocampo, will you inform this Honorable Court, whose signature
is that which overlaps the typewritten name Gloria Ocampo?

A. That is my signature, sir.

ATTY. TANOPO:

Q. Now, in your complaint, you claim or alleged that this mortgage is a forgery, notwithstanding the fact that you admitted that
the signature overlapped the typewritten Gloria Ocampo is your signature. Kindly inform the court why is this a forgery?

A. Because they made me sign a blank form, sir.

Q. Why were you made to sign a blank form by the bank?

A. Because that was the procedure of the bank, letting them sign blank forms for the loan.

xxxx

COURT:

Q. Madam Witness, what do you mean by blank form? It would seem that the exhibit is not blank?

A. They showed us blank instrument for us to sign before we can obtain the loan, your Honor.

Q. You mean to say in blank form, the form is not filled up although there are printed statements, is that correct?

A. Yes, sir.

Corollarily, Ocampo's signature in the Deed of Real Estate Mortgage was not forged. We agree with the CA when it held that there is
really no reason to discuss forgery.41 Notably, Ocampo and Tan failed to present any evidence to disprove the genuineness or
authenticity of their signatures.42 A perusal of the Deed of Real Estate Mortgage dated September 6, 1991 revealed the signatures of
Gloria Ocampo and Teresita Tan as well as that of Zenaida Dasig and Julita Orpiano. On the acknowledgment portion were the names
of Gloria Ocampo and Teresita Tan, alongside their respective residence certificate numbers and the places and dates of issue,
together with the name of Atty. Elmer Veloria, the notary public.

It is well settled that a document acknowledged before a notary public is a public document that enjoys the presumption of regularity. It
is a prima facie evidence of the truth of the facts stated therein and a conclusive presumption of its existence and due execution. To
overcome this presumption, there must be presented evidence that is clear and convincing. Absent such evidence, the presumption
must be upheld. In addition, one who denies the due execution of a deed where one’s signature appears has the burden of proving that
contrary to the recital in the jurat, one never appeared before the notary public and acknowledged the deed to be a voluntary act.43 We
have also held that a notarized instrument is admissible in evidence without further proof of its due execution and is conclusive as to the
truthfulness of its contents, and has in its favor the presumption of regularity.44

Ocampo denied having appeared before the notary public.45 When asked further by the RTC if she was certain, she replied that she
cannot remember if she had indeed appeared before the notary public.46 She also denied knowing Zenaida Dasig but she knew Julita
Orpiano, who, according to her, was in-charge of the loan in Land Bank.47 Contrary to Ocampo's claims, Dasig narrated that Ocampo
signed the real estate mortgage in the presence of the notary public48 because she was also present during that time.49 As Land Bank's
account officer, Dasig was tasked to evaluate loan applications and projects related thereto, for proposal as to viability and profitability,
including the renewal of credit lines for management approval. As such, she was not only vested with knowledge of banking procedures
and practices, she was also acquainted with the individuals who transact business with the Land Bank.

The real issue here is not so much on forgery, but on the fact that the Land Bank allegedly used the genuine signature of Ocampo in
order to make it appear that she had executed a real estate mortgage to secure a ₱2,000,000.00 loan. Ocampo maintained that when
she signed the blank form, she was led to believe by the Land Bank that such would be used to process her ₱5,000,000.00 loan
application. She was, therefore, surprised when she received a notice from the sheriff regarding the foreclosure of a mortgage over her
properties.

Article 1338 of the Civil Code provides:

ART. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have agreed to.
Verily, fraud refers to all kinds of deception -- whether through insidious machination, manipulation, concealment or misrepresentation --
that would lead an ordinarily prudent person into error after taking the circumstances into account.50 The deceit employed must be
serious. It must be sufficient to impress or lead an ordinarily prudent person into error, taking into account the circumstances of each
case.51

Unfortunately, Ocampo was unable to establish clearly and precisely how the Land Bank committed the alleged fraud. She failed to
convince Us that she was deceived, through misrepresentations and/or insidious actions, into signing a blank form for use as security to
her previous loan. Quite the contrary, circumstances indicate the weakness of her submissions. The Court of Appeals aptly held that:

Granting, for the sake of argument, that appellant bank did not apprise the appellees of the real nature of the real estate mortgage,
such stratagem, deceit or misrepresentations employed by defendant bank are facts constitutive of fraud which is defined in Article
1338 of the Civil Code as that insidious words or machinations of one of the contracting parties, by which the other is induced to enter
into a contract which without them, he would not have agreed to. When fraud is employed to obtain the consent of the other party to
enter into a contract, the resulting contract is merely a voidable contract, that is a valid and subsisting contract until annulled or set
aside by a competent court. It must be remembered that an action to declare a contract null and void on the ground of fraud must be
instituted within four years from the date of discovery of fraud. In this case, it is presumed that the appellees must have discovered the
alleged fraud since 1991 at the time when the real estate mortgage was registered with the Register of Deeds of Lingayen,
Pangasinan. The appellees cannot now feign ignorance about the execution of the real estate mortgage.52

In fine, We hold that the Deed of Real Estate Mortgage was valid.

Anent the second issue, We also resolve the same against Ocampo and Tan and, consequently, hold that the loan obligation was not
yet extinguished.

Ocampo claimed that she had already paid the quedan loan when she assigned parcels of land covered by three (3) transfer
certificates of title in favor of Quedancor, as evidenced by the Deed of Absolute Assignment,53 to wit:

WHEREAS, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the total sum of NINE MILLION NINE HUNDRED
NINETY-SIX THOUSAND ₱9,996,000.00 exclusive of interest charges.

WHEREAS, the ASSIGNOR, in full settlement thereof has voluntarily offered to assign and convey certain properties belonging to her
and the ASSIGNEE indicated his willingness to accept the same;

NOW, THEREFORE, for and in consideration of the sum of NINE MILLION NINE HUNDRED NINETY-SIX THOUSAND representing
the total obligation owing to the ASSIGNEE by the ASSIGNOR does hereby sede (sic), assign, transfer and convey in a manner
absolute and irrevocable in favor of the said ASSIGNEE the following property/ies free and clear of all liens and encumbrances, x x x

The essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of
the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness, in
case of default of payment.54 In the case before Us, the loan amount was established. It was also admitted that 80% was guaranteed by
Quedancor, while the remaining 20%, by the Deed of Real Estate Mortgage. Finally, the records show that Ocampo and Tan obtained
the loan from the Land Bank and it was the latter which released the loan proceeds.

We cannot countenance Ocampo's actions in order to justify her alleged full payment of the quedan loan. The loan was between her
and the Land Bank; yet, she did not include the latter as party to the Deed of Absolute Assignment, for the following reasons: that it was
Quedancor which collected from her and that, once, when she went to the Land Bank to pay her loan, the person she approached
merely smiled at her.55 Her justifications were flimsy and incredulous. Moreover, there are other evidence on record which she chose to
ignore, showing her indebtedness to the Land Bank, and not to Quedancor, to wit: (1) she delivered the TDs on her properties as well
as the survey plan to the Land Bank; (2) the mortgage was annotated on TD Nos. 6958 and 6959, and subsequently, on TD 317-A; (3)
the Land Bank registered the mortgage with the Register of Deeds of Lingayen, Pangasinan; (4) she used TD No. 317-A in her
application for the registration of her properties before the cadastral court; (5) the Land Bank even filed a motion in the land registration
case so that the mortgage will be considered and noted as encumbrance on the properties; and (6) she paid Land Bank, by way of
debit advices, in the amount of ₱100,000.00.

All the above circumstances, notwithstanding, Ocampo hastily executed the Deed of Absolute Assignment and conveyed some of her
properties to Quedancor without prior notice to the Land Bank.

In the case of Vda. De Jayme v. Court of Appeals,56 We held that dacion en pago is the delivery and transmission of ownership of a
thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. Thus, it is a special mode of payment
where the debtor offers another thing to the creditor, who accepts it as equivalent of payment of an outstanding debt, which
undertaking, in one sense, amounts to a sale. As such, the essential elements are consent, object certain, and cause or consideration.
In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as
an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is
considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of
totally extinguishing the debt or obligation.
The requisite consent is not present in this case, for as explained by the Court of Appeals:

x x x True, the plaintiffs-appellees executed a Deed of Assignment. But what does the said deed guarantee? The Deed of Assignment
referred to was entered into between Quedan [Guarantee] Fund Board and the plaintiffs-appellees. The appellant creditor bank,
however, had no participation, or much less, consented to the execution of the said deed of assignment. Hence, the deed of
assignment cannot have the valid effect of extinguishing the real estate mortgage or much less the quedan loan insofar as the creditor
bank is concerned. Basic is the rule that in order to have a valid payment, the payment shall be made to the person in whose favor the
obligation is constituted, or his successor-in-interest, or any person authorized to receive it. Why then did the plaintiff Gloria Ocampo
assigned (sic) her properties to a guarantor and not directly to the creditor bank? The pre-trial order will readily disclose that the
Quedan [Guarantee] Fund Board is a mere guarantor or surety of 80% of the quedan loan. Thus, even if the deed of assignment has
the effect of a valid payment, we may reasonably conclude that the extinguishment is only up to the extent of 80% of the quedan loan.
Thus, it leaves the balance of 20% of the quedan loan which can be fully satisfied by the foreclosure of the real estate mortgage.57

In a civil case, the burden of proof is on the plaintiff to establish his case through a preponderance of evidence. If he claims a right
granted or created by law, he must prove his claim by competent evidence.58 After considering the evidence presented by the parties,
as well as their arguments in their respective pleadings, We hold that petitioners Ocampo and Tan failed to sufficiently establish their
cause of action. Consequently, their complaint should have been dismissed by the RTC.

One more thing. Ocampo is a businesswoman and she had testified that she had availed of loans from other banks. The amount
involved was not a measly amount. Verily, she is expected to be acquainted with the banking procedures as regards to loan
applications. With this premise, she ought to have read the terms and conditions of the document that she was signing, especially so
when, as claimed by her, there were still blank spaces at that time when she affixed her signature thereon. Finally, We believe that she
must also be familiar with the manner by which the loans should be paid and settled; yet, that was not what happened here. The Court
has always maintained its impartiality as early as in the case of Vales v. Villa,59 and has warned litigants that:

x x x The law furnishes no protection to the inferior simply because he is inferior any more than it protects the strong because he is
strong. The law furnishes protection to both alike – to one no more or less than the other. It makes no distinction between the wise and
the foolish, the great and the small, the strong and the weak. The foolish may lose all they have to the wise; but that does not mean that
the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him
from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. x x x60

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated July 21, 2004 in CA-G.R. CV No. 77683 is
hereby AFFIRMED. Costs against the petitioners.

SO ORDERED.
 25. G.R. No. 153134             June 27, 2006

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Petitioner,

vs.
ANTONIO G. DIAZ and ELSIE B. DIAZ, Respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is the Petition for Review on Certiorari filed by Banco Filipino Savings and Mortgage Bank of the Decision1 dated
November 12, 2001 of the Court of Appeals (CA) in CA-G.R. SP No. 64475 allowing respondents spouses Antonio and Elsie Diaz to
withdraw their deposit on consignation in the amount of P1,034,600.002 held by the Regional Trial Court (RTC) of Makati City, Branch
61. The assailed decision reversed and set aside the orders of the said lower court which had denied the respondents' motion to
withdraw deposit. Likewise assailed is the Resolution of April 12, 2002 of the appellate court denying the reconsideration of the assailed
decision.

The present case is an offshoot of the CA Decision3 of October 31, 1990 in CA-G.R. SP No. 21089 and Decision4 of November 14,
1997 in CA-G.R. CV No. 42899, both of which had already become final and executory. As culled therefrom and from the pleadings
filed by the parties in the present case, the factual and procedural antecedents are as follows:

On March 8, 1979, spouses Antonio and Elsie Diaz (the respondents) secured a loan from Banco Filipino Savings and Mortgage Bank
(petitioner bank) in the amount of P400,000.00 bearing an interest rate of 16% per annum. In November 1982, the said loan was
restructured or consolidated in the increased amount of P3,163,000.00 payable within a period of 20 years at an interest rate of 21%
per annum. The obligation was to be paid in equal monthly amortization of P56,227.00, and secured by a real estate mortgage over two
commercial lots situated at Bolton and Bonifacio Streets in Davao City. As additional collateral, the respondents assigned the rentals on
the mortgaged properties in favor of petitioner bank.

Despite repeated demands made on them, the respondents defaulted in the payment of their obligation beginning October 1986.
Before petitioner bank could institute the proceedings to foreclose on the mortgaged properties, the respondents filed with the RTC of
Davao City a complaint for "Declaration of Interest Rates and Penalty Charges as Unconscionable and Its Reduction, Reformation of
Contract, Annulment of Assignment of Rentals, Damages and Attorney's Fees with Injunction," docketed as Civil Case No. 17840. The
RTC of Davao City (Branch 12) denied the application for the issuance of a writ of preliminary injunction. It held that, by respondent
Antonio Diaz' own admission, the respondents had been remiss in paying the amortization as agreed upon in the contract; hence, the
conditions in the real estate mortgage contract had been violated. As such, petitioner bank could rightfully foreclose the mortgaged
properties. On appeal by the respondent spouses, the CA, in its Decision of October 31, 1990 in CA-G.R. SP No. 21089, affirmed the
said Order of the RTC of Davao City.

Thereafter, the respondents filed another complaint with the RTC of Makati City for "Consignation and Declaration of Cancellation of
Obligation, with Prayer for Issuance of a Preliminary Injunction and Temporary Restraining Order." The case was docketed as Civil
Case No. 91-3090, and raffled to Branch 61 of the said RTC. For failure to file its answer, petitioner bank was declared in default. In
addition to the facts established in the previous case, the RTC of Makati City, based on the ex parte evidence of the respondents, made
the finding that during the period of January 3, 1983 and January 25, 1985, when petitioner bank was ordered closed by the Central
Bank, the respondents paid a total amount of P1,311,308.48. Further, as of January 25, 1985, the respondents' total obligation
amounted to P3,391,501.99. The respondents made additional payments from February 11, 1985 until September 1991 amounting
to P2,356,910.00. If these additional payments were to be applied to the principal, the remaining balance would only be P1,034,600.00
as of September 16, 1991. The respondents tried to settle their account by tendering the sum of P1,034,600.00 as full payment of their
loan obligation. However, petitioner bank, through its then Liquidator Ricardo P. Lirio, refused to accept the said amount. According to
petitioner bank, the respondents' obligation at that time amounted to P10,160,649.13.

The respondents then deposited by way of consignation with the RTC of Makati City, a manager's check dated December 5, 1991, in
the amount of P1,034,600.00 as full payment of their loan obligation. Petitioner bank was duly informed of such consignation.

In its Decision dated March 6, 1992, the RTC of Makati City ruled that the respondents' total obligation to petitioner bank amounted only
to P1,034,600.00 exclusive of interests, and the latter could not charge and/or collect any interest during the time that it was closed by
the Central Bank as, in fact, banks that were ordered closed by the Central Bank ceased to be liable for the payment of interests on
deposits. It also considered the deposited check as consignation of the respondents' entire debt and that there was a valid
consignation. Accordingly, the respondents' obligation to petitioner bank was declared as fully paid and/or cancelled.

On appeal by petitioner bank, the CA, in its Decision dated November 14, 1997 in CA-G.R. CV No. 42899, reversed and set aside the
decision of the RTC of Makati City. On the procedural aspect, the CA found that the lower court erred in denying petitioner bank's
motion to lift order of default. Regarding the substantive issue, the CA held that the lower court likewise erroneously declared that
petitioner bank, during the time that it was ordered closed by the Central Bank, could not charge or collect interests on the respondents'
loan obligation. Citing the principle of unjust enrichment, the CA posited that it was with more reason that distressed banks, like
petitioner bank, should be allowed to collect interests on the loans that they had extended to their borrowers. According to the CA, the
fact that distressed banks were freed from the obligation to pay any interest due on deposits when they were closed and ordered to
stop operations did not mean that their borrowers were similarly freed from their contractual obligation to pay interests. It distinguished
the contracts between the banks and their depositors from those between the banks and their borrowers.

The CA declared that the deposited amount of P1,034,600.00 failed to effect a valid consignation in law because it did not include all
interests due. It ratiocinated that for a valid consignation to exist, the tender of the principal must be accompanied with the tender of
interests which had accrued; otherwise, the said tender would not be effective. The CA then reversed and set aside the decision of the
RTC of Makati City and entered a new one dismissing Civil Case No. 91-3090.

The subsequent facts pertain to the case now before the Court:

Upon finality of the decision of the CA in CA-G.R. CV No. 42899, declaring that there was no valid consignation and dismissing Civil
Case No. 91-3090, the respondents filed with the RTC of Makati City a motion to withdraw deposit. They averred therein that with the
finality of the CA decision dismissing their complaint, they are now withdrawing the amount of P1,034,600.00 which they had deposited
by way of consignation with the said lower court. In addition, they alleged that their loan obligation was eventually settled with the
payment of the amount of P25,000,000.00 through negotiations made with petitioner bank by the brothers James and Francisco
Gaisano as attorneys-in-fact of the respondents. Upon such payment, Corazon L. Costan, petitioner bank's 2nd Assistant Vice-
President and Davao Main Branch Manager, issued on February 10, 1999 the Cancellation of the Real Estate Mortgage over the
respondents' commercial lots. According to the respondents, there was no longer any obstacle to the immediate release of their
deposit. They prayed that they be allowed to withdraw the money which they deposited on consignation with the said court (RTC of
Makati City).

Petitioner bank opposed the respondents' motion. It alleged that as of December 31, 1998, the respondents' loan obligation stood
at P28,810,330.51. Petitioner bank asserted that the deposit in question should be released to it as part of the full payment of the
respondents' obligation. It maintained that it accepted the said consignation; hence, the respondents could no longer withdraw the said
amount.

Petitioner bank refuted the respondents' claim that there was already full payment of their obligation with the payment by the Gaisanos
of P25,000,000.00. Petitioner bank stated that it negotiated with the Gaisanos on January 7, 1999 and the sum agreed thereon was
allegedly for the payment of the respondents' obligation as of December 31, 1998 which amounted to P28,810,330.51. Petitioner bank
added that during this negotiation, it took into account and deducted from the said total obligation the amounts of P1,462,901.00,
representing the payments made by the respondents in 1990 and 1991, and P1,034,600.00, representing the deposit made by the
respondents with the RTC of Makati City. The net obligation of the respondents after deducting these amounts stood at P26,312,828.52
and it was this amount that petitioner bank agreed to be settled with the payment by the Gaisanos of P25,100,000.00,
not P25,000,000.00 as alleged by the respondents.

Petitioner bank accused the respondents of being in bad faith in that while its negotiation with the Gaisanos had not yet been finalized,
the respondents sought to withdraw the deposit in question - which was part of the consideration that induced petitioner bank to agree
to settle the respondents' obligation with the payment by the Gaisanos of P25,100,000.00 Petitioner bank prayed that the deposit in
question be released to it in order that it could be applied to the respondents' total loan obligation.

After consideration of the parties' respective arguments, the RTC of Makati City issued the Order dated July 31, 2000 stating as follows:

Acting on the Motion to Withdraw Deposit mailed by plaintiff[s], [the respondents herein] on 26 January 1999 in Davao City with
Opposition thereto filed by defendant Banco Filipino Savings and Mortgage Bank on 08 February 1999.

It appears on record that the Complaint for Consignation filed by the plaintiff[s] before this Court, dated 13 December 1991 and was
dismissed by the Court of Appeals on 14 November 1997 which found that the deposited amount of P1,034,600.00 did not include the
interest due and was not in full satisfaction of the defendant's claim and there was no valid tender of payment and consignation.

The dismissal of the complaint for Consignation by the Appellate Court did not absolve the obligation of plaintiff to apply the
consignation to the outstanding obligation to the defendant and thus, the deposited amount may still be applied for payment of the
obligation after due hearing on the deficiency claim of the defendant against the plaintiff.

WHEREFORE, in view of the foregoing, the MOTION TO WITHDRAW DEPOSIT is hereby DENIED for lack of merit.

SO ORDERED.5

The respondents sought the reconsideration thereof but the RTC of Makati City denied their motion in its Order dated December 14,
2000. They then filed with the CA a Petition for Certiorari alleging grave abuse of discretion on the part of the presiding judge6 of the
said lower court in promulgating the orders denying their motion to withdraw deposit.

Acting on the said petition, the CA rendered the Decision dated November 12, 2001 in CA-G.R. SP No. 64475 reversing and setting
aside the Orders dated July 31, 2000 and December 14, 2000 of the RTC of Makati City. It declared that the respondents had the
statutory unilateral right to withdraw their deposit by way of consignation because there was no acceptance of the same by petitioner
bank. On this point, the CA relied on Article 1260 of the Civil Code which provides, in part, that "[b]efore the creditor has accepted the
consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or sum
deposited, allowing the obligation to remain in force."

The CA stressed that petitioner bank had not "performed any prior unmistakable and deliberate act denominating a preemptive
acceptance of the deposit in partial settlement of the loan obligation."7 The claim of "acceptance" was found to be an afterthought on
the part of petitioner bank and proffered for the sole purpose of opposing the respondents' motion to withdraw deposit.

Even assuming that there was acceptance by petitioner bank, the CA opined that such acceptance must retroact to December 5, 1991
when the deposit was judicially made. In such a case, petitioner bank's computation of the respondents' outstanding loan obligation
would have to be modified and reduced accordingly because the interest rate of 21% would then have to be applied to the reduced loan
balance as of December 5, 1991.

The CA strongly condemned the fact that the respondents' original loan of P400,000.00 in 1972 ballooned to P28,810,330.51 as of
December 31, 1998 based on petitioner bank's statement of account. The principal amount plus interests, surcharges, insurance
premiums, sheriff's and attorney's fees, notarization fees, etc., all added up to the respondents' outstanding balance. According to the
CA, the surcharges for missed monthly payments that petitioner bank charged the respondents amounted to twice as much as the 21%
interest rate, resulting in an effective interest rate of more than 60% per annum. Citing Medel v. Court of Appeals,8 this rate was
characterized by the CA as "excessive, iniquitous, unconscionable and exorbitant" and likened petitioner bank to Shylock, the
moneylender in William Shakespeare's The Merchant of Venice, who asked for a literal pound of flesh as payment for the money he
lent.

The CA found as credible the respondents' claim that, on their behalf, the Gaisanos had secured a compromise agreement with
petitioner bank with the payment of P25,100,000.00 and, consequently, the mortgage over the respondents' commercial lots was
cancelled. Further, the auction sale of these properties which was scheduled on January 27, 1999 was cancelled by petitioner bank
itself in its letter to the Sheriff.

The dispositive portion of the assailed decision of the CA reads:

WHEREFORE, the foregoing premises considered, the petitioners' [the respondents herein] petition for certiorari is GRANTED. The
Orders dated July 31, 2000 and December 14, 2000 of the public court in Civil Case No. 91-3090 are REVERSED and SET ASIDE,
and another one entered allowing the withdrawal by the petitioners of their deposit of P1,034,600.00 held in custodia legis with said
court. No costs.

SO ORDERED.9

Petitioner bank sought the reconsideration of the said decision but the CA, in its Resolution dated April 12, 2002, denied its motion.
Hence, petitioner bank's recourse to the Court.

The basic contention of petitioner bank is that the CA erred in reversing the Orders dated July 31, 2000 and December 14, 2000 of the
RTC
of Makati City which had denied the respondents' motion to withdraw deposit. Petitioner bank posits that the said lower court did not
commit grave abuse of discretion in issuing the said orders because, as stated in the CA Decision of November 14, 1997 in CA-G.R.
CV No. 42899, there was no valid consignation since the amount tendered (P1,034,600.00) by the respondents did not include the
interests that accrued on the principal and, therefore, was not in full settlement of their outstanding obligation. Petitioner bank maintains
that the dismissal of the respondents' complaint for consignation in Civil Case No. 91-3090 did not discharge their obligation to
petitioner bank. Hence, the deposited amount may still be applied to the payment of such obligation.

Petitioner bank claims that it accepted the respondents' deposit on consignation as partial payment of their obligation after the CA had
declared the same to have been improperly made and ineffective to discharge the respondents of their obligation to petitioner bank.
The RTC of Makati City thus did not allegedly commit grave abuse of discretion in holding that the deposited amount of P1,034,600.00
may still be applied to the payment of their outstanding obligation of P28,810,330.51 as of December 31, 1998.

It is likewise petitioner bank's view that respondents erroneously resorted to the remedy of certiorari in assailing the orders of the RTC
of Makati City. By filing their motion to withdraw deposit with the said lower court, the respondents allegedly recognized its jurisdiction
and assuming arguendo that it committed an error in the exercise thereof, the appropriate remedy to correct the same was by ordinary
appeal, not certiorari.

Petitioner bank emphasizes that it already accepted the deposit of P1,034,600.00 such that it could no longer be withdrawn by the
respondents. It reiterated that as of December 31, 1998, the respondents' total obligation was P28,810,330.51 and when it negotiated
with the Gaisanos in January 1999, it deducted therefrom the sums of P1,462,901.00, representing previous payments of the
respondents, and P1,034,600.00, representing the deposit in question. After these deductions, the respondents' net obligation stood
at P26,312,828.52, and it was this amount that petitioner bank agreed to be settled with the payment of P25,100,000.00 by the
Gaisanos. This allegedly showed its acceptance of the deposit in question as it was part of the consideration for the settlement of the
respondents' obligation of P28,810,330.51.

Petitioner bank strongly takes exception to the portion of the assailed CA decision comparing it to Shylock and characterizing the
surcharges and interests as "excessive, iniquitous, unconscionable and exorbitant." It faults the respondents for being remiss in paying
their amortization. Had they been religious in paying the same, then their obligation would not have reached the amount of
over P28,000,000.00. Petitioner bank denies that it delayed the foreclosure of the respondents' mortgaged properties in order to allow
the loan arrearages to accumulate. Rather, the delay was allegedly the respondents' doing as they filed with the RTC of Davao City a
complaint to enjoin the said foreclosure. Moreover, petitioner bank points out that in several cases,10 the Court recognized that interests
and surcharges are two entirely different things that may be simultaneously collected in connection with loan agreements.

Petitioner bank, thus, prays for the reversal of the Decision dated November 12, 2001 and Resolution dated April 12, 2002 of the
appellate court allowing the respondents to withdraw their deposit on consignation of P1,034,600.00 held by the RTC of Makati City.

The petition is denied.

The Court shall first address the procedural issue on the propriety of respondents' filing with the CA of a petition for certiorari in
assailing the Orders of the RTC of Makati City denying their motion to withdraw deposit. Petitioner bank submits that such tack was
erroneous, as they should have filed an appeal. Petitioner bank's submission is not correct.

A special civil action for certiorari may be instituted when any tribunal, board or officer, exercising judicial or quasi-judicial functions, has
acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, nor any plain, speedy and adequate remedy in the ordinary course of law.11 To recall, in the present case, the RTC of Makati
City had already rendered its original judgment in Civil Case No 91-3090 and the same was appealed to the CA. Acting on the appeal,
the CA reversed the judgment of the RTC of Makati City and dismissed the respondents' complaint for consignation. The CA decision
became final and executory. Subsequently, the respondents filed the motion to withdraw deposit with the RTC of Makati City and which
the latter denied in the Orders of July 31, 2000 and December 14, 2000. These orders, issued after the original judgment had already
been rendered, were interlocutory and, therefore, not appealable. Since no appeal was available against such orders, the respondents
properly availed of the remedy of certiorari before the CA.

On the other hand, the only substantive issue for the Court's resolution is whether the appellate court erred in reversing the Orders
dated July 31, 2000 and December 14, 2000 of the RTC of Makati City which denied the respondents' motion to withdraw deposit and,
consequently, allowing them to withdraw their deposit of P1,034,600.00 held on consignation by the said lower court.

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses
to accept payment and it generally requires a prior tender of payment.12 In order that consignation may be effective, the debtor must
show that: (1) there was a debt due; (2) the consignation of the obligation had been made because the creditor to whom tender of
payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled
to receive the amount due or because the title to the obligation has been lost; (3) previous notice of the consignation had been given to
the person interested in the performance of the obligation; (4) the amount due was placed at the disposal of the court; and (5) after the
consignation had been made, the person interested was notified thereof.13 As earlier mentioned, the CA, in its Decision of November
14, 1997 in CA-G.R. CV No. 42899, ruled that there was no valid consignation because the amount tendered as payment was
insufficient. In other words, the element of a valid tender of payment was not satisfied. This decision became final and executory.

The issue that now confronts the Court relates to the right of the respondents to withdraw the amount deposited with the RTC of Makati
City. Article 1260 of the Civil Code of the Philippines pertinently provides:

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial confirmation that the consignation has been properly made, the
debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force.

This provision has been explained in this wise:

x x x The right of the debtor to withdraw the thing or amount deposited in court, depends upon whether or not the consignation has
already been accepted or judicially declared proper. Before that time, the debtor is still the owner, and he may withdraw it; in this case,
the obligation will remain in full force as before the deposit. But once the consignation has been accepted by the creditor or judicially
declared as properly made, the debtor loses his right over the thing or amount deposited, and he cannot withdraw the same without the
consent of the creditor; if the creditor consents to the withdrawal in such case, the obligation is revived as against the debtor personally,
but all rights of preference of the creditor over the thing and all his actions against co-debtors, guarantors and sureties are
extinguished.

xxxx
x x x We believe, however, that the contrary view is more acceptable. Before the consignation has been accepted by the creditor or
judicially declared as properly made, the debtor is still the owner of the thing or amount deposited, and, therefore, the other parties
liable for the obligation have no right to oppose his withdrawal of such thing or amount. The debtor merely uses his right, and unless the
law expressly limits that use of his right, it cannot be prevented by the objections of anyone. Our law grants to the debtor the right to
withdraw, without any limitation, and we should not read a non-existing limitation into the law. Although the other parties liable for the
obligation would have been benefited if the consignation had been allowed to become effective, before that moment they have not
acquired such an interest as would give them a right to oppose the exercise of the right of the debtor to withdraw the consignation.

Before the consignation has been judicially declared proper, the creditor may prevent the withdrawal by the debtor, by accepting the
consignation, even with reservations. Thus, when the amount consigned does not cover the entire obligation, the creditor may accept it,
reserving his right to the balance. x x x14

Thus, under Article 1260 of the Civil Code, the debtor may withdraw, as a matter of right, the thing or amount deposited on consignation
in the following instances:

(1) Before the creditor has accepted the consignation; or

(2) Before a judicial declaration that the consignation has been properly made.

Obviously, in this case, there was no judicial declaration that the consignation had been properly made. On the contrary, the CA
declared that there was no valid consignation. What remains to be determined then is whether petitioner bank had already accepted the
deposit in question so as to prevent the respondents from exercising their right to withdraw the same.

Petitioner bank insists that it had already done so. In fact, petitioner bank avers, it took into account and deducted the deposit in
question from the respondents' outstanding obligation of P28,810,330.51 as of December 31, 1998 when it negotiated with the
Gaisanos. Deducting the deposit in question as well as the payments made by the respondents during the period of 1990 and 1991,
their net obligation stood at P26,312,828.52. It was this amount that petitioner bank allegedly agreed to be settled with the payment
of P25,100,000.00 by the Gaisanos on behalf of the respondents.

To prove this claim, petitioner bank relies on the statement of account15 prepared by its employees purportedly showing that the deposit
in question was deducted from the respondents' outstanding obligation as of December 31, 1998. This statement of account, however,
is self-serving and has no probative value especially considering that the persons who prepared the same were not presented in court.
Thus, other than its bare allegation, petitioner bank has failed to establish by convincing evidence that it had made such acceptance of
the deposit in question prior to the respondents' filing of their motion to withdraw deposit as to effectively prevent them from withdrawing
the sum of P1,034,600.00 held by the RTC of Makati City.

On the other hand, in the assailed decision, the CA categorically made the finding that petitioner bank made no acceptance of the
deposit in question, even if only as partial payment of the respondents' outstanding obligation:

Nor could it be successfully argued with any modicum of persuasion, x x x, that the bank had performed any prior unmistakable and
deliberate act denominating a preemptive acceptance of the deposit in partial settlement of the loan obligation. Otherwise, it would not
have waited until the petitioners [the respondents herein] filed their motion to withdraw more than a year after this Court's aforecited
decision. The claimed "acceptance" was obviously an afterthought, and proffered for the sole purpose of opposing the deposit
withdrawal.16

This finding of fact of the CA that petitioner bank had not accepted the deposit in question, even with reservation, is accorded respect
by this Court following the salutary rule that findings of facts of the appellate court are generally conclusive on the Supreme Court.17 It is
significant to note that the RTC of Makati City never made any factual finding on whether or not there had been acceptance of the
deposit in question by petitioner bank.18 The said lower court did not even apply Article 1260 of the Civil Code when it denied the
respondents' motion to withdraw deposit.

With the finding that petitioner bank had not made any prior acceptance of the deposit in question, the CA accordingly did not commit
reversible error in setting aside the Orders of the RTC of Makati City which had denied the respondents' motion to withdraw deposit.
Indeed, absent this prior acceptance by petitioner bank or a judicial declaration that the consignation had been properly made, the
respondents remain the owners of the sum of P1,034,600.00 deposited with the RTC of Makati City. When they filed their motion to
withdraw the deposit, they did so in the exercise of their right.

At this point, it bears mentioning that it is not disputed that the Gaisano brothers, as attorneys-in-fact of the respondents, eventually
paid to petitioner bank some time in January 1999 the sum of P25,100,000.00 as settlement of the respondents' obligation. To the
Court's mind, the payment of the said sum already constituted substantial compliance by the respondents of their obligation considering
that their loan, as restructured or consolidated in November 1982, amounted to only P3,163,000.00.

As noted by the CA, the surcharges imposed by petitioner bank on the respondents as of November 15, 1998
reached P16,569,534.62.19 Article 122920 of the Civil Code specifically empowers the judge to reduce the civil penalty equitably, when
the principal obligation has been partly or irregularly complied with. Upon this premise, the Court holds that the said surcharges should
be equitably reduced such that the payment of P25,100,000.00 constituted substantial compliance by the respondents of their
obligation to petitioner bank.

The Court need not delve on the other issues raised, particularly relating to the interests imposed by petitioner bank in connection with
the respondents' loan, as these were already passed upon in the other cases (CA-G.R. SP No. 21089 and CA-G.R. CV No. 42899)
involving the same parties.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated November 12, 2001 and Resolution of April 12, 2002
of the Court of Appeals in CA-G.R. SP No. 64475 are AFFIRMED.

SO ORDERED.
 26. G.R. No. 172577               January 19, 2011

SOLEDAD DALTON,
vs.
Petitioner, FGR REALTY AND DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and FLORA R. DAYRIT or FLORA
REGNER, Respondents.

RESOLUTION

CARPIO, J.:

The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 9 November 2005
Decision2 and 10 April 2006 Resolution3 of the Court of Appeals in CA-G.R. CV No. 76536. The Court of Appeals affirmed the 26
February 2002 Decision4 of the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in Civil Case No. CEB 4218.

The Facts

Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez Street in Cebu
City. Petitioner Soledad Dalton (Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta Fuentes, Perla Pormento,
Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro Quebedo, Mary Cabanlit, Marciana Encabo and Dolores
Lim (Sasam, et al.) leased portions of the property.

In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985, Dayrit and
FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam, et al.

In a complaint5 dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They failed to notify
Dayrit and FGR about the consignation. In motions dated 27 March 1987,6 10 November 1987,7 8 July 1988,8 and 28 November
1994,9 Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved the right to question the validity of the
consignation.

Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 199710 and 20 June 1997.11 In the compromise
agreements, they agreed to abandon all claims against each other. Dalton did not enter into a compromise agreement with Dayrit and
FGR.

The RTC’s Ruling

In its 26 February 2002 Decision, the RTC dismissed the 11 September 1985 complaint and ordered Dalton to vacate the property. The
RTC held that:

Soledad Dalton built a house which she initially used as a dwelling and store space. She vacated the premises when her children got
married. She transferred her residence near F. Ramos Public Market, Cebu City.

She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last monthly rental was ₱69.00. When defendants
refused to accept rental and demanded vacation of the premises, she consignated [sic] her monthly rentals in court.

xxxx

It is very clear from the facts that there was no valid consignation made.

The requisites of consignation are as follows:

1. The existence of a valid debt.

2. Valid prior tender, unless tender is excuse [sic];

3. Prior notice of consignation (before deposit)

4. Actual consignation (deposit);

 5. Subsequent notice of consignation;

Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there were no prior notices of consignation (before
deposit) and subsequent notices of consignation (after deposit)

Besides, the last deposit was made on December 21, 1988. At the time Dalton testified on December 22, 1999, she did not present
evidence of payment in 1999. She had not, therefore, religiously paid her monthly obligation.

By clear preponderance of evidence, defendants have established that plaintiff was no longer residing at Eskina Banawa at the time
she testified in court. She vacated her house and converted it into a store or business establishment. This is buttressed by the
testimony of Rogelio Capacio, the court’s appointed commissioner, who submitted a report, the full text of which reads as follows:

REPORT AND/OR OBSERVATION

"The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion of the road which is about fifty-five (55) meters
from the corner of Banawa-Guadalupe Streets, when turning right heading towards the direction of Guadalupe Church, if travelling from
the Capitol Building.

I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton with the use of a key opened the lock of a closed
door. She claimed that it was a part of the dwelling which she occupies and was utilized as a store. There were few saleable items
inside said space."

Soledad Dalton did not take exception to the said report.

Two witnesses who were former sub-lessees testified and clearly established that Mrs. Dalton use the house for business purposes and
not for dwelling.12

Dalton appealed to the Court of Appeals.

The Court of Appeals’ Ruling

In its 9 November 2005 Decision, the Court of Appeals affirmed the RTC’s 26 February 2002 Decision. The Court of Appeals held that:

After a careful review of the facts and evidence in this case, we find no basis for overturning the decision of the lower court dismissing
plaintiffs-appellants’ complaint, as we find that no valid consignation was made by the plaintiff-appellant.

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses
to accept payment and generally requires a prior tender of payment. In order that consignation may be effective, the debtor must show
that: (1) there was a debt due; (2) the consignation of the obligation had been made because the creditor to whom tender of payment
was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to
receive the amount due or because the title to the obligation has been lost; (3) previous notice of the consignation had been given to
the person interested in the performance of the obligation; (4) the amount due was placed at the disposal of the court; and (5) after the
consignation had been made the person interested was notified thereof. Failure in any of these requirements is enough ground to
render a consignation ineffective.

Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment and the
announcement of the consignation shall be proved. All interested parties are to be notified of the consignation. It had been consistently
held that compliance with these requisites is mandatory.

No error, therefore, can be attributed to the lower court when it held that the consignation made by the plaintiff-appellant was invalid for
failure to meet requisites 3 and 5 of a valid consignation (i.e., previous notice of the consignation given to the person interested in the
performance of the obligation and, after the consignation had been made, the person interested was notified thereof).

Plaintiff-appellant failed to notify defendants-appellees of her intention to consign the amount due to them as rentals. She, however,
justifies such failure by claiming that there had been substantial compliance with the said requirement of notice upon the service of the
complaint on the defendants-appellees together with the summons.

We do not agree with such contention.

The prevailing rule is that substantial compliance with the requisites of a valid consignation is not enough. In Licuanan vs. Diaz,
reiterating the ruling in Soco vs. Militante, the Supreme Court had the occasion to rule thus:
"In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167 [1983]), this Court ruled that the codal
provisions of the Civil Code dealing with consignation (Articles 1252-1261) should be accorded mandatory construction —

We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must be complied with fully
and strictly in accordance with the law. Articles 1256-1261, New Civil Code. That these Articles must be accorded a mandatory
construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance
with the essential requisites therein provided. Substantial compliance is not enough for that would render only directory construction of
the law. The use of the words "shall" and "must [sic] which are imperative, operating to impose a duty which may be enforced, positively
indicated that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly
direct what must be essentially done in order that consignation shall be valid and effectual..."

Clearly then, no valid consignation was made by the plaintiff-appellant for she did not give notice to the defendants-appellees of her
intention to so consign her rental payments. Without any announcement of the intention to resort to consignation first having been
made to persons interested in the fulfillment of the obligation, the consignation as a means of payment is void.

As to the other issues raised by the plaintiff-appellant in her second and third assigned errors, we hold that the ruling of the lower court
on such issues is supported by the evidence adduced in this case.

That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that she is using the same for business purposes,
not as dwelling place, is amply supported by the testimony of two of plaintiff-appellant’s sub-lessees. The Commissioner’s Report
submitted by Rogelio Capacio, who was commissioned by the lower court to conduct an ocular inspection of the leased premises,
further lends support to the lower court’s findings. On the other hand, plaintiff-appellant only has her self-serving claims that she is
residing at the leased premises in Eskina Banawa to prove her continued use of the leased premises as dwelling place.

There is thus no merit to plaintiff-appellant’s fourth assigned error. The lower court acted within its authority in ordering the plaintiff-
appellant to vacate the leased premises. The evidence shows that plaintiff-appellant had failed to continuously pay the rentals due to
the defendants-appellees. It was therefore within the powers of the lower court to grant such other relief and remedies equitable under
the circumstances.

In sum, there having been no valid consignation and with the plaintiff-appellant having failed to pay the rentals due to the defendants-
appellees, no error can be attributed to the lower court in rendering its assailed decision.13

Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling that (1) the consignation was void, and (2)
Dalton failed to pay rent.

The Court’s Ruling

The petition is unmeritorious.

Dalton claims that, "the issue as to whether the consignation made by the petitioner is valid or not for lack of notice has already been
rendered moot and academic with the withdrawal by the private respondents of the amounts consigned and deposited by the petitioner
as rental of the subject premises."14

The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to question the
validity of the consignation. In Riesenbeck v. Court of Appeals,15 the Court held that:

A sensu contrario, when the creditor’s acceptance of the money consigned is conditional and with reservations, he is not
deemed to have waived the claims he reserved against his debtor. Thus, when the amount consigned does not cover the entire
obligation, the creditor may accept it, reserving his right to the balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317,
citing 3 Llerena 263). The same factual milieu obtains here because the respondent creditor accepted with reservation the amount
consigned in court by the petitioner-debtor. Therefore, the creditor is not barred from raising his other claims, as he did in his
answer with special defenses and counterclaim against petitioner-debtor.

As respondent-creditor’s acceptance of the amount consigned was with reservations, it did not completely extinguish the entire
indebtedness of the petitioner-debtor. It is apposite to note here that consignation is completed at the time the creditor accepts the
same without objections, or, if he objects, at the time the court declares that it has been validly made in accordance with
law.16 (Emphasis supplied)

Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will
render the consignation void. Substantial compliance is not enough.

In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.,17 the Court enumerated the requisites of a valid consignation: (1) a debt
due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was
absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the
person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was
placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the
consignation was made.

Articles 1257 and 1258 of the Civil Code state, respectively:

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of
payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (Emphasis supplied)

The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested
in the performance of the obligation will render the consignation void. In Ramos v. Sarao,18 the Court held that, "All interested parties
are to be notified of the consignation. Compliance with [this requisite] is mandatory."19 In Valdellon v. Tengco,20 the Court held
that:

Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it must first be announced
to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment. In said Article 1258, it is further stated that the consignation having
been made, the interested party shall also be notified thereof.21 (Emphasis supplied)

In Soco v. Militante, et al.,22 the Court held that:

We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the
law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly evident and plain
from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein
provided. Substantial compliance is not enough for that would render only a directory construction to the law. The use of the
words "shall" and "must" which are imperative, operating to impose a duty which may be enforced, positively indicate that all the
essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what
must be essentially done in order that consignation shall be valid and effectual.23 (Emphasis supplied)

Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The Court is not impressed. Section 1, Rule 45 of the
Rules of Court states that petitions for review on certiorari "shall raise only questions of law which must be distinctly set forth."
In Pagsibigan v. People,24 the Court held that:

A petition for review under Rule 45 of the Rules of Court should cover only questions of law. Questions of fact are not reviewable. A
question of law exists when the doubt centers on what the law is on a certain set of facts. A question of fact exists when the doubt
centers on the truth or falsity of the alleged facts.1avvphi1

There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence.
The issue to be resolved must be limited to determining what the law is on a certain set of facts. Once the issue invites a review of the
evidence, the question posed is one of fact.25

Whether Dalton failed to pay rent is a question of fact. It is not reviewable.

The factual findings of the lower courts are binding on the Court. The exceptions to this rule are (1) when there is grave abuse of
discretion; (2) when the findings are grounded on speculation; (3) when the inference made is manifestly mistaken; (4) when the
judgment of the Court of Appeals is based on a misapprehension of facts; (5) when the factual findings are conflicting; (6) when the
Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of the parties; (7) when the Court of
Appeals overlooked undisputed facts which, if properly considered, would justify a different conclusion; (8) when the facts set forth by
the petitioner are not disputed by the respondent; and (9) when the findings of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.26 Dalton did not show that any of these circumstances is present.

WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005 Decision and 10 April 2006 Resolution of the
Court of Appeals in CA-G.R. CV No. 76536.

SO ORDERED.
 27. G.R. No. 171298               April 15, 2013

SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,

vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.

DECISION

DEL CASTILLO, J.:

Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that consignation shall be made by depositing
the thing or things due at the disposal of judicial authority. The said provision clearly precludes consignation in venues other than the
courts.

Assailed in this Petition for Review on Certiorari1 are the September 29, 2005 Decision2 of the Court of Appeals (CA) which granted the
Petition for Certiorari in CA-G.R. SP No. 84446 and its January 12, 2006 Resolution3 denying petitioners' Motion for Reconsideration.4

Factual Antecedents

Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and Police Mutual Benefit Association, Inc. (AFPMBAI), a
mutual benefit association duly organized and existing under Philippine laws and engaged in the business of developing low-cost
housing projects for personnel of the Armed Forces of the Philippines, Philippine National Police, Bureau of Fire Protection, Bureau of
Jail Management and Penology, and Philippine Coast Guard. He filed an application with AFPMBAI to purchase a piece of property
which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, Puerto Princesa City (the property),
through a loan facility.

On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the Rural Bank of San Teodoro (the Rural
Bank) on the other, executed a Loan and Mortgage Agreement5 with the former as borrowers and the Rural Bank as lender, under the
auspices of Pag-IBIG or Home Development Mutual Fund’s Home Financing Program.

The Rural Bank issued an August 22, 1994 letter of guaranty6 informing AFPMBAI that the proceeds of petitioners’ approved loan in the
amount of ₱77,418.00 shall be released to AFPMBAI after title to the property is transferred in petitioners’ name and after the
registration and annotation of the parties’ mortgage agreement.

On the basis of the Rural Bank’s letter of guaranty, AFPMBAI executed in petitioners’ favor a Deed of Absolute Sale,7 and a new title –
Transfer Certificate of Title No. 370178 (TCT No. 37017) – was issued in their name, with the corresponding annotation of their
mortgage agreement with the Rural Bank, under Entry No. 3364.9

Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was placed under receivership by the
Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take possession of petitioners’ loan
documents and TCT No. 37017, while petitioners were unable to pay the loan/consideration for the property.

AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for the property.10

In July 2003, petitioners filed a Complaint11 for consignation of loan payment, recovery of title and cancellation of mortgage annotation
against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. The case was docketed as Civil Case No. 3812 and raffled
to Branch 47 of the Regional Trial Court (RTC) of Puerto Princesa City (Puerto Princesa RTC). Petitioners alleged in their Complaint
that as a result of the Rural Bank’s closure and PDIC’s claim that their loan papers could not be located, they were left in a quandary as
to where they should tender full payment of the loan and how to secure cancellation of the mortgage annotation on TCT No. 37017.
Petitioners prayed, thus:

a. That after the filing of this complaint an order be made allowing the consignation x x x of Php77,418.00.

b. For the court to compute and declare the amount of interest to be paid by the plaintiffs and thereafter to allow the
consignation of the interest payments in order to give way for the full discharge of the loan.

c. To order the AFPMBAI to turn over to the custody of the court the loan records and title (T.C.T. No. 37017) of the plaintiffs if
the same are in their possession.

d. To declare the full payment of the principal loan and interest and ordering the full discharge from mortgage of the property
covered by T.C.T. No. 37017.
 e. To order the Register of Deeds of Puerto Princesa City to cancel the annotation of real estate mortgage under Entry No.
3364 at the back of T.C.T. No. 37017.

f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid mortgage loan.12

AFPMBAI filed a Motion to Dismiss13 claiming that petitioners’ Complaint falls within the jurisdiction of the Housing and Land Use
Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it was filed by petitioners in their capacity as buyers of a subdivision
lot and it prays for specific performance of contractual and legal obligations decreed under Presidential Decree No. 95714 (PD 957). It
added that since no prior valid tender of payment was made by petitioners, the consignation case was fatally defective and susceptible
to dismissal.

Ruling of the Regional Trial Court

In an October 16, 2003 Order,15 the trial court denied AFPMBAI’s Motion to Dismiss, declaring that since title has been transferred in
the name of petitioners and the action involves consignation of loan payments, it possessed jurisdiction to continue with the case. It
further held that the only remaining unsettled transaction is between petitioners and PDIC as the appointed receiver of the Rural Bank.

AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in its March 19, 2004 Order.17

Ruling of the Court of Appeals

AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for Certiorari18 raising the issue of jurisdiction. On September 29,
2005, the CA rendered the assailed Decision decreeing as follows:

WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16 October 2003 and 19 March 2004 Orders of the
public respondent judge are hereby ordered VACATED and SET ASIDE.

SO ORDERED.19

The CA held that Civil Case No. 3812 is a case for specific performance of AFPMBAI’s contractual and statutory obligations as
owner/developer of Kalikasan Mutual Homes, which makes PD 957 applicable and thus places the case within the jurisdiction of the
HLURB. It said that since one of the remedies prayed for is the delivery to petitioners of TCT No. 37017, the case is cognizable
exclusively by the HLURB.

Petitioners moved for reconsideration which was denied by the CA in its January 12, 2006 Resolution.

Hence, the instant Petition.

Issue

The sole issue that must be resolved in this Petition is: Does the Complaint in Civil Case No. 3812 fall within the exclusive jurisdiction of
the HLURB?

Petitioners’ Arguments

Petitioners assert that the elements which make up a valid case for consignation are present in their Complaint. They add that since a
deed of absolute sale has been issued in their favor, and possession of the property has been surrendered to them, not to mention that
title has been placed in their name, the HLURB lost jurisdiction over their case. And for this same reason, petitioners argue that their
case may not be said to be one for specific performance of contractual and legal obligations under PD 957 as nothing more was left to
be done in order to perfect or consolidate their title.

Petitioners thus pray that the herein assailed Decision and Resolution of the CA be set aside, and that the trial court be ordered to
continue with the proceedings in Civil Case No. 3812.

Respondent's Arguments

Respondent, on the other hand, insists in its Comment20 that jurisdiction over petitioners’ case lies with the HLURB, as it springs from
their contractual relation as seller and buyer, respectively, of a subdivision lot. The prayer in petitioners’ Complaint involves the
surrender or delivery of the title after full payment of the purchase price, which respondent claims are reciprocal obligations in a sale
transaction covered by PD 957. Respondent adds that in effect, petitioners are exacting specific performance from it, which places their
case within the jurisdiction of the HLURB.
 Our Ruling

The Court grants the Petition.

The Complaint makes out a case for consignation.

The settled principle is that "the allegations of the Complaint determine the nature of the action and consequently the jurisdiction of the
courts. This rule applies whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein as this is a
matter that can be resolved only after and as a result of the trial."21

Does the Complaint in Civil Case No. 3812 make out a case for consignation? It alleges that:

6.0 – Not long after however, RBST22 closed shop and defendant Philippine Deposit Insurance Corporation (PDIC) was
appointed as its receiver. The plaintiffs, through a representative, made a verbal inquiry to the PDIC regarding the payment of
their loan but were told that it has no information or record of the said loan. This made [sic] the plaintiffs in quandary as to
where or whom they will pay their loan, which they intend to pay in full, so as to cancel the annotation of mortgage in their title.

7.0 – It was discovered that the loan papers of the plaintiffs, including the duplicate original of their title, were in the possession
of defendant AFPMBAI. It was unclear though why the said documents including the title were in the possession of AFPMBAI.
These papers should have been in RBST’s possession and given to PDIC after its closure in the latter’s capacity as receiver.

8.0 – Plaintiffs are now intending to pay in full their real estate loan but could not decide where to pay the same because of
RBST [sic] closure and PDIC’s failure to locate the loan records and title. This court’s intervention is now needed in order to
determine to [sic] where or whom the loan should be paid.

9.0 – Plaintiffs hereby respectfully prays [sic] for this court to allow the deposit of the amount of Php77,418.00 as full payment
of their principal loan, excluding interest, pursuant to the Loan and Mortgage Agreement on 4 July 1994.23

From the above allegations, it appears that the petitioners’ debt is outstanding; that the Rural Bank’s receiver, PDIC, informed
petitioners that it has no record of their loan even as it took over the affairs of the Rural Bank, which on record is the petitioners’ creditor
as per the July 4, 1994 Loan and Mortgage Agreement; that one way or another, AFPMBAI came into possession of the loan
documents as well as TCT No. 37017; that petitioners are ready to pay the loan in full; however, under the circumstances, they do not
know which of the two – the Rural Bank or AFPMBAI – should receive full payment of the purchase price, or to whom tender of
payment must validly be made.

Under Article 1256 of the Civil Code,24 the debtor shall be released from responsibility by the consignation of the thing or sum due,
without need of prior tender of payment, when the creditor is absent or unknown, or when he is incapacitated to receive the payment at
the time it is due, or when two or more persons claim the same right to collect, or when the title to the obligation has been lost. Applying
Article 1256 to the petitioners’ case as shaped by the allegations in their Complaint, the Court finds that a case for consignation has
been made out, as it now appears that there are two entities which petitioners must deal with in order to fully secure their title to the
property: 1) the Rural Bank (through PDIC), which is the apparent creditor under the July 4, 1994 Loan and Mortgage Agreement; and
2) AFPMBAI, which is currently in possession of the loan documents and the certificate of title, and the one making demands upon
petitioners to pay. Clearly, the allegations in the Complaint present a situation where the creditor is unknown, or that two or more
entities appear to possess the same right to collect from petitioners. Whatever transpired between the Rural Bank or PDIC and
AFPMBAI in respect of petitioners’ loan account, if any, such that AFPMBAI came into possession of the loan documents and TCT No.
37017, it appears that petitioners were not informed thereof, nor made privy thereto.

Indeed, the instant case presents a unique situation where the buyer, through no fault of his own, was able to obtain title to real
property in his name even before he could pay the purchase price in full. There appears to be no vitiated consent, nor is there any other
impediment to the consummation of their agreement, just as it appears that it would be to the best interests of all parties to the sale that
it be once and for all completed and terminated. For this reason, Civil Case No. 3812 should at this juncture be allowed to proceed.

Moreover, petitioners’ position is buttressed by AFPMBAI’s own admission in its Comment25 that it made oral and written demands
upon the former, which naturally aggravated their confusion as to who was their rightful creditor to whom payment should be made –
the Rural Bank or AFPMBAI. Its subsequent filing of the Motion to Dismiss runs counter to its demands to pay. If it wanted to be paid
with alacrity, then it should not have moved to dismiss Civil Case No. 3812, which was brought precisely by the petitioners in order to
be able to finally settle their obligation in full.

Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation case. They filed the case for the exact
reason that they were at a loss as to which between the two – the Rural Bank or AFPMBAI – was entitled to such a tender of payment.
Besides, as earlier stated, Article 1256 authorizes consignation alone, without need of prior tender of payment, where the ground for
consignation is that the creditor is unknown, or does not appear at the place of payment; or is incapacitated to receive the payment at
the time it is due; or when, without just cause, he refuses to give a receipt; or when two or more persons claim the same right to collect;
or when the title of the obligation has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB.

On the question of jurisdiction, petitioners’ case should be tried in the Puerto Princesa RTC, and not the HLURB. Consignation is
necessarily judicial,26 as the Civil Code itself provides that consignation shall be made by depositing the thing or things due at the
disposal of judicial authority, thus:

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of
payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (Emphasis and underscoring supplied)

The above provision clearly precludes consignation in venues other than the courts.1âwphi1 Elsewhere, what may be made is a valid
tender of payment, but not consignation. The two, however, are to be distinguished.

Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the
consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to
obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to
make a private settlement before proceeding to the solemnities of consignation. (8 Manresa 325).27

While it may be true that petitioners’ claim relates to the terms and conditions of the sale of AFPMBAI’s subdivision lot, this is
overshadowed by the fact that since the Complaint in Civil Case No. 3812 pleads a case for consignation, the HLURB is without
jurisdiction to try it, as such case may only be tried by the regular courts.

WHEREFORE, premises considered, the Petition is GRANTED. The September 29, 2005 Decision and January 12, 2006 Resolution of
the Court of Appeals in CA-G.R. SP No. 84446 are ANNULLED and SET ASIDE. The October 16, 2003 and March 19, 2004 Orders of
the Regional Trial Court of Puerto Princesa City, Branch 47, are REINSTATED, and the case is REMANDED to the said court for
continuation of the proceedings.

SO ORDERED.
 28. G.R. No. 142731             June 8, 2006

BANK OF THE PHILIPPINE ISLANDS (formerly FAR EAST BANK AND TRUST COMPANY), Petitioner,
vs.
COURT OF APPEALS and JIMMY T. GO, Respondents.

DECISION

AZCUNA, J.:

This is a petition for review on certiorari filed by Bank of the Philippine Islands of the decision and resolution of the Court of Appeals,
which in turn partially denied a petition for certiorari questioning the temporary restraining order (TRO) and preliminary injunction issued
by Judge Urbano C. Victorio, Sr. 1

The facts as narrated in the Court of Appeals decision are as follows:

Petitioner, Far East Bank and Trust Company, granted a total of eight (8) loans to Noah’s Arc Merchandising (Noah’s Ark, for brevity).
Per Certificate of Registration issued by the Department of Trade and Industry (Rollo, p. 40), Noah’s Ark is a single proprietorship
owned by Mr. Albert T. Looyuko. The said loans were evidenced by identical Promissory Notes all signed by Albert T. Looyuko, private
respondent Jimmy T. Go and one Wilson Go. Likewise, all loans were secured by real estate mortgage constituted over a parcel of land
covered by Transfer Certificate of Title [No.] 160277 registered in the names of Mr. Looyuko and herein private respondent. Petitioner,
claiming that Noah’s Ark defaulted in its obligations, extrajudicially foreclosed the mortgage. The auction sale was set on 14 April 1998
but on 8 April 1998 private respondent filed a complaint for damages with prayer [for] issuance of TRO and/or writ of preliminary
injunction seeking [to] enjoin the auction sale. [I]n the Order dated 14 April 1998 a temporary restraining order was issued and in the
same order the application for Preliminary Injunction was set for hearing [i]n the afternoon of the same day (Rollo, p. 142).2

In an order3 dated April 15, 1998, Judge Victorio extended the TRO for another 15 days, for a total of 20 days. The Court of Appeals
decision continues thus:

After hearing, the 7 May 1998 Order granted the application for preliminary injunction which shall take effect upon posting of a bond in
the amount of Two Hundred Thousand Pesos (P200,000.00). The dispositive portion read:

"WHEREFORE, it appearing that the acts complained of would be in violation of plaintiff’s right and would work injustice to the plaintiff
and so as not to render ineffectual whatever judgment may be issued in this case, the application [for] preliminary injunction is hereby
granted and the defendants and all persons acting in their behalf are hereby ordered to cease, desist, and refrain from proceeding with
the scheduled foreclosure and public auction sale of the mortgaged property covered by TCT No. 160277 until further orders from this
Court.

This Order shall be effective upon petitioner’s filing of a bond in the amount of Two Hundred Thousand Pesos (P200,000.00) to answer
for any and all damages that defendants may suffer by reason of the issuance of the writ of preliminary injunction.

As prayed for, defendants are hereby directed to file their answer on or before May 14, 1998. Copy furnished plaintiff.

SO ORDERED." (Rollo p. 175)

Private-respondent then filed a bond as required by the order. Petitioner moved for a reconsideration of the aforementioned order which
motion was denied in the Order dated 30 July 1998 on the ground that the extrajudicial foreclosure was premature as to four (4)
promissory notes. The dispositive portion read:

"WHEREFORE, premises considered, the motion for reconsideration is hereby denied and the other pending incident pertaining thereto
are noted and this case be set for pre-trial.

LET THEREFORE, a notice of pre-trial be sent to the parties.

SO ORDERED." (Rollo, p. 219)4

After petitioner’s motion for reconsideration was denied in an order dated July 30, 1998, petitioner filed a petition for certiorari with the
Court of Appeals, praying that the orders dated May 7, 1998 and July 30, 1998, granting the writ of preliminary injunction and denying
the motion for reconsideration, respectively, be annulled and set aside and the writ of preliminary injunction be dissolved. Furthermore,
petitioner asked to be allowed to proceed with the auction sale of the property.

The Court of Appeals promulgated its decision dated August 26, 1999 which partially denied the petition for certiorari, stating as follows:
The issue in this case is: "Whether the trial court erred in the issuance of the Writ of Preliminary Injunction or not."

Petitioner averred that private respondent had not shown any right which should be protected by an injunction. Private respondent
naturally claimed otherwise and asserted that since four (4) of the promissory notes have not yet matured there was no basis to
foreclose the mortgage (Comment, p 15). He also claimed that his right to due process entitles him to legal demand prior to the filing of
the foreclosure proceedings against the subject property (Comment, p. 16).

It has been held that an injunction may be issued in order to preserve the status quo. Thus, in Cagayan de Oro City Landless
Residents Association, Inc., v. Court of Appeals (254 SCRA 220 [1996]) it was held:

As an extraordinary remedy, injunction is calculated to preserve the status quo of things and is generally availed of to prevent actual or
threatened acts, until the merits of the case can be heard. x x x. (254 SCRA 228).

In the case at bar, there is a need to first settle the question of whether the demand made by petitioner was sufficient to render private
respondent in default or not. In Rose Packing Co., Inc. v. Court of Appeals (167 SCRA 309 [1988]) it was held that the question of
whether the debtor is in default should first be settled to determine if the foreclosure was proper. In the same case it was also held that
said question should be resolved by the trial court, to wit:

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

First was the question of whether or not petitioner corporation was already in default.

xxx

Petitioner corporation alleges that there had been no demand on the part of respondent bank previous to its filing a complaint against
petitioner and Rene Knecht personally for collection on petitioner’s indebtedness (Brief for Petitioner, p.13). For an obligation to
become due there must generally be a demand. Default generally begins from the moment the creditor demands the performance of
the obligation. Without such demand, judicial or extrajudicial, the effects of default will not arise. (Namarco v. Federation of United
Namarco Distributors, Inc. 49 SCRA 238 [1973]; Borje v. CFI of Misamis Occidental, 88 SCRA 576 [1979]. Whether petitioner
corporation is already in default or not and whether demand had been properly made or not had to be determined in the lower court.
(167 SCRA 317-318).

We now come to the matter of sufficiency of the bond filed by private respondent. Petitioner claims that the P200,000.00 bond is grossly
insufficient. It argued, thus:

By enjoining petitioner from conducting the auction sale of the mortgaged property, petitioner has already suffered damages in the
amount of P715,077.78 representing filing and publication fees. Yet damages to be incurred by petitioner by reason of the injunction
are not limited to filing and publication fees, granting that the case will drag on for more tha[n] a year, which is usually the case. The
injunction would deprive petitioner FEBTC of its own income from the foreclosed property or from the proceeds of the foreclosure sale.
Obviously it is easily more than P200,000.00 (Rollo, p. 31).

The Court agrees with petitioner that the amount of the bond is insufficient. In Valencia v. Court of Appeals, (263 SCRA 275 [1996]) the
Supreme Court explained that the bond is for the protection against loss or damage by reason of the injunction, to wit:

The said bond was supposed to answer only for damages which may be sustained by private respondents, against whom the
mandatory injunction was issued, by reason of the issuance thereof, and not to answer for damages caused by the actuations of
petitioner, which may or may not be related at all to the implementation of the mandatory injunction. The purpose of the injunction bond
is to protect the defendant against loss or damage by reason of the injunction in case the court finally decides that the plaintiff was not
entitled to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are obligated to account to the defendant in the
injunction suit for all damages, or costs and reasonable counsel’s fees incurred or sustained by the latter in case it is determined that
the injunction was wrongfully issued. (263 SCRA 288-289)

Private respondent’s contention that considering the market value of the property, the bond is reasonable and proper (Rollo, p. 240)
cannot be upheld considering that no proof of the value of the property was even presented to buttress this assertion.

However, the insufficiency of the amount of the bond prescribed by the trial court does not warrant the lifting of the writ of injunction.
The Court notes that under Section 7, Rule 58 of the 1997 Rules of Civil Procedure the applicant, in case the bond is insufficient, may
still file one sufficient in amount, to wit:

Sec. 7. Service of copies of bond; effect of disapproval of same.  - - x x x. If the applicant’s bond is found to be insufficient in amount, or
if the surety or sureties thereon fail to justify, and a bond sufficient in amount with sufficient sureties approved after justification is not
filed forthwith, the injunction shall be dissolved. x x x.
The Court considers a bond of Five Million Pesos (P5,000,000.00) to be more appropriate in the present case.

WHEREFORE, considering the foregoing premises the petition for certiorari is DENIED; however, private respondent is ordered to file
an injunctive bond in the amount of P5,000,000.00.

SO ORDERED.5

Petitioner filed a motion for reconsideration which was denied in a resolution dated April 3, 2000 by the Court of Appeals on the ground
that all the matters raised in the motion for reconsideration had already been passed upon in the decision.6

Petitioner filed the instant petition for review on certiorari questioning the August 26, 1999 decision and the April 3, 2000 resolution. The
following issues were raised by petitioner:

3.1 Whether the Honorable Court of Appeals can resolve the issue of the sufficiency of demand.

3.2 Whether private respondent Go is entitled to a temporary restraining order and a writ of preliminary injunction.

3.3 Whether the Complaint of private respondent Go has been rendered moot and academic.

For the purpose of clarity, the issues are restated thus:

1. Whether or not the private respondent was entitled to the TRO and writ of preliminary injunction.

2. Whether or not the TRO and writ of preliminary injunction were properly issued by Judge Victorio.

On the first issue, this Court finds that private respondent was not entitled to the TRO and the writ of preliminary injunction. Section 3 of
Rule 58 of the Rules of Court provides the grounds for the issuance of a preliminary injunction, to wit:

A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a
limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably
work injustice to the applicant; or

(c) That a party, court, agency or person is doing, threatening, or is attempting to do, or is procuring or suffering to be done,
some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and
tending to render the judgment ineffectual.

As will be discussed below, private respondent is not entitled to the relief of injunction against the extrajudicial foreclosure and auction
sale. Neither are the extrajudicial foreclosure and auction sale violative of private respondent’s rights.

Private respondent claimed that demand was not made upon him, in spite of the fact that he co-signed the promissory notes. He also
argues that only four of the eight promissory notes secured by the mortgage had become due. A reading of the promissory notes
discloses that as co-signor, private respondent waived demand. Furthermore, the promissory notes contain an acceleration clause, to
wit:

Upon the happening of any of the following events, FAR EAST BANK AND TRUST COMPANY or the holder, may at its option,
forthwith accelerate maturity and the unpaid balance of the principal, as well as interest and other charges which have
accrued, shall become due and payable without demand or notice[:](1) default in payment or performance of any obligation of any of
the undersigned to FAR EAST BANK AND TRUST COMPANY or its affiliated companies;

xxx

I/We hereby waive any diligence, presentment, demand, protest or notice of non-payment o[r] dishonor with respect to this note or any
extension thereof.7 (Emphasis added)

The Civil Code in Article 11698 provides that one incurs in delay or is in default from the time the obligor demands the fulfillment of the
obligation from the obligee. However, the law expressly provides that demand is not necessary under certain circumstances, and one of
these circumstances is when the parties expressly waive demand. Hence, since the co-signors expressly waived demand in the
promissory notes, demand was unnecessary for them to be in default.

Private respondent further argues that by withholding the lease payments Far East Bank and Trust Company (FEBTC) owed Noah’s
Ark for the space FEBTC was leasing from Noah’s Ark and applying said amounts to the outstanding obligation of Noah’s Ark, as
expressed in a letter from FEBTC dated May 19, 1998,9 FEBTC has waived default, novated the contract of loan as embodied in the
promissory notes and is therefore estopped from foreclosing on the mortgaged property.

This Court disagrees. FEBTC’s act of withholding the lease payments and applying them to the outstanding obligation of Noah’s Ark is
merely an acknowledgement of the legal compensation that occurred by operation of law between the parties. The Court has
expounded on compensation and more specifically on legal compensation as follows:

x x x compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and as
principals are reciprocally debtors and creditors of each other. Legal compensation takes place by operation of law when all the
requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual
obligations even in the absence of some requisites.10

The Civil Code enumerates the requisites of legal compensation, thus:

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due
time to the debtor.

It is clear from the facts that FEBTC and Noah’s Ark are both principal obligors and creditors of each other. Their debts to each other
both consist in a sum of money. As discussed above, the eight promissory notes of Noah’s Ark are all due; and the lease payments
owed by FEBTC become due each month. Noah’s Ark’s debt is liquidated and demandable; and FEBTC’s lease payments are
liquidated and are demandable every month as they fall due. Lastly, there is no retention or controversy commenced by third persons
over either of the debts.

Novation did not occur as private respondent argued. The Court has declared that a contract cannot be novated in the absence of a
new contract executed between the parties.11 The legal compensation, which was acknowledged by FEBTC in its May 19, 1998 letter,
occurred by operation of law, as discussed above. As a consequence, it cannot be considered a new contract between the parties.
Hence, the loan agreement, as embodied in the promissory notes and the real estate mortgage, subsists.

Since the compensation between the parties occurred by operation of law, FEBTC did not waive Noah’s Ark’s default.

As a result of the absence of novation or waiver of default, FEBTC is therefore not estopped from proceeding with the foreclosure.

Private respondent further argues in his memorandum that FEBTC was in bad faith when it initiated the foreclosure proceedings
because Noah’s Ark had been requesting for accounting and reconciliation of its account and the application of interest payment, and
that there were on-going negotiations with FEBTC for the settlement and restructuring of the loan obligation. From the evidence on
hand, it is clear that FEBTC was acting within its rights. Private respondent did not present any other agreement signed by the parties
subsequent to the promissory notes and mortgage contract which can be considered as replacing, altering, or novating the contractual
rights between the parties. Even if Noah’s Ark was trying to seek an accounting and reconciliation of its account and even if it was trying
to negotiate a restructuring of its loan obligation, it cannot deny the fact that it had already defaulted on the entire loan obligation. This
gave FEBTC the right to exercise its contractual rights to foreclose on the security of the debt, which in this case was the real estate
mortgage subject of this case. FEBTC was therefore just exercising its contractual rights when it initiated foreclosure proceedings and
cannot be considered to have acted in bad faith.
With regard to the second issue, this Court finds that the TRO and the writ of preliminary injunction were improperly issued by Judge
Victorio. First of all, on substantive grounds, as discussed above, private respondent was not entitled to the TRO and the writ of
preliminary injunction.

Second, the issuance of the TRO was, on procedural grounds, irregular. Section 5, Rule 58 of the Rules of Civil Procedure provides:

Preliminary injunction not granted without notice; exception. – No preliminary injunction shall be granted without hearing and prior
notice to the party or person sought to be enjoined. If it shall appear from facts shown by affidavits or by the verified application that
great or irreparable injury would result to the applicant before the matter can be heard on notice, the court to which the application for
preliminary injunction was made, may issue a temporary restraining order to be effective only for a period of twenty (20) days from
notice to the party or person sought to be enjoined. Within the said twenty-day period, the court must order said party or person to show
cause, at a specified time and place, why the injunction should not be granted, determine within the same period whether or not the
preliminary injunction shall be granted, and accordingly issue the corresponding order.

Judge Victorio, in an order dated April 14, 1998, issued a TRO for five days, then, in an order dated April 15, 1998, extended it for
fifteen more days, totaling twenty days. However, in the first order, Judge Victorio excluded Saturdays and Sundays; and in the latter
order he added legal holidays to the exclusions. As quoted above, a TRO is effective only for a period of twenty days from notice to the
party sought to be enjoined. The rule does not specify that the counting of the twenty-day period is only limited to working days or that
Saturdays, Sundays and legal holidays are excluded from the twenty-day period. The law simply states twenty days from notice.
Section 1, Rule 22 of the Rules of Court is pertinent, to wit:

How to compute time. – In computing any period of time prescribed or allowed by these Rules, or by order of the court, or by any
applicable statute, the day of the act or event from which the designated period of time begins to run is to be excluded and the date of
performance included. If the last day of the period, as thus computed, falls on a Saturday, a Sunday, or a legal holiday in the place
where the court sits, the time shall not run until the next working day.

It is clear from the last sentence of this section that non-working days (Saturdays, Sundays and legal holidays) are excluded from the
counting of the period only when the last day of the period falls on such days. The Rule does not provide for any other circumstance in
which non-working days would affect the counting of a prescribed period. Hence, Judge Victorio exceeded the authority granted to
lower courts, in Section 5, Rule 58 of the Rules of Court, when he excluded non-working days from the counting of the twenty-day
period.

In sum, private respondent was not entitled to the TRO nor to the preliminary injunction, and the period granted in the TRO issued by
Judge Victorio exceeded that prescribed in the Rules of Court.

WHEREFORE, the petition is GRANTED and the decision12 and resolution13 of the Court of Appeals dated August 26, 1999 and April 3,
2000, respectively, are PARTIALLY REVERSED and SET ASIDE, retaining only the portion which increases the amount of the
injunctive bond to Five Million Pesos (P5,000,000). The writ of preliminary injunction issued by Judge Urbano C. Victorio, Sr., in an
order14 dated May 7, 1998 in Civil Case No. 98-88266, is hereby DISSOLVED. No costs.

SO ORDERED.
 29. G.R. No. 168251               July 27, 2011

JESUS M. MONTEMAYOR, Petitioner,
vs.
VICENTE D. MILLORA, Respondent.

DECISION

DEL CASTILLO, J.:

When the dispositive portion of a judgment is clear and unequivocal, it must be executed strictly according to its tenor.

This Petition for Review on Certiorari1 assails the Decision2 dated May 19, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 81075,
which dismissed the petition for certiorari seeking to annul and set aside the Orders dated September 6, 20023 and October 2, 20034 of
the Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-93-17255.

Factual Antecedents

On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a

loan of ₱400,000.00 from petitioner Dr. Jesus M. Montemayor (Jesus) as evidenced by a promissory note5 executed by Vicente. On
August 10, 1990, the parties executed a loan contract6 wherein it was provided that the loan has a stipulated monthly interest of 2% and
that Vicente had already paid the amount of ₱100,000.00 as well as the ₱8,000.00 representing the interest for the period July 24 to
August 23, 1990.

Subsequently and with Vicente’s consent, the interest rate was increased to 3.5% or ₱10,500.00 a month. From March 24, 1991 to July
23, 1991, or for a period of four months, Vicente was supposed to pay ₱42,000.00 as interest but was able to pay only ₱24,000.00.
This was the last payment Vicente made. Jesus made several demands7 for Vicente to settle his obligation but to no avail.

Thus, on August 17, 1993, Jesus filed before the RTC of Quezon City a Complaint8 for Sum of Money against Vicente which was
docketed as Civil Case No. Q-93-17255. On October 19, 1993, Vicente filed his Answer9 interposing a counterclaim for attorney’s fees
of not less than ₱500,000.00. Vicente claimed that he handled several cases for Jesus but he was summarily dismissed from handling
them when the instant complaint for sum of money was filed.

Ruling of the Regional Trial Court

In its Decision10 dated October 27, 1999, the RTC ordered Vicente to pay Jesus his monetary obligation amounting to ₱300,000.00 plus
interest of 12% from the time of the filing of the complaint on August 17, 1993 until fully paid. At the same time, the trial court found
merit in Vicente’s counterclaim and thus ordered Jesus to pay Vicente his attorney’s fees which is equivalent to the amount of Vicente’s
monetary liability, and which shall be set-off with the amount Vicente is adjudged to pay Jesus, viz:

WHEREFORE, premises above-considered [sic], JUDGMENT is hereby rendered ordering defendant Vicente D. Millora to pay plaintiff
Jesus M. Montemayor the sum of ₱300,000.00 with interest at the rate of 12% per annum counted from the filing of the instant
complaint on August 17, 1993 until fully paid and whatever amount recoverable from defendant shall be set off by an equivalent amount
awarded by the court on the counterclaim representing attorney’s fees of defendant on the basis of "quantum meruit" for legal services
previously rendered to plaintiff.

No pronouncement as to attorney’s fees and costs of suit.

SO ORDERED.11

On December 8, 1999, Vicente filed a Motion for Reconsideration12 to which Jesus filed an Opposition.13 On March 15, 2000, Vicente
filed a Motion for the Issuance of a Writ of Execution14 with respect to the portion of the RTC Decision which awarded him attorney’s
fees under his counterclaim. Jesus filed his Urgent Opposition to Defendant’s Motion for the Issuance of a Writ of Execution15 dated
May 31, 2000.

In an Order16 dated June 23, 2000, the RTC denied Vicente’s Motion for Reconsideration but granted his Motion for Issuance of a Writ
of Execution of the portion of the decision concerning the award of attorney’s fees.

Intending to appeal the portion of the RTC Decision which declared him liable to Jesus for the sum of ₱300,000.00 with interest at the
rate of 12% per annum counted from the filing of the complaint on August 17, 1993 until fully paid, Vicente filed on July 6, 2000 a Notice
of Appeal.17 This was however denied by the RTC in an Order18 dated July 10, 2000 on the ground that the Decision has already
become final and executory on July 1, 2000.19
Meanwhile, Jesus filed on July 12, 2000 a Motion for Reconsideration and Clarification20 of the June 23, 2000 Order granting Vicente’s
Motion for the Issuance of a Writ of Execution. Thereafter, Jesus filed on September 22, 2000 his Motion for the Issuance of a Writ of
Execution.21 After the hearing on the said motions, the RTC issued an Order22 dated September 6, 2002 denying both motions for lack
of merit. The Motion for Reconsideration and Clarification was denied for violating Section 5,23 Rule 15 of the Rules of Court and
likewise the Motion for the Issuance of a Writ of Execution, for violating Section 6,24 Rule 15 of the same Rules.

Jesus filed his Motion for Reconsideration25 thereto on October 10, 2002 but this was eventually denied by the trial court through its
Order26 dated October 2, 2003.

Ruling of the Court of Appeals

Jesus went to the CA via a Petition for Certiorari27 under Rule 65 of the Rules of Court.

On May 19, 2005, the CA issued its Decision the dispositive portion of which provides:

WHEREFORE, the foregoing considered, the petition for certiorari is DENIED and the assailed Orders are AFFIRMED in toto. No costs.

SO ORDERED.28

Not satisfied, Jesus is now before this Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court.

Issue

notwithstanding the finality of the trial court’s decision of October 27, 1999, as well as the orders of September 6, 2002 and October 2,
2003, the legal issue to be resolved in this case is whether x x x [DESPITE] the absence of a specific amount in the decision
representing respondent’s counterclaim, the same could be validly [offset] against the specific amount of award mentioned in the
decision in favor of the petitioner.29

Petitioner’s Arguments

Jesus contends that the trial court grievously erred in ordering the implementation of the RTC’s October 27, 1999 Decision considering
that same does fix the amount of attorney’s fees. According to Jesus, such disposition leaves the matter of computation of the
attorney’s fees uncertain and, hence, the writ of execution cannot be implemented. In this regard, Jesus points out that not even the
Sheriff who will implement said Decision can compute the judgment awards. Besides, a sheriff is not clothed with the authority to render
judicial functions such as the computation of specific amounts of judgment awards.

Respondent’s Arguments

Vicente counter-argues that the October 27, 1999 RTC Decision can no longer be made subject of review, either by way of an appeal
or by way of a special civil action for certiorari because it had already attained finality when after its promulgation, Jesus did not even
file a motion for reconsideration thereof or interpose an appeal thereto. In fact, it was Vicente who actually filed a motion for
reconsideration and a notice of appeal, which was eventually denied and disapproved by the trial court.

Our Ruling

The petition lacks merit.

The October 27, 1999 Decision of the RTC is already final and executory, hence, immutable.

At the outset, it should be stressed that the October 27, 1999 Decision of the RTC is already final and executory. Hence, it can no
longer be the subject of an appeal. Consequently, Jesus is bound by the decision and can no longer impugn the same. Indeed, well-
settled is the rule that a decision that has attained finality can no longer be modified even if the modification is meant to correct
erroneous conclusions of fact or law. The doctrine of finality of judgment is explained in Gallardo-Corro v. Gallardo:30

Nothing is more settled in law than that once a judgment attains finality it thereby becomes immutable and unalterable. It may no longer
be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law,
and regardless of whether the modification is attempted to be made by the court rendering it or by the highest court of the land. Just as
the losing party has the right to file an appeal within the prescribed period, the winning party also has the correlative right to enjoy the
finality of the resolution of his case. The doctrine of finality of judgment is grounded on fundamental considerations of public policy and
sound practice, and that, at the risk of occasional errors, the judgments or orders of courts must become final at some definite time
fixed by law; otherwise, there would be no end to litigations, thus setting to naught the main role of courts of justice which is to assist in
the enforcement of the rule of law and the maintenance of peace and order by settling justiciable controversies with finality.31
To stress, the October 27, 1999 Decision of the RTC has already attained finality. "Such definitive judgment is no longer subject to
change, revision, amendment or reversal. Upon finality of the judgment, the Court loses its jurisdiction to amend, modify or alter the
same. Except for correction of clerical errors or the making of nunc pro tunc entries which cause no prejudice to any party, or where the
judgment is void, the judgment can neither be amended nor altered after it has become final and executory. This is the principle of
immutability of final judgment."32

The amount of attorney’s fees is ascertainable from the RTC Decision. Thus, compensation is possible.

Jesus contends that offsetting cannot be made because the October 27, 1999 judgment of the RTC failed to specify the amount of
attorney’s fees. He maintains that for offsetting to apply, the two debts must be liquidated or ascertainable. However, the trial court
merely awarded to Vicente attorney’s fees based on quantum meruit without specifying the exact amount thereof.

We do not agree.

For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code, quoted below, must be
present.

ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

ARTICLE 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due
time to the debtor.

"A debt is liquidated when its existence and amount are determined. It is not necessary that it be admitted by the debtor. Nor is it
necessary that the credit appear in a final judgment in order that it can be considered as liquidated; it is enough that its exact amount is
known. And a debt is considered liquidated, not only when it is expressed already in definite figures which do not require verification,
but also when the determination of the exact amount depends only on a simple arithmetical operation x x x."33

In Lao v. Special Plans, Inc.,34 we ruled that:

When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such
claim, it can be compensated against the plaintiff’s claim from the moment it is liquidated by judgment. We have restated this in Solinap
v. Hon. Del Rosario35 where we held that compensation takes place only if both obligations are liquidated.

In the instant case, both obligations are liquidated. Vicente has the obligation to pay his debt due to Jesus in the amount of
₱300,000.00 with interest at the rate of 12% per annum counted from the filing of the instant complaint on August 17, 1993 until fully
paid. Jesus, on the other hand, has the obligation to pay attorney’s fees which the RTC had already determined to be equivalent to
whatever amount recoverable from Vicente. The said attorney’s fees were awarded by the RTC on the counterclaim of Vicente on the
basis of "quantum meruit" for the legal services he previously rendered to Jesus.

In its Decision, the trial court elucidated on how Vicente had established his entitlement for attorney’s fees based on his counterclaim in
this manner:

Defendant, on his counterclaim, has established the existence of a lawyer-client relationship between him and plaintiff and this was
admitted by the latter. Defendant had represented plaintiff in several court cases which include the Laguna property case, the various
cases filed by Atty. Romulo Reyes against plaintiff such as the falsification and libel cases and the disbarment case filed by plaintiff
against Atty. Romulo Reyes before the Commission on Bar Integration. Aside from these cases, plaintiff had made defendant his
consultant on almost everything that involved legal opinions.

More particularly in the Calamba, Laguna land case alone, plaintiff had agreed to pay defendant a contingent fee of 25% of the value of
the property for the latter’s legal services as embodied in the Amended Complaint signed and verified by plaintiff (Exh. 5). Aside from
this contingent fee, defendant had likewise told plaintiff that his usual acceptance fee for a case like the Laguna land case is
₱200,000.00 and his appearance fee at that time was x x x ₱2,000.00 per appearance but still plaintiff paid nothing.
The lawyer-client relationship between the parties was severed because of the instant case. The court is however fully aware of
defendant’s stature in life – a UP law graduate, Bar topnotcher in 1957 bar examination, former Senior Provincial Board Member, Vice-
Governor and Governor of the province of Pangasinan, later as Assemblyman of the Batasang Pambansa and is considered a
prominent trial lawyer since 1958. For all his legal services rendered to plaintiff, defendant deserves to be compensated at least on a
"quantum meruit" basis.36

The above discussion in the RTC Decision was then immediately followed by the dispositive portion, viz:

WHEREFORE, premises above-considered, JUDGMENT is hereby rendered ordering defendant Vicente D. Millora to pay plaintiff
Jesus M. Montemayor the sum of ₱300.000.00 with interest at the rate of 12% per annum counted from the filing of the instant
complaint on August 17, 1993 until fully paid and whatever amount recoverable from defendant shall be set off by an equivalent
amount awarded by the court on the counterclaim representing attorney’s fees of defendant on the basis of "quantum meruit" for
legal services previously rendered to plaintiff.

No pronouncement as to attorney’s fees and costs of suit.

SO ORDERED.37 (Emphasis supplied.)

It is therefore clear that in the execution of the RTC Decision, there are two parts to be executed. The first part is the computation of the
amount due to Jesus. This is achieved by doing a simple arithmetical operation at the time of execution. The principal amount of
₱300,000.00 is to be multiplied by the interest rate of 12%. The product is then multiplied by the number of years that had lapsed from
the filing of the complaint on August 17, 1993 up to the date when the judgment is to be executed. The result thereof plus the principal
of ₱300,000.00 is the total amount that Vicente must pay Jesus.

The second part is the payment of attorney’s fees to Vicente. This is achieved by following the clear wordings of the above fallo of the
RTC Decision which provides that Vicente is entitled to attorney’s fees which is equivalent to whatever amount recoverable from him by
Jesus. Therefore, whatever amount due to Jesus as payment of Vicente’s debt is equivalent to the amount awarded to the latter as his
attorney’s fees. Legal compensation or set-off then takes place between Jesus and Vicente and both parties are on even terms such
that there is actually nothing left to execute and satisfy in favor of either party.

In fact, the RTC, in addressing Jesus’ Motion for Reconsideration and Clarification dated July 12, 2000 had already succinctly explained
this matter in its Order dated September 6, 2002, viz:

Notwithstanding the tenor of the said portion of the judgment, still, there is nothing to execute and satisfy in favor of either of the herein
protagonists because the said decision also states clearly that "whatever amount recoverable from defendant shall be SET-OFF by
an equivalent amount awarded by the Court on the counterclaim representing attorney’s fees of defendant on the basis of
"quantum meruit" for legal services previously rendered to plaintiff" x x x.

Said dispositive portion of the decision is free from any ambiguity. It unequivocably ordered that any amount due in favor of plaintiff and
against defendant is set off by an equivalent amount awarded to defendant in the form of counterclaims representing attorney’s fees for
past legal services he rendered to plaintiff.

It will be an exercise in futility and a waste of so precious time and unnecessary effort to enforce satisfaction of the plaintiff’s claims
against defendant, and vice versa because there is in fact a setting off of each other’s claims and liabilities under the said judgment
which has long become final.38 (Emphasis in the original.)

A reading of the dispositive portion of the RTC Decision would clearly show that no ambiguity of any kind exists. Furthermore, if indeed
there is any ambiguity in the dispositive portion as claimed by Jesus, the RTC had already clarified it through its Order dated
September 6, 2002 by categorically stating that the attorney’s fees awarded in the counterclaim of Vicente is of an amount equivalent to
whatever amount recoverable from him by Jesus. This clarification is not an amendment, modification, correction or alteration to an
already final decision as it is conceded that such cannot be done anymore. What the RTC simply did was to state in categorical terms
what it obviously meant in its decision. Suffice it to say that the dispositive portion of the decision is clear and unequivocal such that a
reading of it can lead to no other conclusion, that is, any amount due in favor of Jesus and against Vicente is set off by an equivalent
amount in the form of Vicente’s attorney’s fees for past legal services he rendered for Jesus.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The assailed Decision of the Court of Appeals dated May 19,
2005 in CA-G.R. SP No. 81075 which dismissed the petition for certiorari seeking to annul and set aside the Orders dated September
6, 2002 and October 2, 2003 of the Regional Trial Court of Quezon City, Branch 98 in Civil Case No. Q-93-17255, is
hereby AFFIRMED.

SO ORDERED.
 30. G.R. No. 172020               December 6, 2010

TRADERS ROYAL BANK, Petitioner,

vs.
NORBERTO CASTAÑARES and MILAGROS CASTAÑARES, Respondents.

DECISION

VILLARAMA, JR., J.:

Assailed in this petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision1 dated January 11,
2006 of the Court of Appeals (CA) in CA-G.R. CV No. 67257 which reversed the Joint Decision2 dated August 26, 1998 of the Regional
Trial Court (RTC) of Cebu City, Branch 13 in Civil Case Nos. R-22608 and CEB-112.

The Facts

Respondent-spouses Norberto and Milagros Castañares are engaged in the business of exporting shell crafts and other handicrafts.
Between 1977 and 1978, respondents obtained from petitioner Traders Royal Bank various loans and credit accommodations.
Respondents executed two real estate mortgages (REMs) dated April 18, 1977 and January 25, 1978 covering their properties (TCT
Nos. T-38346, T-37536, T-37535, T-37192 and T-37191). As evidenced by Promissory Note No. BD-77-113 dated May 10, 1977,
petitioner released only the amount of ₱35,000.00 although the mortgage deeds indicated the principal amounts as ₱86,000.00 and
₱60,000.00.3

Respondents were further granted additional funds on various dates under promissory notes4 they executed in favor of the petitioner:
Type of Loan Date Granted Amount
Packing Credit May 10, 1977 P19,000.00
Packing Credit May 18, 1977 P25,000.00
Packing Credit June 23, 1977 P12,500.00
Packing Credit August 19, 1977 P 2,900.00
Packing Credit April 4, 1978 P18,000.00
Packing Credit April 19, 1978 P23,000.00

On June 22, 1977, petitioner transferred the amount of ₱1,150.00 from respondents’ current account to their savings account, which
was erroneously posted as ₱1,500.00 but later corrected to reflect the figure ₱1,150.00 in the savings account passbook. By the
second quarter of 1978, the loans began to mature and the letters of credit against which the packing advances were granted started to
expire. Meanwhile, on December 7, 1979, petitioner, without notifying the respondents, applied to the payment of respondents’
outstanding obligations the sum of $4,220.00 or ₱30,930.49 which was remitted to the respondents thru telegraphic transfer from
AMROBANK, Amsterdam by one Richard Wagner. The aforesaid entries in the passbook of respondents and the $4,220.00 telegraphic
transfer were the subject of respondents’ letter-complaint5 dated September 20, 1982 addressed to the Manager of the Regional Office
of the Central Bank of the Philippines.

For failure of the respondents to pay their outstanding loans with petitioner, the latter proceeded with the extrajudicial foreclosure of the
real estate mortgages.6 Thereafter, a Certificate of Sale7 covering all the mortgaged properties was issued by Deputy Sheriff Wilfredo P.
Borces in favor of petitioner as the lone bidder for ₱117,000.00 during the auction sale conducted on November 24, 1981. Said
certificate of sale was registered with the Office of the Register of Deeds on February 4, 1982.

On November 24, 1982, petitioner instituted Civil Case No. R-22608 for deficiency judgment, claiming that after applying the proceeds
of foreclosure sale to the total unpaid obligations of respondents (₱200,397.78), respondents were still indebted to petitioner for the
sum of ₱83,397.68.8 Respondents filed their Answer With Counterclaim on December 27, 1982.9

On February 10, 1983, respondents filed Civil Case No. CEB-112 for the recovery of the sums of ₱2,584.27 debited from their savings
account passbook and the equivalent amount of $4,220.00 telegraphic transfer, and in addition, $55,258.85 representing the damage
suffered by the respondents from letters of credit left un-negotiated because of petitioner’s refusal to pay the $4,220.00 demanded by
the respondents.10

The cases were consolidated before Branch 13, RTC of Cebu City.

Ruling of the RTC

In a Joint Decision11 dated August 26, 1998, the RTC ruled in favor of the petitioner, as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in Civil Case No. R-22608 in favor of the plaintiff and against the
defendants directing the defendants jointly and solidarily to pay plaintiff the sum of ₱83,397.68 with legal rate of interest to be computed
from November 24, 1981 (the date of the auction sale) until full payment thereof. They are likewise directed to pay plaintiff attorney’s
fees in the sum of ₱10,000.00 plus litigation expenses in the amount of ₱2,500.00.

With cost against defendants.

In CEB-112, judgment is hereby rendered dismissing the complaint.

With cost against the plaintiff.

SO ORDERED.12

The trial court found that despite respondents’ insistence that the REM covered only a separate loan for ₱86,000.00 which they
believed petitioner committed to lend them, the evidence clearly shows that said REM was constituted as security for all the promissory
notes. No separate demand was made for the amount of ₱86,000.00 stated in the REM, as the demand was limited to the amounts of
the promissory notes. The trial court further noted that respondents never questioned the judgment for extrajudicial foreclosure, the
certificate of sale and the deficiency in that case.13

With respect to the passbook entries, the trial court stated that no objection thereto was made by the respondents until five years later
when in a letter dated August 10, 1982, respondents’ counsel asked petitioner to be enlightened on the matter. Neither did respondents
protest the application of the balance (₱1,150.00) in the passbook to his account with petitioner. More important, respondent Norberto
Castañares in his testimony admitted that the matter was already clarified to him by petitioner and that the latter had the right to apply
his deposit to his loan accounts. Admittedly, his complaint has to do more with the lack of consent on his part and the non-issuance of
official receipt. However, he did not follow up his request for official receipt as he did not want to be going back and forth to the bank.14

CA Ruling

With the trial court’s denial of their motion for reconsideration, respondents appealed to the CA. Finding merit in respondents’
arguments, the appellate court set aside the trial court’s judgment under its Decision15 dated January 11, 2006, thus:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us GRANTING the appeal filed in this case and
REVERSING AND SETTING ASIDE the Joint Decision dated August 26, 1998, Regional Trial Court, 7th Judicial Region, Branch 13, in
Civil Case No. R-22608 and Civil Case No. CEB-112. With regard to Civil Case No. R-22608, the real estate mortgage dated April 18,
1977 is hereby DECLARED as valid in part as to the amount of P35,000.00 actually released in favor of appellants, while the real estate
mortgage dated January 26, 1978 is hereby declared as null and void. Furthermore, in Civil Case No. CEB-112, TRB is hereby ordered
to release the amount of US$4,220.90 to the appellants at its current rate of exchange. No pronouncement as to costs.

SO ORDERED.16

The CA held that the RTC overlooked the fact that there were no adequate evidence presented to prove that petitioner released in full
to the respondents the proceeds of the REM loan. Citing Filipinas Marble Corporation v. Intermediate Appellate Court17 and Naguiat v.
Court of Appeals,18 the appellate court declared that where there was failure of the mortgagee bank to deliver the consideration for
which the mortgage was executed, the contract of loan was invalid and consequently the accessory contract of mortgage is likewise null
and void. In this case, only ₱35,000.00 out of the ₱86,000.00 stated in the REM dated April 18, 1977 was released to respondents, and
hence the REM was valid only to that extent. For the same reason, the second REM was null and void since no actual loan proceeds
were released to the respondents-mortgagors. The REMs are not connected to the subsequent promissory notes because these were
signed by respondents for the sole purpose of securing packing credits and export advances. Further citing Acme Shoe, Rubber and
Plastic Corp. v. Court of Appeals,19 the CA stated that the rule is that a pledge, real estate mortgage or antichresis may exceptionally
secure after-incurred obligations only as long as these debts are accurately described therein. In this case, neither of the two REMs
accurately described or even mentioned the securing of future debts or obligations.20

The CA thus held that petitioner’s remedy would be to file a collection case on the unpaid promissory notes which were not secured by
the REMs.

As to the $4,220.00 telegraphic transfer, the CA ruled that petitioner had no basis for withholding and applying the said amount to
respondents’ loan account. Said transaction was separate and distinct from the contract of loan between petitioner and respondents.
Petitioner had no authority to convert the said telegraphic transfer into cash since the participation of respondents was necessary to
sign and indorse the disbursement voucher and check. Moreover, petitioner was not transparent in its actions as it did not inform the
respondents of its intention to apply the proceeds of the telegraphic transfer to their loan account and worse, it did not even present an
official receipt to prove payment. Section 5 of Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act, provides
that there shall be no restriction on the withdrawability by the depositor of his deposit or the transferability of the same abroad except
those arising from contract between the depositor and the bank.21

The Petition

Petitioner raised the following grounds in the review of the CA decision:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE REAL ESTATE MORTGAGE DATED 18 APRIL 1977 IS
VALID ONLY IN PART TO THE EXTENT OF PHP35,000.00 WHICH IS ALLEGEDLY THE AMOUNT PROVED TO HAVE
BEEN ACTUALLY RELEASED TO RESPONDENTS OUT OF THE SUM OF PHP86,000.00.

II. THE COURT OF APPEALS ERRED IN DECLARING AS NULL AND VOID THE REAL ESTATE MORTGAGE DATED 26
JANUARY 1978 IN THAT NO ACTUAL LOAN PROCEEDS WERE RELEASED IN FAVOR OF THE RESPONDENTS.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD NO BASIS IN WITHHOLDING AND
SUBSEQUENTLY APPLYING IN PAYMENT OF RESPONDENTS’ OVERDUE ACCOUNT IN THE TELEGRAPHIC
TRANSFER IN THE AMOUNT OF U.S.$4,220.00.22

Petitioner contends that the CA overlooked the specific stipulation in the REMs that the mortgage extends not only to the amounts
specified therein but also to loans or credits subsequently granted, which include the packing credits and export advances obtained by
the respondents. Moreover, the amounts indicated on the REMs need not exactly be the same amounts that should be released and
covered by checks or credit memos, the same being only the maximum sum or "ceiling" which the REM secures, as explained by
petitioner’s witness, Ms. Blesy Nemeño. Her testimony does not prove that the proceeds of the loans were not released in full, as no
credit memos in the specific amounts received by the respondents can be presented.

Petitioner argues that the rulings cited by the CA do not at all support its conclusion that the promissory notes were totally unrelated to
the REMs. In the Acme case, the pronouncement was that the after-incurred obligations must, at the time they are contracted, only be
accurately described in a proper instrument as in the case of a promissory note. The confusion was brought by the use in the CA
decision of the word "therein" which is not found in the text of the Acme ruling. Besides, it is way too impossible that future loans can be
accurately described, as the CA opined, at the time that a deed of real estate mortgage is executed. The CA’s reliance on the case of
Filipinas Marble Corporation, is likewise misplaced as it finds no application under the facts obtaining in the present case. The
misappropriation by some individuals of the loan proceeds secured by petitioner was the consideration which compelled this Court to
rule that there was failure on the part of DBP to deliver the consideration for which the mortgage was executed. Similarly, the case of
Naguiat is inapplicable in that there was evidence that an agent of the creditor withheld from the debtor the checks representing the
proceeds of the loan pending delivery of additional collateral.

Finally, petitioner reiterates that it had the right by way of set-off the telegraphic transfer in the sum of $4,220.00 against the unpaid
loan account of respondents. Citing Bank of the Philippine Islands v. Court of Appeals,23 petitioner asserts that they are bound
principally as both creditors and debtors of each other, the debts consisting of a sum of money, both due, liquidated and demandable,
and are not claimed by a third person. Hence, the RTC did not err in holding that petitioner validly applied the amount of ₱30,930.20
(peso equivalent of $4,220.00) to the loan account of the respondents.

Our Ruling

We rule for the petitioner.

The subject REMs contain the following provision:

That, for and in consideration of certain loans, overdrafts and other credit accommodations obtained, from the Mortgagee by the
Mortgagor and/or SPS. NORBERTO V. CASTAÑARES & MILAGROS M. CASTAÑARES and to secure the payment of the same, the
principal of all of which is hereby fixed at EIGHTY-SIX THOUSAND PESOS ONLY – (P86,000.00) Pesos, Philippine Currency, as well
as those that the Mortgagee may hereafter extend to the Mortgagor x x x, including interest and expenses or any other obligation owing
to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee x
x x.24 (Emphasis supplied.)

The above stipulation is also known as "dragnet clause" or "blanket mortgage clause" in American jurisprudence that would subsume
all debts of past and future origins. It has been held as a valid and legal undertaking, the amounts specified as consideration in the
contracts do not limit the amount for which the pledge or mortgage stands as security, if from the four corners of the instrument, the
intent to secure future and other indebtedness can be gathered. A pledge or mortgage given to secure future advancements is a
continuing security and is not discharged by the repayment of the amount named in the mortgage until the full amount of all
advancements shall have been paid.25

A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their
having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording
fees, et cetera.26 While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the terms of the
mortgage contract.27

In holding that the REMs were null and void, the CA opined that the full amount of the principal loan stated in the deed should have
been released in full, sustaining the position of the respondents that the promissory notes were not secured by the mortgage and
unrelated to it. However, a reading of the afore-quoted provision of the REMs shows that its terms are broad enough to cover packing
credits and export advances granted by the petitioner to respondents. That the respondents subsequently availed of letters of credit
and export advances in various amounts as reflected in the promissory notes, buttressed the claim of petitioner that the amounts of
₱86,000.00 and ₱60,000.00 stated in the REMs merely represent the maximum total loans which will be secured by the mortgage. This
must be so as respondents confirmed that the mortgage was constituted for the purpose of obtaining additional capital as dictated by
the needs of their export business. Significantly, no complaint was made by the respondents as to the non-release of ₱86,000.00 and
₱60,000.00, in full, simultaneous or immediately following the execution of the REMs -- under a single promissory note each equivalent
to the said sums -- and no demand for the said specific amounts was ever made by the petitioner. Even the letter-complaint sent by
respondents to the Central Bank almost a year after the extrajudicial foreclosure sale mentioned only the questioned entries in their
passbook and the $4,220.00 telegraphic transfer. Considering that respondents deemed it a serious "banking malpractice" for petitioner
not to release in full the loan amount stated in the REMs, it can only be inferred that respondents themselves understood that the
₱86,000.00 and ₱60,000.00 indicated in the REMs was intended merely to fix a ceiling for the loan accommodations which will be
secured thereby and not the actual principal loan to be released at one time. Thus, the RTC did not err in upholding the validity of the
REMs and ordering the respondents to pay the deficiency in the foreclosure sale to satisfy the remaining mortgage indebtedness.

The cases relied upon by the CA are all inapplicable to the present controversy.lawph!1 In Filipinas Marble Corporation, we held that
pending the outcome of litigation between DBP which together with Bancom officers were alleged by the petitioner-mortgagor to have
misspent and misappropriated the $5 million loan granted by DBP, the provisions of P.D. No. 385 prohibiting injunctions against
foreclosures by government financial institutions, cannot be automatically applied. Foreclosure of the mortgaged properties for the
whole amount of the loan was deemed prejudicial to the petitioner, its employees and their families since the true amount of the loan
which was applied for the benefit of the petitioner can be determined only after a trial on the merits.28 No such act of misappropriation
by corporate officers appointed by the mortgagee is involved in this case. Besides, the respondents never denied receiving the
amounts under the promissory notes which were all covered by the REMs and the very obligations subject of the extrajudicial
foreclosure.

As to the ruling in Naguiat, we found therein no compelling reason to disturb the lower courts’ finding that the lender did not remit and
the borrower did not receive the proceeds of the loan. Hence, we held the mortgage contract, being just an accessory contract, as null
and void for absence of consideration.29 In this case, however, respondents admitted they received all the amounts under the
promissory notes presented by the petitioner. The consideration in the execution of the REMs consist of those credit accommodations
to fund their export transactions. Respondents as an afterthought raised issue on the nature of the amounts of principal loan indicated
in the REMs long after these obligations have matured and the mortgage foreclosed due to their failure to fully settle their outstanding
accounts with petitioner. Having expressly agreed to the terms of the REMs which are phrased to secure all such loans and
advancements to be obtained from petitioner, although the principal amount stated therein were not released at one time and under
several, not just one, subsequently issued promissory notes, respondents may not be allowed to complain later that the amounts they
received were unrelated to the REMs.

On the issue of the $4,220.00 telegraphic transfer which was applied by the petitioner to the loan account of respondents, we hold that
the CA erred in holding that petitioner had no authority to do so by way of compensation or set off. In this case, the parties stipulated on
the manner of such set off in case of non-payment of the amount due under each promissory note.

The subject promissory notes thus provide:

In case of non-payment of this note or any installments thereof at maturity, I/We jointly and severally, agree to pay an additional amount
equivalent to two per cent (2%) per annum of the amount due and demandable as penalty and collection charges, in the form of
liquidated damages, until fully paid; and the further sum of ten per cent (10%) thereof in full, without any deduction, as and for
attorney’s fees whether actually incurred or not, exclusive of costs and judicial/extrajudicial expenses; moreover, I/We, jointly and
severally, further empower and authorize the TRADERS ROYAL BANK, at its option, and without notice, to set-off or to apply to the
payment of this note any and all funds, which may be in its hands on deposit or otherwise belonging to anyone or all of us, and to hold
as security therefor any real or personal property, which may be in its possession or control by virtue of any other contract.30 (Emphasis
supplied.)

Agreements for compensation of debts or any obligations when the parties are mutually creditors and debtors are allowed under Art.
1282 of the Civil Code even though not all the legal requisites for legal compensation are present. Voluntary or conventional
compensation is not limited to obligations which are not yet due.31 The only requirements for conventional compensation are (1) that
each of the parties can fully dispose of the credit he seeks to compensate, and (2) that they agree to the extinguishment of their mutual
credits.32 Consequently, no error was committed by the trial court in holding that petitioner validly applied, by way of compensation, the
$4,220.00 telegraphic transfer remitted by respondents’ foreign client through the petitioner.
WHEREFORE, the petition is GRANTED. The Decision dated January 11, 2006 of the Court of Appeals in CA-G.R. CV No. 67257 is
REVERSED and SET ASIDE. The Joint Decision dated August 26, 1998 of the Regional Trial Court of Cebu City, Branch 13 in Civil
Case Nos. R-22608 and CEB-112 is REINSTATED and UPHELD. No pronouncement as to costs. SO ORDERED.

31. G.R. No. 151903               October 9, 2009

MANUEL GO CINCO and ARACELI S. GO CINCO, Petitioners,

vs.
COURT OF APPEALS, ESTER SERVACIO and MAASIN TRADERS LENDING CORPORATION Respondents.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari1 filed by petitioners, spouses Manuel and Araceli Go Cinco (collectively, the
spouses Go Cinco), assailing the decision2 dated June 22, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 47578, as well as the
resolution3 dated January 25, 2002 denying the spouses Go Cinco’s motion for reconsideration.

THE FACTUAL ANTECEDENTS

In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of ₱700,000.00 from respondent
Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December 11, 1987,4 and secured
by a real estate mortgage executed on December 15, 1987 over the spouses Go Cinco’s land and 4-storey building located in Maasin,
Southern Leyte.

Under the terms of the promissory note, the ₱700,000.00 loan was subject to a monthly interest rate of 3% or 36% per annum and was
payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16, 1989, Manuel’s outstanding obligation
with MTLC amounted to ₱1,071,256.66, which amount included the principal, interest, and penalties.5

To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank, Maasin Branch
(PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC. The PNB approved the loan
application for ₱1.3 Million6 through a letter dated July 8, 1989; the release of the amount, however, was conditioned on the
cancellation of the mortgage in favor of MTLC.

On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLC’s President, to inform her that there was
money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the information, but she claimed
that the bank’s officers informed her that Manuel had no pending loan application with them. When she told Manuel of the bank’s
response, Manuel assured her there was money with the PNB and promised to execute a document that would allow her to collect the
proceeds of the PNB loan.

On July 20, 1989, Manuel executed a Special Power of Attorney7 (SPA) authorizing Ester to collect the proceeds of his PNB loan. Ester
again went to the bank to inquire about the proceeds of the loan. This time, the bank’s officers confirmed the existence of the ₱1.3
Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage before they could release the proceeds of
the loan to her. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC as collateral for the PNB loan,
Ester refused to sign the deed and did not collect the ₱1.3 Million loan proceeds.

As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24, 1989.

To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages, and preliminary
injunction8 before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go Cinco alleged that foreclosure
of the mortgage was no longer proper as there had already been settlement of Manuel’s obligation in favor of MTLC. They claimed that
the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Ester’s refusal to sign the deed of
release/cancellation of mortgage and to collect the proceeds of the PNB loan were, to the spouses Go Cinco, completely unjustified and
entitled them to the payment of damages.

Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cinco’s plan to obtain a
loan from the PNB and to use the loan proceeds to settle Manuel’s loan with MTLC. She claimed that she had no explicit agreement
with Manuel authorizing her to apply the proceeds of the PNB loan to Manuel’s loan with MTLC; the SPA merely authorized her to
collect the proceeds of the loan. She thus averred that it was unfair for the spouses Go Cinco to require the release of the mortgage to
MTLC when no actual payment of the loan had been made.

In a decision dated August 16, 1994,9 the RTC ruled in favor of the spouses Go Cinco. The trial court found that the evidence
sufficiently established the existence of the PNB loan whose proceeds were available to satisfy Manuel’s obligation with MTLC, and that
Ester unjustifiably refused to collect the amount. Creditors, it ruled, cannot unreasonably prevent payment or performance of obligation
to the damage and prejudice of debtors who may stand liable for payment of higher interest rates.10 After finding MTLC and Ester liable
for abuse of rights, the RTC ordered the award of the following amounts to the spouses Go Cinco:

(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by way of actual or compensatory
damages, if defendant corporation insists on the original 3% monthly interest rate;

(b) P100,000.00 as unrealized profit;

(c) P1,000,000.00 as moral damages;

(d) P20,000.00 as exemplary damages;

(e) P22,000.00 as litigation expenses; and

(f) 10% of the total amount as attorney’s fees plus costs.11

Through an appeal with the CA, MTLC and Ester successfully secured a reversal of the RTC’s decision. Unlike the trial court, the
appellate court found it significant that there was no explicit agreement between Ester and the spouses Go Cinco for the cancellation of
the MTLC mortgage in favor of PNB to facilitate the release and collection by Ester of the proceeds of the PNB loan. The CA read the
SPA as merely authorizing Ester to withdraw the proceeds of the loan. As Manuel’s loan obligation with MTLC remained unpaid, the CA
ruled that no valid objection could be made to the institution of the foreclosure proceedings. Accordingly, it dismissed the spouses Go
Cinco’ complaint. From this dismissal, the spouses Go Cinco filed the present appeal by certiorari.

THE PETITION

The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts as equivalent to payment that extinguished
the MTLC loan; their act of applying for a loan with the PNB was indicative of their good faith and honest intention to settle the loan with
MTLC. They contend that the creditors have the correlative duty to accept the payment.

The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly refusing to collect the proceeds of the loan and
to execute the deed of release of mortgage. They assert that Ester’s justifications for refusing the payment were flimsy excuses so she
could proceed with the foreclosure of the mortgaged properties that were worth more than the amount due to MTLC. Thus, they
conclude that the acts of MTLC and of Ester amount to abuse of rights that warrants the award of damages in their (spouses Go
Cinco’s) favor.

In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same arguments they raised before the RTC and the CA.
They claim that they were not aware of the loan and the mortgage to PNB, and that there was no agreement that the proceeds of the
PNB loan were to be used to settle Manuel’s obligation with MTLC. Since the MTLC loan remained unpaid, they insist that the
institution of the foreclosure proceedings was proper. Additionally, MTLC and Ester contend that the present petition raised questions of
fact that cannot be addressed in a Rule 45 petition.

THE COURT’S RULING

The Court finds the petition meritorious.

Preliminary Considerations

Our review of the records shows that there are no factual questions involved in this case; the ultimate facts necessary for the resolution
of the case already appear in the records. The RTC and the CA decisions differed not so much on the findings of fact, but on the
conclusions derived from these factual findings. The correctness of the conclusions derived from factual findings raises legal questions
when the conclusions are so linked to, or are inextricably intertwined with, the appreciation of the applicable law that the case requires,
as in the present case.12 The petition raises the issue of whether the loan due the MTLC had been extinguished; this is a question of
law that this Court can fully address and settle in an appeal by certiorari.

Payment as Mode of Extinguishing Obligations

Obligations are extinguished, among others, by payment or performance,13 the mode most relevant to the factual situation in the
present case. Under Article 1232 of the Civil Code, payment means not only the delivery of money but also the performance, in any
other manner, of an obligation. Article 1233 of the Civil Code states that "a debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered or rendered, as the case may be." In contracts of loan,
the debtor is expected to deliver the sum of money due the creditor. These provisions must be read in relation with the other rules on
payment under the Civil Code,14 which rules impliedly require acceptance by the creditor of the payment in order to extinguish an
obligation.
In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB loan – an act
that would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the delivery of the SPA was not,
strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be compelled to accept it as payment based on
Article 1233. Nonetheless, the SPA stood as an authority to collect the proceeds of the already-approved PNB loan that, upon receipt
by Ester, would have constituted as payment of the MTLC loan.15 Had Ester presented the SPA to the bank and signed the deed of
release/cancellation of mortgage, the delivery of the sum of money would have been effected and the obligation extinguished.16 As the
records show, Ester refused to collect and allow the cancellation of the mortgage.

Under these facts, Manuel posits two things: first, that Ester’s refusal was based on completely unjustifiable grounds; and second, that
the refusal was equivalent to payment that led to the extinguishment of the obligation.

a. Unjust Refusal to Accept Payment

After considering Ester’s arguments, we agree with Manuel that Ester’s refusal of the payment was without basis.

Ester refused to accept the payment because the bank required her to first sign a deed of release/cancellation of the mortgage before
the proceeds of the PNB loan could be released. As a prior mortgagee, she claimed that the spouses Go Cinco should have obtained
her consent before offering the properties already mortgaged to her as security for the PNB loan. Moreover, Ester alleged that the SPA
merely authorized her to collect the proceeds of the loan; there was no explicit agreement that the MTLC loan would be paid out of the
proceeds of the PNB loan.

There is nothing legally objectionable in a mortgagor’s act of taking a second or subsequent mortgage on a property already
mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice, subject to the prior rights of previous
mortgages. Section 4, Rule 68 of the 1997 Rules of Civil Procedure on the disposition of the proceeds of sale after foreclosure actually
requires the payment of the proceeds to, among others, the junior encumbrancers in the order of their priority.17 Under Article 2130 of
the Civil Code, a stipulation forbidding the owner from alienating the immovable mortgaged is considered void. If the mortgagor-owner
is allowed to convey the entirety of his interests in the mortgaged property, reason dictates that the lesser right to encumber his
property with other liens must also be recognized. Ester, therefore, could not validly require the spouses Go Cinco to first obtain her
consent to the PNB loan and mortgage. Besides, with the payment of the MTLC loan using the proceeds of the PNB loan, the mortgage
in favor of the MTLC would have naturally been cancelled.

We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB loan to the MTLC loan.
Beginning July 16, 1989, Manuel had already expressed intent to pay his loan with MTLC and thus requested for an updated statement
of account. Given Manuel’s express intent of fully settling the MTLC loan and of paying through the PNB loan he would secure (and in
fact secured), we also cannot give credit to the claim that the SPA only allowed Ester to collect the proceeds of the PNB loan, without
giving her the accompanying authority, although verbal, to apply these proceeds to the MTLC loan. Even Ester’s actions belie her claim
as she in fact even went to the PNB to collect the proceeds. In sum, the surrounding circumstances of the case simply do not support
Ester’s position.

b. Unjust Refusal Cannot be Equated to Payment

While Ester’s refusal was unjustified and unreasonable, we cannot agree with Manuel’s position that this refusal had the effect of
payment that extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on this point when it provides that –

ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or sum due. [Emphasis supplied.]

In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent extinguishment of
the obligation to pay, the law requires the companion acts of tender of payment and consignation.

Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,18 is the definitive act of offering the creditor
what is due him or her, together with the demand that the creditor accept the same. When a creditor refuses the debtor’s tender of
payment, the law allows the consignation of the thing or the sum due. Tender and consignation have the effect of payment, as by
consignation, the thing due is deposited and placed at the disposal of the judicial authorities for the creditor to collect.19

A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC, as PNB would not
release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of mortgage, which she unjustly
refused to do. Hence, to compel Ester to accept the loan proceeds and to prevent their mortgaged properties from being foreclosed, the
spouses Go Cinco found it necessary to institute the present case for specific performance and damages.

c. Effects of Unjust Refusal

Under these circumstances, we hold that while no completed tender of payment and consignation took place sufficient to constitute
payment, the spouses Go Cinco duly established that they have legitimately secured a means of paying off their loan with MTLC; they
were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB loan through her refusal to execute
the release of the mortgage on the properties mortgaged to MTLC. In other words, MTLC and Ester in fact prevented the spouses Go
Cinco from the exercise of their right to secure payment of their loan. No reason exists under this legal situation why we cannot compel
MTLC and Ester: (1) to release the mortgage to MTLC as a condition to the release of the proceeds of the PNB loan, upon PNB’s
acknowledgment that the proceeds of the loan are ready and shall forthwith be released; and (2) to accept the proceeds, sufficient to
cover the total amount of the loan to MTLC, as payment for Manuel’s loan with MTLC.

We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the equivalent of a tender of
payment that cannot but have legal effect. Since payment was available and was unjustifiably refused, justice and equity demand that
the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from the time the unjust refusal took
place;20 they would not have been liable for any interest from the time tender of payment was made if the payment had only been
accepted. Under Article 19 of the Civil Code, they should likewise be entitled to damages, as the unjust refusal was effectively an
abusive act contrary to the duty to act with honesty and good faith in the exercise of rights and the fulfillment of duty.

For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco (₱1,044,475.15, plus ₱563.63 per month)
representing loss of savings on interests for lack of legal basis. These amounts were computed based on the difference in the interest
rates charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum), from the date of tender of payment up to the time
of the promulgation of the RTC decision. The trial court failed to consider the effects of a tender of payment and erroneously declared
that MTLC can charge interest at the rate of only 18% per annum – the same rate that PNB charged, not the 36% interest rate that
MTLC charged; the RTC awarded the difference in the interest rates as actual damages.

As part of the actual and compensatory damages, the RTC also awarded ₱100,000.00 to the spouses Go Cinco representing
unrealized profits. Apparently, if the proceeds of the PNB loan (₱1,203,685.17) had been applied to the MTLC loan (₱1,071,256.55),
there would have been a balance of ₱132,428.62 left, which amount the spouses Go Cinco could have invested in their businesses that
would have earned them a profit of at least ₱100,000.00.1avvphi1

We find no factual basis for this award. The spouses Go Cinco were unable to substantiate the amount they claimed as unrealized
profits; there was only their bare claim that the excess could have been invested in their other businesses. Without more, this claim of
expected profits is at best speculative and cannot be the basis for a claim for damages. In Lucas v. Spouses Royo,21 we declared that:

In determining actual damages, the Court cannot rely on speculation, conjecture or guesswork as to the amount. Actual and
compensatory damages are those recoverable because of pecuniary loss in business, trade, property, profession, job or occupation
and the same must be sufficiently proved, otherwise, if the proof is flimsy and unsubstantiated, no damages will be given.
[Emphasis supplied.]

We agree, however, that there was basis for the award of moral and exemplary damages and attorney’s fees.

Ester’s act of refusing payment was motivated by bad faith as evidenced by the utter lack of substantial reasons to support it. Her unjust
refusal, in her behalf and for the MTLC which she represents, amounted to an abuse of rights; they acted in an oppressive manner and,
thus, are liable for moral and exemplary damages.22 We nevertheless reduce the ₱1,000,000.00 to ₱100,000.00 as the originally
awarded amount for moral damages is plainly excessive.

We affirm the grant of exemplary damages by way of example or correction for the public good in light of the same reasons that justified
the grant of moral damages.

As the spouses Go Cinco were compelled to litigate to protect their interests, they are entitled to payment of 10% of the total amount of
awarded damages as attorney’s fees and expenses of litigation.

WHEREFORE, we GRANT the petitioners’ petition for review on certiorari, and REVERSE the decision of June 22, 2001 of the Court of
Appeals in CA-G.R. CV No. 47578, as well as the resolution of January 25, 2002 that followed. We REINSTATE the decision dated
August 16, 1994 of the Regional Trial Court, Branch 25, Maasin, Southern Leyte, with the following MODIFICATIONS:

(1) The respondents are hereby directed to accept the proceeds of the spouses Go Cinco’s PNB loan, if still available, and to
consent to the release of the mortgage on the property given as security for the loan upon PNB’s acknowledgment that the
proceeds of the loan, sufficient to cover the total indebtedness to respondent Maasin Traders Lending Corporation computed
as of June 20, 1989, shall forthwith be released;

(2) The award for loss of savings and unrealized profit is deleted;

(3) The award for moral damages is reduced to ₱100,000.00; and

(4) The awards for exemplary damages, attorney’s fees, and expenses of litigation are retained.
The awards under (3) and (4) above shall be deducted from the amount of the outstanding loan due the respondents as of June 20,
1989. Costs against the respondents. SO ORDERED.

32. G.R. No. 181723               August 11, 2014

ELIZABETH DEL CARMEN, Petitioner,

vs.
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM-SABORDO, Respondents.

DECISION

PERALTA, J.:

This treats of the petition for review on certiorari assailing the Decision1 and Resolution2 of the Court of Appeals (CA), dated May 25,
2007 and January 24, 2008, respectively, in CA-G.R. CV No. 75013.

The factual and procedural antecedents of the case are as follows:

Sometime in 1961, the spouses Toribio and Eufrocina Suico (Suico spouses), along with several business partners, entered into a
business venture by establishing a rice and com mill at Mandaue City, Cebu. As part of their capital, they obtained a loan from the
Development Bank of the Philippines (DBP), and to secure the said loan, four parcels of land owned by the Suico spouses,
denominated as Lots 506, 512, 513 and 514, and another lot owned by their business partner, Juliana Del Rosario, were mortgaged.
Subsequently, the Suico spouses and their business partners failed to pay their loan obligations forcing DBP to foreclose the mortgage.
After the Suico spouses and their partners failed to redeem the foreclosed properties, DBP consolidated its ownership over the same.
Nonetheless, DBP later allowed the Suico spouses and Reginald and Beatriz Flores (Flores spouses), as substitutes for Juliana Del
Rosario, to repurchase the subject lots by way of a conditional sale for the sum of ₱240,571.00. The Suico and Flores spouses were
able to pay the downpayment and the first monthly amortization, but no monthly installments were made thereafter. Threatened with the
cancellation of the conditional sale, the Suico and Flores spouses sold their rights over the said properties to herein respondents
Restituto and Mima Sabordo, subject to the condition that the latter shall pay the balance of the sale price. On September 3, 1974,
respondents and the Suico and Flores spouses executed a supplemental agreement whereby they affirmed that what was actually sold
to respondents were Lots 512 and 513, while Lots 506 and 514 were given to them as usufructuaries. DBP approved the sale of rights
of the Suico and Flores spouses in favor of herein respondents. Subsequently, respondents were able to repurchase the foreclosed
properties of the Suico and Flores spouses.

On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then Court of First Instance of Negros Occidental an
original action for declaratory relief with damages and prayer for a writ of preliminary injunction raising the issue of whether or not the
Suico spouses have the right to recover from respondents Lots 506 and 514.

In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San Carlos City, Negros Occidental, ruled in favor of the
Suico spouses directing that the latter have until August 31, 1987 within which to redeem or buy back from respondents Lots 506 and
514.

On appeal, the CA, in its Decision3 in CA-G.R. CV No. 13785, dated April 24, 1990, modified the RTC decision by giving the Suico
spouses until October 31, 1990 within which to exercise their option to purchase or redeem the subject lots from respondents by paying
the sum of ₱127,500.00. The dispositive portion of the CADecision reads as follows:

xxxx

For reasons given, judgment is hereby rendered modifying the dispositive portion of [the] decision of the lower court to read:

1) The defendants-appellees are granted up to October 31, 1990 within which toexercise their option to purchase from the
plaintiff-appellant Restituto Sabordo and Mima Mahilum Lot No. 506, covered by Transfer Certificate of Title No. T-102598 and
Lot No. 514, covered by Transfer Certificate of Title No. T-102599, both of Escalante Cadastre, Negros Occidental by
reimbursing or paying to the plaintiff the sum of ONE HUNDRED TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS
(₱127,500.00);

2) Within said period, the defendants-appellees shall continue to have usufructuary rights on the coconut trees on Lots Nos.
506 and 514, Escalante Cadastre, Negros Occidental;

3) The Writ of Preliminary Injunction dated August 12, 1977 shall be effective untildefendants-appellees shall have exercised
their option to purchase within said period by paying or reimbursing to the plaintiff-appellant the aforesaid amount.

No pronouncement as to costs.
SO ORDERED.4

In a Resolution5 dated February 13, 1991, the CA granted the Suico spouses an additional period of 90 days from notice within which to
exercise their option to purchase or redeem the disputed lots.

In the meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina, and several others, includingherein petitioner, as legal heirs.
Later, they discovered that respondents mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as security for a loan which,
subsequently, became delinquent.

Thereafter, claiming that theyare ready with the payment of ₱127,500.00, but alleging that they cannot determine as to whom such
payment shall be made, petitioner and her co-heirs filed a Complaint6 with the RTC of San Carlos City, Negros Occidental seeking to
compel herein respondents and RPB to interplead and litigate between themselves their respective interests on the abovementioned
sum of money.1âwphi1 The Complaint also prayed that respondents be directed to substitute Lots 506 and 514 with other real estate
properties as collateral for their outstanding obligation with RPB and that the latter be ordered toaccept the substitute collateral and
release the mortgage on Lots 506 and 514. Upon filing of their complaint, the heirs of Toribio deposited the amount of ₱127,500.00 with
the RTC of San Carlos City, Branch 59.

Respondents filed their Answer7 with Counterclaim praying for the dismissal of the above Complaint on the grounds that (1) the action
for interpleader was improper since RPB isnot laying any claim on the sum of ₱127,500.00; (2) that the period withinwhich the
complainants are allowed to purchase Lots 506 and 514 had already expired; (3) that there was no valid consignation, and (4) that the
case is barred by litis pendenciaor res judicata.

On the other hand, RPB filed a Motion to Dismiss the subject Complaint on the ground that petitioner and her co-heirs had no valid
cause of action and that they have no primary legal right which is enforceable and binding against RPB.

On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of petitioner and her co-heirs for lack of
merit.8 Respondents' Counterclaim was likewise dismissed.

Petitioner and her co-heirs filed an appeal with the CA contending that the judicial deposit or consignation of the amount of
₱127,500.00 was valid and binding and produced the effect of payment of the purchase price of the subject lots.

In its assailed Decision, the CA denied the above appeal for lack of merit and affirmed the disputed RTC Decision.

Petitioner and her co-heirs filed a Motion for Reconsideration,9 but it was likewise denied by the CA.

Hence, the present petition for review on certiorariwith a lone Assignment of Error, to wit:

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT WHICH HELD THAT THE JUDICIAL
DEPOSIT OF ₱127,500.00 MADE BY THE SUICOS WITH THE CLERK OF COURT OF THE RTC, SAN CARLOS CITY, IN
COMPLIANCE WITH THE FINAL AND EXECUTORY DECISION OF THE COURT OF APPEALS IN CA-G.R. CV-13785 WAS NOT
VALID.10

Petitioner's main contention is that the consignation which she and her co-heirs made was a judicial deposit based on a final judgment
and, as such, does not require compliance with the requirements of Articles 125611 and 125712 of the Civil Code.

The petition lacks merit. At the outset, the Court quotes withapproval the discussion of the CA regarding the definition and nature of
consignation, to wit: … consignation [is] the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment, and it generally requires a prior tender of payment. It should be distinguished from tender
of payment which is the manifestation by the debtor to the creditor of his desire to comply with his obligation, with the offer of immediate
performance.Tender is the antecedent of consignation, thatis, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial,
while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. Tender and consignation, where validly made, produces the effect of payment and extinguishes the
obligation.13

In the case of Arzaga v. Rumbaoa,14 which was cited by petitioner in support of his contention, this Court ruled that the deposit made
with the court by the plaintiff-appellee in the saidcase is considered a valid payment of the amount adjudged, even without a prior
tender of payment thereof to the defendants-appellants,because the plaintiff-appellee, upon making such deposit, expressly petitioned
the court that the defendants-appellees be notified to receive the tender of payment.This Court held that while "[t]he deposit, by itself
alone, may not have been sufficient, but with the express terms of the petition, there was full and complete offer of payment made
directly to defendants-appellants."15 In the instant case, however, petitioner and her co-heirs, upon making the deposit with the RTC,
did not ask the trial court that respondents be notified to receive the amount that they have deposited. In fact, there was no tender of
payment. Instead, what petitioner and her co-heirs prayed for is thatrespondents and RPB be directed to interplead with one another to
determine their alleged respective rights over the consigned amount; that respondents be likewise directed to substitute the subject lots
with other real properties as collateral for their loan with RPB and that RPB be also directed to accept the substitute real properties as
collateral for the said loan. Nonetheless,the trial court correctly ruled that interpleader is not the proper remedy because RPB did
notmake any claim whatsoever over the amount consigned by petitioner and her co-heirs with the court.

In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17 likewise cited as authority by petitioner, this Court held that, for a
consignation or deposit with the court of an amount due on a judgment to be considered as payment, there must beprior tender to the
judgment creditor who refuses to accept it. The same principle was reiterated in the later case of Pabugais v. Sahijwani.18 As stated
above, tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the
obligee for the former’s obligation and demanding that the latter accept the same.19 In the instant case, the Court finds no cogent
reason to depart from the findings of the CA and the RTC that petitioner and her co-heirs failed to make a prior valid tender of payment
to respondents.

It is settled that compliance with the requisites of a valid consignation is mandatory.20 Failure to comply strictly with any of the requisites
will render the consignation void. One of these requisites is a valid prior tender of payment.21

Under Article 1256, the only instances where prior tender of payment is excused are: (1) when the creditor is absent or unknown, or
does not appear at the place of payment; (2) when the creditor is incapacitated to receive the payment at the time it is due; (3) when,
without just cause, the creditor refuses to give a receipt; (4) when two or more persons claim the same right to collect; and (5) when the
title of the obligation has been lost. None of these instances are present in the instant case. Hence, the fact that the subject lots are in
danger of being foreclosed does not excuse petitioner and her co-heirs from tendering payment to respondents, as directed by the
court.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals, dated May 25, 2007, and its Resolution dated
January 24, 2008, both in CA-G.R. CV No. 75013, are AFFIRMED.

SO ORDERED.
 33. G.R. No. 126890               March 9, 2010

UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO), Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) and ASSET PRIVATIZATION TRUST (APT), AS
TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES Respondents.

RESOLUTION

PERALTA, J.:

For consideration is the Motion for Reconsideration of petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO) seeking to
reverse and set aside the Resolution of the Court dated April 2, 2009 which granted both Second Motions for Reconsideration filed by
respondents Privatization and Management Office (PMO), formerly Asset Privatization Trust (APT), and Philippine National Bank
(PNB), and reinstated the Decision of the Court of Appeals dated February 29, 1996 which, in turn, reversed and set aside the Decision
of the Regional Trial Court, Branch 45, Bais, Negros Oriental. The dispositive portion of the CA Decision reads:

WHEREFORE, the appealed decision is hereby set aside and judgment is herein rendered declaring that the subject Deed of
Assignment has not condoned all of UPSUMCO’s obligations to APT as assignee of PNB.

To determine how much APT is entitled to recover on its counterclaim, it is required to render an accounting before the Regional Trial
Court on the total payments made by UPSUMCO on its obligations including the following amounts:

(1) The sum seized from it by APT whether in cash or in kind (from UPSUMCO’s bank deposits as well as sugar and molasses
proceeds):

(2) The total obligations covered by the following documents:

(a) Credit agreement dated November 05, 1974 (Exh. "1," Record p. 528); and

(b)

(c) The Restructuring Agreements dated (i) June 24, 1982, (ii) December 10, 1982, and (3) May 9, 1984 and

(3) The P450,000,000.00 proceeds of the foreclosure

Should there be any deficiency due APT after deducting the foregoing amounts from UPSUMCO’s total obligation in the amount of
(₱2,137,076,433.15), the latter is hereby ordered to pay the same. However, if after such deduction there should be any excess
payment, the same should be turned over to UPSUMCO.

The Regional Trial Court is hereby directed to receive APT’s accounting and thereafter, to render the proper disposal of this case in
accordance with the foregoing findings and disposition.

Costs against appellees.

SO ORDERED.

Petitioner prefaces its arguments that it is the aggrieved party, not the government as represented by respondent APT (now the PMO),
as its deposits with respondent PNB were taken without its prior knowledge and that it was reluctant to give assent to the desire of the
government to forego redemption of its assets by reason of uncontested foreclosure.

Facts showed that in 1974, petitioner, engaged in the business of milling sugar, obtained "takeoff loans" from respondent PNB to
finance the construction of a sugar milling plant which were covered by a Credit Agreement dated November 5, 1974. The said loans
were thrice restructured through Restructuring Agreements dated June 24, 1982, December 10, 1982, and May 9, 1984. The takeoff
loans were secured by a real estate mortgage over two parcels of land where the milling plant stood and chattel mortgages over certain
machineries and equipment. Also included in the condition for the takeoff loans, petitioner agreed to "open and/or maintain a deposit
account with [respondent PNB] and the bank is authorized at its option to apply to the payment of any unpaid obligations of the client
any/and all monies, securities which may be in its hands on deposit."
From 1984 to 1987, petitioner contracted another set of loans from respondent PNB, denominated as "operational loans," for the
purpose of financing its operations, which also contained setoff clauses relative to the application of payments from petitioner’s bank
accounts. They were likewise secured by pledge contracts whereby petitioner assigned to respondent PNB all its sugar produce for the
latter to sell and apply the proceeds to satisfy the indebtedness arising from the operational loans.

Later, respondent APT and petitioner agreed to an "uncontested" or "friendly foreclosure" of the mortgaged assets, in exchange for
petitioner’s waiver of its right of redemption. On July 28, 1987, respondent PNB (as mortgagee) and respondent APT (as assignee and
transferee of PNB’s rights, titles and interests) filed a Petition for Extrajudicial Foreclosure Sale with the Ex-Officio Regional Sheriff of
Dumaguete City, seeking to foreclose on the real estate and chattel mortgages which were executed to secure the takeoff loans. The
foreclosure sale was conducted on August 27, 1987 whereby respondent APT purchased the auctioned properties for
₱450,000,000.00.

Seven (7) days after the foreclosure sale, or on September 3, 1987, petitioner executed a Deed of Assignment assigned to respondent
APT its right to redeem the foreclosed properties, in exchange for or in consideration of respondent APT "condoning any deficiency
amount it may be entitled to recover from the Petitioner under the Credit Agreement dated November 5, 1974, and the Restructuring
Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984, respectively, executed between [UPSUMCO] and PNB…" On
the same day, the Board of Directors of petitioner approved the Board Resolution authorizing Joaquin Montenegro, its President, to
enter into said Deed of Assignment.1avvphi1

Despite the Deed of Assignment, petitioner filed a complaint on March 10, 1989 for sum of money and damages against respondents
PNB and APT before the Regional Trial Court (RTC) of Bais City alleging therein that respondents had illegally appropriated funds
belonging to petitioner, through the following means: (1) withdrawals made from the bank accounts opened by petitioner beginning
August 27, 1987 until February 12, 1990; (2) the application of the proceeds from the sale of the sugar of petitioner beginning August
27, 1987 until December 4, 1987; (3) the payment from the funds of petitioner with respondent PNB for the operating expenses of the
sugar mill after September 3, 1987, allegedly upon the instruction of respondent APT and with the consent of respondent PNB.

The RTC rendered judgment in favor of the petitioner. On appeal, the CA reversed and set aside the RTC Decision and ruled that only
the "takeoff" loans and not the operational loans were condoned by the Deed of Assignment. In a Decision dated November 28, 2006
and Resolution dated July 11, 2007, the Court (Third Division) reversed and set aside the CA Decision. The case was thereafter
referred to the Court en banc which reversed the ruling of the Third Division.

In its Motion for Reconsideration, petitioner raises the following grounds:

1. The order of the Honorable Court En Banc reinstating the decision of the Honorable Court of Appeals would be inconsistent
with the facts of the case and the findings of this Honorable Court.

2. There is no valid ground to conclude that APT has still the right to the deposit of UPSUMCO after the August 27, 1987
friendly foreclosure, and the withdrawal of ₱80,200,806.41 as payment could be applied either as repayment on the Take-off
Loans or for the Operational Loans.

3. The findings that the condonation took effect only after the execution of the Deed of Assignment hence upholds the validity
of APT’s taking of the deposit of ₱80,200,806.41 in UPSUMCO’s PNB account as payment of the deficiency is without basis.

4. The admission of the case by Honorable Court En Banc after the denial of the Second Division of the Second Motion for
Reconsideration and the referral of the case to the Honorable Court En Banc appear not to be in accordance with the Rules of
Procedure.

5. The basis for admission of the case to the Honorable Court En Banc are belated issues which have no other purpose but to
give apparent reasons for the elevation of the case.

6. There is no legal basis for the withdrawals of UPSUMCO’s deposit on the ground of conventional compensation.

7. Since the amount of ₱17,773,185.24 could not be the subject of conventional compensation, it should be returned to
petitioner immediately by respondents.

After a careful review of the arguments in the petitioner’s motion for reconsideration, the Court finds the same to be mere rehash of the
main points already set forth in the Court’s En Banc Resolution of April 2, 2009 and, hence, denies the same for lack of merit. The
pertinent portions of the decision read as follows:

The rulings of the lower courts, as well as the petition itself, are not clear as to the amount extended by way of takeoff loans by PNB to
UPSUMCO. However, the Court of Appeals did enumerate the following transactions consisting of the operational loans, to wit:

(1) Trust Receipts dated August 26, 1987; February 5, 1987; and July 10, 1987;
 (2) Deed of Assignment By Way of Payment dated November 16, 1984 (Exh. 3 [PNB]; Exh. 12 [APT]; Record, p. 545);

(3) Two (2) documents of Pledge both dated February 19, 1987;

(4) Sugar Quedans (Exh. 13 to 16; Record, pp 548 to 551);

(5) Credit Agreements dated February 19, 1987 (Exhs. "2" [PNB] & "4" [APT]; Record, pp. 541-544) and April 29, 1987 (Exh.
"11" [APT]; Record, pp. 314-317).

(6) Promissory Notes dated February 20, 1987 (Exh. "17"; Record, p. 573); March 2, 1987 (Exh. "18"; Record, p. 574); March
3, 1987 (Exh. "19"; Record, p. 575); March 27, 1987; (Exh. "20"; Record, p. 576); March 30, 1987(Exh. "21"; Record, p. 577);
April 7, 1987 (Exh. "22"; Record, p. 578); May 22, 1987 (Exh. "23"; Record, p. 579); and July 30, 1987 (Exh. "24"; record p.
580).

On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its "rights" titles and interests over UPSUMCO,
among several other assets. The Deed of Transfer acknowledged that said assignment was being undertaken "in compliance with
Presidential Proclamation No. 50." The Government subsequently transferred these "rights" titles and interests" over UPSUMCO to
respondent Asset and Privatization Trust (APT), [now PMO].

xxxx

This much is clear. The Deed of Assignment condoned only the take-off loans, and not the operational loans. The Deed of Assignment
in its operative part provides, thus:

That United Planter[s] Sugar Milling Co., Inc. (the "Corporation") – pursuant to a resolution passed by its board of Directors on
September 3, 1087, and confirmed by the Corporation’s stockholders in a stockholders’ Meeting held on the same (date), for and in
consideration of the Asset Privatization Trust ("APT") condoning any deficiency amount it may be entitled to recover from the
Corporation under the Credit Agreement dated November 5, 1974 and the Restructuring Agreement[s] dated June 24, and December
10, 1982, and May 9, 1984, respectively, executed between the Corporation and the Philippine National Bank ("PNB"), which financial
claims have been assigned to APT, through the National Government, by PNB, hereby irrevocably sells, assigns and transfer to APT its
right to redeem the foreclosed real properties covered by Transfer Certificates of Titles Nos. T-16700 and T-16701.

IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf by Mr. Joaquin S. Montenegro,
thereunto duly authorized, this 3rd day of September, 1997.

xxxx

This notwithstanding, the RTC Decision was based on the premise that all of UPSUMCO’s loans were condoned in the Deed of
Assignment. In contrast, the Court of Appeals acknowledged that only the take-off loans were condoned, and thus ruled that APT was
entitled to have the funds from UPSUMCOS’s accounts transferred to its own account "to the extent of UPSUMCO’s remaining
obligation, less the amount condoned in the Deed of Assignment and the 450,000,000.00 proceeds of the foreclosure."

The challenged acts of respondents all occurred on or after 27 August 1987, the day of the execution sale. UPSUMCO argues
that after that date, respondents no longer had the right to collect monies from the PNB bank accounts which UPSUMCO had
opened and maintained as collateral for its operational take-off loans. UPSUMCO is wrong. After 27 August 1987, there were
at least two causes for the application of payments from UPSUMCO’s PNB accounts. The first was for the repayment of the
operational loans, which were never condoned. The second was for the repayment of the take-off loans which APT could
obtain until 3 September 1987, the day the condonation took effect.

The error of the Court’s earlier rulings, particularly the Resolution dated 11 July 2007, was in assuming that the non-condonation of the
operational loans was immaterial to the application of payments made in favor of APT from UPSUMCOS’s PNB accounts that occurred
after 27 August 1987. For as long as there remained outstanding obligations due to APT (as PNB’s successor-in-interest), APT would
be entitled to apply payments from the bank accounts of PNB. That right had been granted in favor of PNB, whether on account of the
take-off loans or the operational loans.

Petitioner filed with the RTC the complaint which alleged that "among the conditions of the ‘friendly foreclosure’ are: (A) That all the
accounts of [United Planters] are condoned, including the JSS notes at the time of the public bidding." It was incumbent on petitioner,
not respondents, to prove that particular allegation in its complaint. Was petitioner able to establish that among the conditions of the
"friendly foreclosure’ was that "all its accounts are condoned"? It did not, as it is now agreed by all that only the take-off loans were
condoned.

This point is material, since the 2007 Resolution negated the findings that only the take-off loans were condoned by faulting
respondents for failing to establish that there remained outstanding operational loans on which APT could apply payments from
UPSUMCO’s bank accounts. By the very language of the Deed of Assignment, it was evident that UPSUMCO’s allegation in its
complaint that all of its accounts were condoned was not proven. Even if neither PNB nor APT had filed an answer, there would have
been no basis in fact for the trial court to conclude that all of UPSUMCO’s loans were condoned (as the RTC in this case did), or issue
reliefs as if all the loans were condoned (as the 2007 Resolution did).

As noted earlier, APT had the right to apply payments from UPSUMCO’s bank accounts, by virtue of the terms of the operational loan
agreements. Considering that UPSUMCO was spectacularly unable to repay the take-off loans it had earlier transacted, it simply
beggars belief to assume that it had fully paid its operational loans. Moreover, APT had the right to obtain payment of the operational
loans by simply applying payments from UPSUMCO’s bank accounts, without need of filing an action for collection with the courts. The
bank accounts were established precisely to afford PNB (and later APT) extrajudicial and legal means to obtain repayment of
UPSUMCO’s outstanding loans without hassle.

B.

There is no question that the Deed of Assignment condoned the outstanding take-off loans of UPSUMCO due then to APT. The Deed
of Assignment was executed on 3 September 1987 as was the UPSUMCO Board Resolution authorizing its President to sign the Deed
of Assignment. However, despite the absence of any terms to that effect in the Deed of Assignment, it is UPSUMCO’s position that the
condonation actually had retroacted to 27 August 1987. The previous rulings of the Court unfortunately upheld that position.

It is easy to see why UPSUMCO would pose such an argument. It appears that between 27 August 1987 and 3 September 1987. APT
applied payments from UPSOMCO’s bank accounts in the amount of around 80 Million Pesos. UPSUMCO obviously desires the return
of the said amount. But again, under the terms of the loan arguments, APT as successor-in-interest of PNB, had the right to seize any
amounts deposited in UPSUMCO’S bank accounts as long as UPSUMCO remained indebted under the loan agreements. Since
UPSUMCO was released from its take-off loans only on 3 September 1987, as indicated in the Deed of Assignment, then APT’s
application of payments is perfectly legal.

The earlier rulings of the Court were predicated on a finding that there was a "friendly foreclosure" agreement between APT and
UPSUMCO, whereby APT agreed to condone all of UPSUMCO’s outstanding obligations in exchange for UPSUMCO’s waiver of its
right to redeem the foreclosed property. However, no such agreement to the effect was ever committed to writing or presented in
evidence. The written agreement actually set forth was not as contended by UPSUMCO. For one, not all of the outstanding loans were
condoned by APT since the take-off loans were left extant. For another, the agreement itself did not indicate any date of effectivity other
than the date of the execution of the agreement, namely 3 September 1987.

It is argued that the use of the word "any" in "any deficiency amount" sufficiently establishes the retroactive nature of the condonation.
The argument hardly convinces. The phrase "any deficiency amount" could refer not only to the remaining deficiency amount after the
27 August foreclosure sale, but also the remaining deficiency amount as of 3 September 1987, when the Deed of Assignment was
executed and after APT had exercised its right as creditor to apply payments from petitioner’s PNB accounts. The Deed of Assignment
was not cast in intractably precise terms, and both interpretations can certainly be accommodated.

It is in that context that the question of parol evidence comes into play. The parol evidence rule states that generally, when the terms of
an agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be no evidence of
such terms other than the contents of the written agreement. Assuming that the Deed of Assignment failed to accurately reflect an
intent of the parties to retroact the effect of condonation to the date of the foreclosure sale, none of the parties, particularly UPSUMCO,
availed of its right to seek the reformation of the instrument to the end that such true intention may be expressed. As there is nothing in
the text of Deed of Assignment that clearly gives retroactive effect to the condonation, the parol evidence rule generally bars any other
evidence of such terms other than the contents of the written agreement, such as evidence that the said Deed had retroactive effect.

It is argued that under Section 9, Rule 130, a party may present evidence to modify, explain or add to the terms of the written
agreement if it is put in issue in the pleading, "[t]he failure of the written agreement to express the true intent and the agreement of the
parties thereto."

Petitioner did not exactly state in its Amended Complaint that the condonation effected in the Deed of Assignment had retroacted to the
date of the foreclosure sale. What petitioner contented in its amended complaint was that the Deed of Assignment "released and
discharged plaintiff from any and all obligations due the defendant PNB and defendant APT," that "after the foreclosure by PNB/APT
plaintiff is entitled to all the funds it deposited or being held by PNB in all its branches," and that "among the conditions of the ‘friendly
foreclosure’ are that all the accounts of the plaintiff are condoned." It remains unclear whether petitioner had indeed alleged in its
Amended Complaint that the Deed of Assignment executed on 3 September1987 had retroacted effect as of the foreclosure sale, or on
27 August 1987. If petitioner were truly mindful to invoke the exception to the parol evidence rule and intent on claiming that the
condonation had such retroactive effect, it should have employed more precise language to the effect in their original and amended
complaints.

xxxx

The right of respondent PNB to set-off payments from UPSUMCO arose from conventional compensation rather than legal
compensation, even if all the requisites for legal compensation were present between those two parties. The determinative factor is the
mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express agreement stipulating compensation,
PNB and UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were
present.

As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist. However,
PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the presence of all the
requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under conventional
compensation. The absence of the mutual creditor-debtor relation between the new creditor APT and UPSUMCO cannot negate the
conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding obligations of
UPSUMCO on the basis of conventional compensation before the condonation took effect on 3 September 1987.

V.

The conclusions are clear. First.  Between 27 August to 3 September 1987, APT had the right to apply payments from UPSUMCO’s
bank accounts maintained with PNB as repayment for the take-off loans and/or the operational loans. Considering that as of 30 June
1987, the total indebtedness of UPSUMCO as to the take-off loans amounted to P2,137,076,433.15, and because the foreclosed
properties were sold during the execution sale for only 450 Million Pesos, it is safe to conclude that the total amount of P80,200,806.41
debited from UPSUMCO’s bank accounts from 27 August to 3 September 1987 was very well less than the then outstanding
indebtedness for the take-off loans. It was only on 3 September 1987 that the take-off loans were condoned by APT, which lost only on
that date too the right to apply payments from UPSUMCO’S bank accounts to pay the take-off loans.

Second. After 3 September 1987, APT retained the right to apply payments from the bank accounts of UPSUMCO with PNB to answer
for the outstanding indebtedness under the operational loan agreements. It appears that the amount of P17,773,185.24 was debited
from UPSUMCO’s bank accounts after 3 September. At the same time, it remains unclear what were the amounts of outstanding
indebtedness under the operational loans at the various points after 3 September 1987 when the bank accounts of UPSUMCO were
debited.

The Court of Appeals ordered the remand of the case to the trial court, on the premise that it was unclear how much APT was entitled
to recover by way of counterclaim. It is clear that the amount claimed by APT by way of counterclaim – over 1.6 Billion Pesos – is over
and beyond what it can possibly be entitled to, since it is clear that the take-off loans were actually condoned as of 3 September 1987.
At the same time, APT was still entitled to repayment of UPSUMCO’s operational loans. It is not clear to what extent, if at all, the
amounts debited from UPSUMCO’s bank accounts after 3 September 1987 covered UPSUMCO’s outstanding indebtedness under the
operational loans. Said amounts could be insufficient, just enough, or over and beyond what UPSUMCO actually owed, in which case
the petitioner should be entitled to that excess amount debited after 3 September 1987. Because it is not evident from the voluminous
records what was the outstanding balance of the operational loans at the various times post-September 3 UPSUMCO’s bank accounts
were debited, the remand ordered by the Court of Appeal is ultimately the wisest and fairest recourse.1

Petitioner insists that the Court should not have taken cognizance of the respondents’ second motions for reconsideration with the
prayer that the case be referred to the Court en banc  as the same appear not to be in accordance with the rules.

Generally, under Section 3 of the Court’s Circular No. 2-89, effective March 1, 1989, the referral to the Court en banc  of cases assigned
to a Division is to be denied on the ground that the Court en banc  is not an Appellate Court to which decisions or resolutions of a
Division may be appealed. Moreover, a second motion for reconsideration of a judgment or final resolution shall not be entertained for
being a prohibited pleading under Section 2, Rule 52, in relation to Section 4, Rule 56 of the Rules of Court, except for extraordinarily
persuasive reasons and only after an express leave shall have first been obtained.2 Accordingly, the Court, in the exercise of its sound
discretion, determines the issues which are of transcendental importance, as in the present case, which necessitates it to accept the
referral of a Division case before it and the grant of a second motion for reconsideration.

In sum, the Resolution of the Court En Banc reinstating the Decision of the CA categorically ruled that only its takeoff loans, not the
operational loans, were condoned by the Deed of Assignment dated September 3, 1987. The Deed of Assignment expressly stipulated
the particular loan agreements which were covered therein. As such, respondent APT was entitled to have the funds from petitioner’s
savings accounts with respondent PNB transferred to its own account, to the extent of petitioner’s remaining obligations under the
operational loans, less the amount condoned in the Deed of Assignment and the ₱450,000,000.00 proceeds of the foreclosure. As the
En Banc Resolution explained, respondent APT had a right to go after the bank deposits of petitioner, in its capacity as the creditor of
the latter. Likewise, respondent PNB had the right to apply the proceeds of the sale of petitioner’s sugar and molasses, in satisfaction of
petitioner’s obligations. Respondent PNB never waived these rights and the same were transferred to respondent APT (now PMO) by
virtue of the Deed of Transfer executed between them. Moreover, there was no conventional subrogation since such requires the
consent of the original parties and of the third persons and there was no evidence that the consent of petitioner (as debtor) was
secured when respondent PNB assigned its rights to respondent APT, and that the assignment by respondent PNB to respondent APT
arose by mandate of law and not by the volition of the parties. Accordingly, the remand of the case to the RTC for computation of the
parties’ remaining outstanding balances was proper. The doctrine of stare decisis et no quieta movere3 or principle of adherence to
precedents does not apply to the present case so as to bar the Court en banc  from taking cognizance over the case which rectified the
disposition of the case and reversed and set aside the Decision rendered by a Division thereof.

WHEREFORE, the Motion for Reconsideration filed by petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO) is DENIED
WITH FINALITY for lack of merit. SO ORDERED.
 34. G.R. No. 191555               January 20, 2014

UNION BANK OF THE PHILIPPINES, Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3, 2009 and Resolution3 dated February 26, 2010 of
the Court of Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the Orders4 dated November 9, 2005 and January 30, 2006 of the
Regional Trial Court of Makati, Branch 585 (RTC) in Civil Case No. 7648 denying the motion to affirm legal compensation6 filed by
petitioner Union Bank of the Philippines (Union Bank) against respondent Development Bank of the Philippines (DBP).

The Facts

Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s predecessor-in-interest, Bancom Development
Corporation (Bancom), and to DBP.

On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of Property In Payment of Debt7 (dacion en pago)
whereby the former ceded in favor of the latter certain properties (including a processing plant in Marilao, Bulacan [processing plant]) in
consideration of the following: (a) the full and complete satisfaction of FI’s loan obligations to DBP; and (b) the direct assumption by
DBP of FI’s obligations to Bancom in the amount of ₱17,000,000.00 (assumed obligations).8

On the same day, DBP, as the new owner of the processing plant, leased back9 for 20 years the said property to FI (Lease Agreement)
which was, in turn, obliged to pay monthly rentals to be shared by DBP and Bancom.

DBP also entered into a separate agreement10 with Bancom (Assumption Agreement) whereby the former: (a) confirmed its assumption
of FI’s obligations to Bancom; and (b) undertook to remit up to 30% of any and all rentals due from FI to Bancom (subject rentals) which
would serve as payment of the assumed obligations, to be paid in monthly installments. The pertinent portions of the Assumption
Agreement reads as follows:

WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above obligations to Bancom which DBP has assumed
shall be settled, paid and/or liquidated by DBP out of a portion of the lease rentals or part of the proceeds of sale of those properties of
the Assignors conveyed to DBP pursuant to the [Deed of Cession of Property in Payment of Debt dated May 21, 1979] and which are
the subject of [the Lease Agreement] made and executed by and between DBP and [FI], the last hereafter referred to as the "Lessee"
to be effective as of July 31, 1978.

xxxx

4. DBP hereby covenants and undertakes that the amount up to 30% of any and all rentals due from the Lessee pursuant to the Lease
Agreement shall be remitted by DBP to Bancom at the latter’s offices at Pasay Road, Makati, Metro Manila within five (5) days from due
dates thereof, and applied in payment of the Assumed Obligations. Likewise, the amount up to 30% of the proceeds from any sale of
the Leased Properties shall within the same period above, be remitted by DBP to Bancom and applied in payment or prepayment of the
Assumed Obligations. x x x.

Any balance of the Assumed Obligations after application of the entire rentals and or the entire sales proceeds actually received by
Bancom on the Leased Properties shall be paid by DBP to Bancom not later than December 29, 1998. (Emphases supplied)

Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease Agreement to Foodmasters Worldwide, Inc.
(FW);11 while on May 9, 1984, Bancom conveyed all its receivables, including, among others, DBP’s assumed obligations, to Union
Bank.12

Claiming that the subject rentals have not been duly remitted despite its repeated demands, Union Bank filed, on June 20, 1984, a
collection case against DBP before the RTC, docketed as Civil Case No. 7648.13 In opposition, DBP countered, among others, that the
obligations it assumed were payable only out of the rental payments made by FI. Thus, since FI had yet to pay the same, DBP’s
obligation to Union Bank had not arisen.14 In addition, DBP sought to implead FW as third party-defendant in its capacity as FI’s
assignee and, thus, should be held liable to Union Bank.15

In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it had ceased to be a real-party-in-interest due to the
supervening transfer of its rights, title and interests over the subject matter to the Asset Privatization Trust (APT). Said motion was,
however, denied by the RTC in an Order dated May 27, 1988.16
 The RTC Ruling in Civil Case No. 7648

Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8, 1990, ordered: (a) DBP to pay Union Bank the sum of
₱4,019,033.59, representing the amount of the subject rentals (which, again, constitutes 30% of FI’s [now FW’s] total rental debt),
including interest until fully paid; and (b) FW, as third-party defendant, to indemnify DBP, as third- party plaintiff, for its payments of the
subject rentals to Union Bank. It ruled that there lies no evidence which would show that DBP’s receipt of the rental payments from FW
is a condition precedent to the former’s obligation to remit the subject rentals under the Lease Agreement. Thus, when DBP failed to
remit the subject rentals to Union Bank, it defaulted on its assumed obligations.18 DBP then elevated the case on appeal before the CA,
docketed as CA-G.R. CV No. 35866.

The CA Ruling in CA-G.R. CV No. 35866

In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the RTC’s ruling, and consequently ordered: (a) FW to
pay DBP the amount of ₱32,441,401.85 representing the total rental debt incurred under the Lease Agreement, including ₱10,000.00
as attorney’s fees; and (b) DBP, after having been paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject rentals) to Union
Bank.20

It rejected Union Bank’s claim that DBP has the direct obligation to remit the subject rentals not only from FW’s rental payments but
also out of its own resources since said claim contravened the "plain meaning" of the Assumption Agreement which specifies that the
payment of the assumed obligations shall be made "out of the portion of the lease rentals or part of the proceeds of the sale of those
properties of [FI] conveyed to DBP."21 It also construed the phrase under the Assumption Agreement that DBP is obligated to "pay any
balance of the Assumed Obligations after application of the entire rentals and/or the entire sales proceeds actually received by [Union
Bank] on the Leased Properties . . . not later than December 29, 1998" to mean that the lease rentals must first be applied to the
payment of the assumed obligations in the amount of ₱17,000,000.00, and that DBP would have to pay out of its own money only in
case the lease rentals were insufficient, having only until December 29, 1998 to do so. Nevertheless, the monthly installments in
satisfaction of the assumed obligations would still have to be first sourced from said lease rentals as stipulated in the assumption
agreement.22 In view of the foregoing, the CA ruled that DBP did not default in its obligations to remit the subject rentals to Union Bank
precisely because it had yet to receive the rental payments of FW.23

Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the reason that the transfer of its rights, title and interests
over the subject matter to the APT occurred pendente lite, and, as such, the substitution of parties is largely discretionary on the part of
the court.

At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for review on certiorari before the Court, respectively
docketed as G.R. Nos. 115963 and 119112, which were thereafter consolidated.

The Court’s Ruling in G.R. Nos. 115963 & 119112

The Court denied both petitions in a Resolution24 dated December 13, 1995. First, it upheld the CA’s finding that while DBP directly
assumed FI’s obligations to Union Bank, DBP was only obliged to remit to the latter 30% of the lease rentals collected from FW, from
which any deficiency was to be settled by DBP not later than December 29, 1998.25 Similarly, the Court agreed with the CA that the
denial of DBP’s motion to dismiss was proper since substitution of parties, in case of transfers pendente lite, is merely discretionary on
the part of the court, adding further that the proposed substitution of APT will amount to a novation of debtor which cannot be done
without the consent of the creditor.26

On August 2, 2000, the Court’s resolution became final and executory.27

The RTC Execution Proceedings

On May 16, 2001, Union Bank filed a motion for execution28 before the RTC, praying that DBP be directed to pay the amount of
₱9,732,420.555 which represents the amount of the subject rentals (i.e., 30% of the FW’s total rental debt in the amount of
₱32,441,401.85). DBP opposed29 Union Bank’s motion, contending that it sought to effectively vary the dispositive portion of the CA’s
May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on September 12, 2001, DBP filed its own motion for execution against FW,
citing the same CA decision as its basis.

In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC granted both motions for execution. Anent Union
Bank’s motion, the RTC opined that the CA’s ruling that DBP’s payment to Union Bank shall be demandable only upon payment of FW
must be viewed in light of the date when the same was rendered. It noted that the CA decision was promulgated only on May 27, 1994,
which was before the December 29, 1998 due date within which DBP had to fully pay its obligation to Union Bank under the
Assumption Agreement. Since the latter period had already lapsed, "[i]t would, thus, be too strained to argue that payment by DBP of its
assumed obligation[s] shall be dependent on [FW’s] ability, if not availability, to pay."31 In similar regard, the RTC granted DBP’s motion
for execution against FW since its liability to Union Bank and DBP remained undisputed.
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of Execution) and, thereafter, a notice of
garnishment33 against DBP were issued. Records, however, do not show that the same writ was implemented against FW.

DBP filed a motion for reconsideration34 from the Execution Order, averring that the latter issuance varied the import of the CA’s May
27, 1994 Decision in CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the assumed obligations to Union Bank before
FW’s payment. The motion was, however, denied on December 5, 2001.35 Thus, DBP’s deposits were eventually
garnished.36 Aggrieved, DBP filed a petition for certiorari37 before the CA, docketed as CA-G.R. SP No. 68300.

The CA Ruling in CA-G.R. SP No. 68300

In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding that the RTC did not abuse its discretion when it issued
the October 15, 2001 Writ of Execution. It upheld the RTC’s observation that there was "nothing wrong in the manner how [said writ]
was implemented," as well as "in the zealousness and promptitude exhibited by Union Bank" in moving for the same. DBP appealed
the CA’s ruling before the Court, which was docketed as G.R. No. 155838.

The Court’s Ruling in G.R. No. 155838

In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court granted DBP’s appeal, and thereby reversed and set
aside the CA’s ruling in CA-G.R. SP No. 68300. It found significant points of variance between the CA’s May 27, 1994 Decision in CA-
G.R. CV No. 35866, and the RTC’s Order of Execution/October 15, 2001 Writ of Execution. It ruled that both the body and the
dispositive portion of the same decision acknowledged that DBP’s obligation to Union Bank for remittance of the lease payments is
contingent on FW’s prior payment to DBP, and that any deficiency DBP had to pay by December 29, 1998 as per the Assumption
Agreement cannot be determined until after the satisfaction of FW’s own rental obligations to DBP. Accordingly, the Court: (a) nullified
the October 15, 2001 Writ of Execution and all related issuances thereto; and (b) ordered Union Bank to return to DBP the amounts it
received pursuant to the said writ.40 Dissatisfied, Union Bank moved for reconsideration which was, however, denied by the Court in a
Resolution dated March 24, 2004 with finality. Thus, the January 13, 2004 Decision attained finality on April 30, 2004.41 Thereafter, DBP
moved for the execution of the said decision before the RTC. After numerous efforts on the part of Union Bank proved futile, the RTC
issued a writ of execution (September 6, 2005 Writ of Execution), ordering Union Bank to return to DBP all funds it received pursuant to
the October 15, 2001 Writ of Execution.42

Union Bank’s Motion to Affirm Legal Compensation

On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal Compensation,43 praying that the RTC apply legal
compensation between itself and DBP in order to offset the return of the funds it previously received from DBP. Union Bank anchored
its motion on two grounds which were allegedly not in existence prior to or during trial, namely: (a) on December 29, 1998, DBP’s
assumed obligations became due and demandable;44 and (b) considering that FWI became non-operational and non-existent, DBP
became primarily liable to the balance of its assumed obligation, which as of Union Bank’s computation after its claimed set-off,
amounted to ₱1,849,391.87.45

On November 9, 2005, the RTC issued an Order46 denying the above-mentioned motion for lack of merit, holding that Union Bank’s
stated grounds were already addressed by the Court in the January 13, 2004 Decision in G.R. No. 155838. With Union Bank’s motion
for reconsideration therefrom having been denied, it filed a petition for certiorari47 with the CA, docketed as CA-G.R. SP No. 93833.

Pending resolution, Union Bank issued Manager’s Check48 No. 099-0003192363 dated April 21, 2006 amounting to ₱52,427,250.00 in
favor of DBP, in satisfaction of the Writ of Execution dated September 6, 2005 Writ of Execution. DBP, however, averred that Union
Bank still has a balance of ₱756,372.39 representing a portion of the garnished funds of DBP,49 which means that said obligation had
not been completely extinguished.

The CA Ruling in CA-G.R. SP No. 93833

In a Decision50 dated November 3, 2009, the CA dismissed Union Bank’s petition, finding no grave abuse of discretion on the RTC’s
part. It affirmed the denial of its motion to affirm legal compensation considering that: (a) the RTC only implemented the Court’s January
13, 2004 Decision in G.R. No. 155838 which by then had already attained finality; (b) DBP is not a debtor of Union Bank; and (c) there
is neither a demandable nor liquidated debt from DBP to Union Bank.51

Undaunted, Union Bank moved for reconsideration which was, however, denied in a Resolution52 dated February 26, 2010; hence, the
instant petition.

The Issue Before the Court

The sole issue for the Court’s resolution is whether or not the CA correctly upheld the denial of Union Bank’s motion to affirm legal
compensation.

The Court’s Ruling

The petition is bereft of merit. Compensation is defined as a mode of extinguishing obligations whereby two persons in their capacity as
principals are mutual debtors and creditors of each other with respect to equally liquidated and demandable obligations to which no
retention or controversy has been timely commenced and communicated by third parties.53 The requisites therefor are provided under
Article 1279 of the Civil Code which reads as follows:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due
time to the debtor.1awp++i1 (Emphases and underscoring supplied)

The rule on legal54 compensation is stated in Article 1290 of the Civil Code which provides that "[w]hen all the requisites mentioned in
Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation."

In this case, Union Bank filed a motion to seek affirmation that legal compensation had taken place in order to effectively offset (a) its
own obligation to return the funds it previously received from DBP as directed under the September 6, 2005 Writ of Execution with (b)
DBP’s assumed obligations under the Assumption Agreement. However, legal compensation could not have taken place between these
debts for the apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since DBP’s assumed
obligations to Union Bank for remittance of the lease payments are – in the Court’s words in its Decision dated January 13, 2004 in
G.R. No. 155838 – " contingent on the prior payment thereof by [FW] to DBP," it cannot be said that both debts are due (requisite 3 of
Article 1279 of the Civil Code). Also, in the same ruling, the Court observed that any deficiency that DBP had to make up (by December
29, 1998 as per the Assumption Agreement) for the full satisfaction of the assumed obligations " cannot be determined until after the
satisfaction of Foodmasters’ obligation to DBP." In this regard, it cannot be concluded that the same debt had already been liquidated,
and thereby became demandable (requisite 4 of Article 1279 of the Civil Code).

The aforementioned Court decision had already attained finality on April 30, 200455 and, hence, pursuant to the doctrine of
conclusiveness of judgment, the facts and issues actually and directly resolved therein may not be raised in any future case between
the same parties, even if the latter suit may involve a different cause of action.56 Its pertinent portions are hereunder quoted for ready
reference:57

Both the body and the dispositive portion of the [CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866] correctly construed the nature
of DBP’s liability for the lease payments under the various contracts, to wit:

x x x Construing these three contracts, especially the "Agreement" x x x between DBP and Bancom as providing for the payment of
DBP’s assumed obligation out of the rentals to be paid to it does not mean negating DBP’s assumption "for its own account" of the
₱17.0 million debt x x x. It only means that they provide a mechanism for discharging [DBP’s] liability. This liability subsists, since under
the "Agreement" x x x, DBP is obligated to pay "any balance of the Assumed Obligations after application of the entire rentals and or
the entire sales proceeds actually received by [Union Bank] on the Leased Properties … not later than December 29, 1998." x x x It
only means that the lease rentals must first be applied to the payment of the ₱17 million debt and that [DBP] would have to pay out of
its money only in case of insufficiency of the lease rentals having until December 29, 1998 to do so. In this sense, it is correct to say
that the means of repayment of the assumed obligation is not limited to the lease rentals. The monthly installments, however, would still
have to come from the lease rentals since this was stipulated in the "Agreement."

xxxx

Since, as already stated, the monthly installments for the payment of the ₱17 million debt are to be funded from the lease rentals, it
follows that if the lease rentals are not paid, there is nothing for DBP to remit to [Union Bank], and thus [DBP] should not be considered
in default. It is noteworthy that, as stated in the appealed decision, "as regards plaintiff’s claim for damages against defendant for its
alleged negligence in failing and refusing to enforce a lessor’s remedies against Foodmasters Worldwide, Inc., the Court finds no
competent and reliable evidence of such claim."

xxxx

WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED,
 (i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to pay defendant and third-party plaintiff-appellant
Development Bank of the Philippines the sum of ₱32,441,401.85, representing the unpaid rentals from August 1981 to June
30, 1987, as well as ₱10,000.00 for attorney’s fees; and

(ii) Ordering defendant and third-party plaintiff-appellant Development Bank of the Philippines after having been paid by third-
party defendant-appellee the sum of ₱32,441,401.85, to remit 30% thereof to plaintiff-appellee Union Bank of the Philippines.

SO ORDERED.

In other words, both the body and the dispositive portion of the aforequoted decision acknowledged that DBP’s obligation to Union
Bank for remittance of the lease payments is contingent on the prior payment thereof by Foodmasters to DBP.

A careful reading of the decision shows that the Court of Appeals, which was affirmed by the Supreme Court, found that only the
balance or the deficiency of the ₱17 million principal obligation, if any, would be due and demandable as of December 29, 1998.
Naturally, this deficiency cannot be determined until after the satisfaction of Foodmasters obligation to DBP, for remittance to Union
Bank in the proportion set out in the 1994 Decision. (Emphases and underscoring supplied; citations omitted)

xxxx

In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in this case, no legal compensation could have
taken place between the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the petition must be denied, and the
denial of Union Bank s motion to affirm legal compensation sustained.

WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and Resolution dated February 26, 2010 of the Court of
Appeals in CA-G.R. SP No. 93833 are hereby AFFIRMED.

SO ORDERED.
 35. G.R. Nos. 149840-41             March 31, 2006

SPS. FRANCISCO AND RUBY REYES, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., and MAGDALENA L. LOMETILLO, in her capacity as ex-officio Provincial Sheriff for
Iloilo, Respondents.

DECISION

CORONA,J.:

Via  this petition for review under Rule 45 of the Rules of Court, petitioners assail the decision 1 of the Court of Appeals (CA) in CA-G.R.
SP Nos. 45629 and 45877 and its resolution denying their motion for reconsideration.

The facts are simple.

On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property in Iloilo City in favor of respondent BPI
Family Savings Bank, Inc. (BPI-FSB) to secure a P15,000,000 loan of Transbuilders Resources and Development Corporation
(Transbuilders). The mortgage contract between petitioners and BPI-FSB provided, among others:

That for and in consideration of the above-mentioned sum received by way of a loan, and other credit accommodations of whatever
nature obtained by the Borrower/Mortgagor, the Borrower/Mortgagor by this Agreement, hereby constitutes a first mortgage, special
and voluntary over the property/ies specifically described in Annex "A", together with all existing improvements as well as those that
may hereafter be made to exist or constructed thereon, inclusive of all fruits and rents, in favor of the Bank, its successors and
assigns. 2

When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank restructured the loan through a
promissory note executed by Transbuilders in its favor. The pertinent provisions of the promissory note3 stated that:

1. The proceeds of the Note shall be applied to loan account no. 211083364; and

2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) shall be paid in twenty (20)
quarterly installments commencing on September 28, 1996 and at an interest rate of eighteen (18%) per annum.

Petitioners aver that they were not informed about the restructuring of Transbuilders’ loan. In fact, when they learned of the new loan
agreement sometime in December 1996, they wrote BPI-FSB requesting the cancellation of their mortgage and the return of their
certificate of title to the mortgaged property. They claimed that the new loan novated the loan agreement of March 24, 1995. Because
the novation was without their knowledge and consent, they were allegedly released from their obligation under the mortgage.

When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for mandamus and prohibition with the Regional Trial
Court (RTC) of Manila to compel the bank to return their certificate of title and cancel the mortgage. BPI-FSB, on the other hand,
instituted extrajudicial foreclosure proceedings against petitioners in Iloilo City after Transbuilders defaulted in its payments.
Consequently, a sheriff’s notice of sale of petitioners’ property at public auction was issued.

The Manila RTC dismissed petitioners’ actions for mandamus and prohibition. Their appeal to the Court of Appeals was likewise
dismissed:

The mortgage contract between the petitioners and the respondent BPI does not limit the obligation or loan for which it may stand to the
loan agreement between Transbuilders and BPI, dated March 24, 1995, considering that under the terms of that contract, the intent of
all the parties, including the petitioners, to secure future indebtedness is apparent…. On the whole, the contract of loan/mortgage
dated March 24, 1995, appears to include even the new loan agreement between Transbuilders and BPI, entered into on June
28, 1996.

xxx xxx xxx

There is likewise no merit to the petitioners’ submission that there was a novation of the March 24, 1995 contract. There is no clear
intent of the parties to make the new contract completely supersede and abolish the old loan/mortgage contract. The established rule is
that novation is never presumed. Novation will not be allowed unless it is clearly shown by express agreement, or by acts of equal
import. Thus, to effect an objective novation it is imperative that the new obligation expressly declares that the old obligation is thereby
extinguished or that the new obligation be on every point incompatible with the new one. (Ajax Marketing & Development Corporation v.
Court of Appeals, 248 SCRA 222 [1995]) Without such clear intent to abolish the old contract, there is no merit to affirm the existence of
a novation.
There is no basis therefore, to the charge that respondent BPI had gravely erred in not surrendering the petitioners’ certificate of title, as
the mortgage undertaking of the petitioners has not been cancelled. For the same reason, the respondent BPI acted within its
prerogative when it initiated extra-judicial foreclosure proceedings over the petitioners’ property.

WHEREFORE, premises considered, the instant appeals from the Decision of the Regional Trial Court of Iloilo City in CA-G.R. SP No.
45887 and the Order of dismissal of the Regional Trial Court of Manila in CA-G.R. SP No. 45629 are hereby DISMISSED.

SO ORDERED.5 (emphasis ours)

Petitioners moved for a reconsideration of the decision but were unsuccessful. Hence, this appeal.

The only issue for our consideration is whether there was a novation of the mortgage loan contract between petitioners and BPI-FSB
that would result in the extinguishment of petitioners’ liability to the bank.

We agree with the CA that there was none.

Novation is defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a
third person in the rights of the creditor.6

Article 1292 of the Civil Code on novation further provides:

Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.

The cancellation of the old obligation by the new one is a necessary element of novation which may be effected either expressly or
impliedly. While there is really no hard and fast rule to determine what might constitute sufficient change resulting in novation, the
touchstone, however, is irreconcilable incompatibility between the old and the new obligations.7

In Garcia, Jr. v. Court of Appeals,8 we held that:

In every novation there are four essential requisites:(1) a previous valid obligation; (2) the agreement of all the parties to the new
contract; (3) the extinguishment of the old contract; and (4) validity of the new one. There must be consent of all the parties to the
substitution, resulting in the extinction of the old obligation and the creation of a valid new one. The acceptance of the promissory note
by the plaintiff is not novation of the contract. The legal doctrine is that an obligation to pay a sum of money is not novated in a new
instrument by changing the term of payment and adding other obligations not incompatible with the old one. It is not proper to consider
an obligation novated as in the case at bar by the mere granting of extension of payment which did not even alter its essence. To
sustain novation necessitates that the same be declared in unequivocal terms or that there is complete and substantial incompatibility
between the two obligations. An obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified by
changing only the terms of payment and adding other obligations not incompatible with the old one or wherein the old contract is merely
supplementing the old one.

Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the obligation is not novated by an instrument that
expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones, or the new
contract merely supplements the old one.9

BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty quarterly installments at 18% interest
per annum. There was absolutely no intention by the parties to supersede or abrogate the old loan contract secured by the real estate
mortgage executed by petitioners in favor of BPI-FSB. In fact, the intention of the new agreement was precisely to revive the old
obligation after the original period expired and the loan remained unpaid. The novation of a contract cannot be presumed. In the
absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point. 10

Moreover, under the real estate mortgage executed by them in favor of BPI-FSB, petitioners undertook to secure the P15M loan of
Transbuilders to BPI-FSB "and other credit accommodations of whatever nature obtained by the Borrower/Mortgagor." While this
stipulation proved to be onerous to petitioners, neither the law nor the courts will extricate a party from an unwise or undesirable
contract entered into with all the required formalities and with full awareness of its consequences. 11 Petitioners voluntarily executed the
real estate mortgage on their property in favor of BPI-FSB to secure the P15M loan of Transbuilders. They cannot now be allowed to
repudiate their obligation to the bank after Transbuilders’ default. While petitioners’ liability was written in fine print and in a contract
prepared by BPI-FSB, it has been the consistent holding of this Court that contracts of adhesion are not invalid per se. On numerous
occasions, we have upheld the binding effects of such contracts. 12

WHEREFORE, the petition is hereby DENIED for lack of merit. SO ORDERED.

 36. G.R. No. 152346 November 25, 2005

ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS, Petitioners,

vs.
SAN FRANCISCO DEL MONTE, INC., Respondent.

DECISION

Tinga, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, which assails the Decision of
the Court of Appeals in CA-G.R. CV No. 45203 and its Resolution therein denying petitioners’ motion for reconsideration.
Said Decision affirmed the Decision dated January 3, 1994 of the Regional Trial Court (RTC), Branch 63, Makati City in Civil Case No.
90-2711 entitled San Francisco Del Monte, Inc. v. Isaias F. Fabrigas and Marcelina R. Fabrigas.

The dispositive portion of the trial court’s Decision reads:

In the light of the foregoing, the Court is convinced that plaintiff has proven by preponderance of evidence, the allegation appearing in
its complaint and is therefore, entitled to the reliefs prayed for.

Considering, however, that defendants had already paid ₱78,152.00, the Court exercising its discretion, hereby renders judgment as
follows:

1. Ordering defendant to make complete payment under the conditions of Contract to Sell No. 2491-V dated January 21, 1985, within
twenty days from receipt of this Decision, and in the event that defendant fail or refuse to observe the latter, defendants and all persons
claiming right of possession or occupation from defendants are ordered to vacate and leave the premises, described as Lot No. 9 Block
No. 3 of Subdivision Plan (LRC) Psd-50064 covered by Transfer Certificate of Title No. 4980 (161653) T-1083 of the Registry of Deeds
of Rizal, and to surrender possession thereof to plaintiff or any of its authorized representatives;

2. That in the event that defendants chose to surrender possession of the property, they are further ordered to pay plaintiff ₱206,223.80
as unpaid installments on the land inclusive of interests;

3. Ordering defendants to jointly and severally pay plaintiff the amount of ₱10,000.00 as and for attorney’s fees; and

4. Ordering defendants to pay the costs of suit.

SO ORDERED.1

The following factual antecedents are matters of record.

On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas ("Spouses Fabrigas" or "petitioners") and respondent San
Francisco Del Monte, Inc. ("Del Monte") entered into an agreement, denominated as Contract to Sell No. 2482-V, whereby the latter
agreed to sell to Spouses Fabrigas a parcel of residential land situated in Barrio Almanza, Las Piñas, Manila for and in consideration of
the amount of ₱109,200.00. Said property, which is known as Lot No. 9, Block No. 3 of Subdivision Plan (LRC) Psd-50064, is covered
by Transfer Certificate of Title No. 4980 (161653) T-1083 registered in the name of respondent Del Monte. The agreement stipulated
that Spouses Fabrigas shall pay ₱30,000.00 as downpayment and the balance within ten (10) years in monthly successive installments
of ₱1,285.69.2 Among the clauses in the contract is an automatic cancellation clause in case of default, which states as follows:

7. Should the PURCHASER fail to make any of the payments including interest as herein provided, within 30 days after the due date,
this contract will be deemed and considered as forfeited and annulled without necessity of notice to the PURCHASER, and said
SELLER shall be at liberty to dispose of the said parcel of land to any other person in the same manner as if this contract had never
been executed. In the event of such forfeiture, all sums of money paid under this contract will be considered and treated as rentals for
the use of said parcel of land, and the PURCHASER hereby waives all right to ask or demand the return thereof and agrees to
peaceably vacate the said premises.3

After paying ₱30,000.00, Spouses Fabrigas took possession of the property but failed to make any installment payments on the
balance of the purchase price. Del Monte sent demand letters on four occasions to remind Spouses Fabrigas to satisfy their contractual
obligation.4 In particular, Del Monte’s third letter dated November 9, 1983 demanded the payment of arrears in the amount of
₱8,999.00. Said notice granted Spouses Fabrigas a fifteen-day grace period within which to settle their accounts. Petitioners’ failure to
heed Del Monte’s demands prompted the latter to send a final demand letter dated December 7, 1983, granting Spouses Fabrigas
another grace period of fifteen days within which to pay the overdue amount and warned them that their failure to satisfy their obligation
would cause the rescission of the contract and the forfeiture of the sums of money already paid. Petitioners received Del Monte’s final
demand letter on December 23, 1983. Del Monte considered Contract to Sell No. 2482-V cancelled fifteen days thereafter, but did not
furnish petitioners any notice regarding its cancellation.5

On November 6, 1984, petitioner Marcelina Fabrigas ("petitioner Marcelina") remitted the amount of ₱13,000.00 to Del Monte.6 On
January 12, 1985, petitioner Marcelina again remitted the amount of ₱12,000.00.7 A few days thereafter, or on January 21, 1985,
petitioner Marcelina and Del Monte entered into another agreement denominated as Contract to Sell No. 2491-V, covering the same
property but under restructured terms of payment. Under the second contract, the parties agreed on a new purchase price of
₱131,642.58, the amount of ₱26,328.52 as downpayment and the balance to be paid in monthly installments of ₱2,984.60 each.8

Between March 1985 and January 1986, Spouses Fabrigas made irregular payments under Contract to Sell No. 2491-V, to wit:

March 19, 1985 ₱1, 328.52

July 2, 1985 ₱2, 600.00

September 30, 1985 ₱2, 600.00

November 27, 1985 ₱2, 600.00

January 20, 1986 ₱2, 000.009

Del Monte sent a demand letter dated February 3, 1986, informing petitioners of their overdue account equivalent to nine (9)
installments or a total amount of ₱26,861.40. Del Monte required petitioners to satisfy said amount immediately in two subsequent
letters dated March 5 and April 2, 1986.10 This prompted petitioners to pay the following amounts:

February 3, 1986 ₱2, 000.00

March 10, 1986 ₱2, 000.00

April 9, 1986 ₱2, 000.00

May 13, 1986 ₱2, 000.00

June 6, 1986 ₱2, 000.00

July 14, 1986 ₱2, 000.0011

No other payments were made by petitioners except the amount of ₱10,000.00 which petitioners tendered sometime in October 1987
but which Del Monte refused to accept, the latter claiming that the payment was intended for the satisfaction of Contract to Sell No.
2482-V which had already been previously cancelled. On March 24, 1988, Del Monte sent a letter demanding the payment of accrued
installments under Contract to Sell No. 2491-V in the amount of ₱165,759.60 less ₱48,128.52, representing the payments made under
the restructured contract, or the net amount of ₱117,631.08. Del Monte allowed petitioners a grace period of thirty (30) days within
which to pay the amount asked to avoid rescission of the contract. For failure to pay, Del Monte notified petitioners on March 30, 1989
that Contract to Sell No. 2482-V had been cancelled and demanded that petitioners vacate the property.12

On September 28, 1990, Del Monte instituted an action for Recovery of Possession with Damages against Spouses Fabrigas before
the RTC, Branch 63 of Makati City. The complaint alleged that Spouses Fabrigas owed Del Monte the principal amount of ₱206,223.80
plus interest of 24% per annum. In their answer, Spouses Fabrigas claimed, among others, that Del Monte unilaterally cancelled the
first contract and forced petitioner Marcelina to execute the second contract, which materially and unjustly altered the terms and
conditions of the original contract.13

After trial on the merits, the trial court rendered a Decision on January 3, 1994, upholding the validity of Contract to Sell No. 2491-V and
ordering Spouses Fabrigas either to complete payments thereunder or to vacate the property.

Aggrieved, Spouses Fabrigas elevated the matter to the Court of Appeals, arguing that the trial court should have upheld the validity
and existence of Contract to Sell No. 2482-V instead and nullified Contract to Sell No. 2491-V. The Court of Appeals rejected this
argument on the ground that Contract to Sell No. 2482-V had been rescinded pursuant to the automatic rescission clause therein.
While the Court of Appeals declared Contract to Sell No. 2491-V as merely unenforceable for having been executed without petitioner
Marcelina’s signature, it upheld its validity upon finding that the contract was subsequently ratified.

Hence, the instant petition attributing the following errors to the Court of Appeals:
A. THE COURT OF APPEALS GRAVELY ERRED WHEN IT IGNORED THE PROVISIONS OF R.A. NO. 6552 (THE MACEDA LAW)
AND RULED THAT CONTRACT TO SELL NO. 2482-V WAS VALIDLY CANCELLED BY SENDING A MERE NOTICE TO THE
PETITIONERS.

B. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THERE WAS AN IMPLIED RATIFICATION OF CONTRACT TO
SELL NO. 2491-V.

C. THE COURT OF APPEALS ERRED IN ITS APPLICATION OF THE RULES OF NOVATION TO THE INSTANT CASE. 14

As reframed for better understanding, the questions are the following: Was Contract to Sell No. 2482-V extinguished through rescission
or was it novated by the subsequent Contract to Sell No. 2491-V? If Contract to Sell No. 2482-V was rescinded, should the manner of
rescission comply with the requirements of Republic Act No. (R.A.) 6552? If Contract to Sell No. 2482-V was subsequently novated
by Contract to Sell No. 2491-V, are petitioners liable for breach under the subsequent agreement?

Petitioners theorize that Contract to Sell No. 2482-V should remain valid and subsisting because the notice of cancellation sent by Del
Monte did not observe the requisites under Section 3 of R.A. 6552.15 According to petitioners, since respondent did not send a notarial
notice informing them of the cancellation or rescission of Contract to Sell No. 2482-V  and also did not pay them the cash surrender
value of the payments on the property, the Court of Appeals erred in concluding that respondent correctly applied the automatic
rescission clause of Contract to Sell No. 2482-V. Petitioners also cite Section 716 of said law to bolster their theory that the automatic
rescission clause in Contract to Sell No. 2482-V is invalid for being contrary to law and public policy.

The Court of Appeals erred in ruling that Del Monte was "well within its right to cancel the contract by express grant of paragraph 7
without the need of notifying [petitioners],17" instead of applying the pertinent provisions of R.A. 6552. Petitioners’ contention that none
of Del Monte’s demand letters constituted a valid rescission of Contract to Sell No. 2482-V is correct.

Petitioners defaulted in all monthly installments. They may be credited only with the amount of ₱30,000.00 paid upon the execution
of Contract to Sell No. 2482-V, which should be deemed equivalent to less than two (2) years’ installments. Given the nature of the
contract between petitioners and Del Monte, the applicable legal provision on the mode of cancellation of Contract to Sell No. 2482-V  is
Section 4 and not Section 3 of R.A. 6552. Section 4 is applicable to instances where less than two years installments were paid. It
reads:

SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Thus, the cancellation of the contract under Section 4 is a two-step process. First, the seller should extend the buyer a grace period of
at least sixty (60) days from the due date of the installment. Second, at the end of the grace period, the seller shall furnish the buyer
with a notice of cancellation or demand for rescission through a notarial act, effective thirty (30) days from the buyer’s receipt thereof. It
is worth mentioning, of course, that a mere notice or letter, short of a notarial act, would not suffice.

While the Court concedes that Del Monte had allowed petitioners a grace period longer than the minimum sixty (60)-day requirement
under Section 4, it did not comply, however, with the requirement of notice of cancellation or a demand for rescission. Instead, Del
Monte applied the automatic rescission clause of the contract. Contrary, however, to Del Monte’s position which the appellate court
sustained, the automatic cancellation clause is void under Section 718 in relation to Section 4 of R.A. 6552.19

Rescission, of course, is not the only mode of extinguishing obligations. Ordinarily, obligations are also extinguished by payment or
performance, by the loss of the thing due, by the condonation or remission of the debt, by the confusion or merger of the rights of the
creditor and debtor, by compensation, or by novation.20

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it
remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions
(objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual functions—one to extinguish an existing obligation, the other to substitute a new
one in its place—requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.21

Notwithstanding the improper rescission, the facts of the case show that Contract to Sell No. 2482-V was subsequently novated
by Contract to Sell No. 2491-V. The execution of Contract to Sell No. 2491-V accompanied an upward change in the contract price,
which constitutes a change in the object or principal conditions of the contract. In entering into Contract to Sell No. 2491-V, the parties
were impelled by causes different from those obtaining under Contract to Sell No. 2482-V. On the part of petitioners, they agreed to the
terms and conditions of Contract to Sell No. 2491-V not only to acquire ownership over the subject property but also to avoid the
consequences of their default under Contract No. 2482-V. On Del Monte’s end, the upward change in price was the consideration for
entering into Contract to Sell No. 2491-V.

In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.22 The test of incompatibility is
whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible
and the latter obligation novates the first.23 The execution of Contract to Sell No. 2491-V created new obligations in lieu of those
under Contract to Sell No. 2482-V, which are already considered extinguished upon the execution of the second contract. The two
contracts do not have independent existence for to hold otherwise would present an absurd situation where the parties would be liable
under each contract having only one subject matter.

To dispel the novation of Contract to Sell No. 2482-V  by Contract to Sell No. 2491-V, petitioners contend that the subsequent contract
is void for two reasons: first, petitioner Isaias Fabrigas did not give his consent thereto, and second, the subsequent contract is a
contract of adhesion.

Petitioner rely on Article 172 of the Civil Code governing their property relations as spouses. Said article states that the wife cannot bind
the conjugal partnership without the husband’s consent except in cases provided by law. Since only petitioner Marcelina
executed Contract to Sell No. 2491-V, the same is allegedly void, petitioners conclude.

Under the Civil Code, the husband is the administrator of the conjugal partnership.24 Unless the wife has been declared a non compos
mentis  or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real
property of the conjugal partnership without the wife's consent.25 Conversely, the wife cannot bind the conjugal partnership without the
husband’s consent except in cases provided by law.26

Thus, if a contract entered into by one spouse involving a conjugal property lacks the consent of the other spouse, as in the case at bar,
is it automatically void for that reason alone?

Article 17327 of the Civil Code expressly classifies a contract executed by the husband without the consent of the wife as merely
annullable at the instance of the wife. However, there is no comparable provision covering an instance where the wife alone has
consented to a contract involving conjugal property. Article 172 of the Civil Code, though, does not expressly declare as void a contract
entered by the wife without the husband’s consent. It is also not one of the contracts considered as void under Article 140928 of the Civil
Code.

In Felipe v. Heirs of Maximo Aldon,29 the Court had the occasion to rule on the validity of a sale of lands belonging to the conjugal
partnership made by the wife without the consent of the husband. Speaking through Mr. Justice Abad Santos, the Court declared such
a contract as voidable because one of the parties is incapable of giving consent to the contract. The capacity to give consent belonged
not even to the husband alone but to both

spouses.30 In that case, the Court anchored its ruling on Article 173 of the Civil Code which states that contracts entered by the
husband without the consent of the wife when such consent is required, are annullable at her instance during the marriage and within
ten years from the transaction mentioned.31

The factual milieu of the instant case, however, differs from that in Felipe. The defect which Contract to Sell No. 2491-V suffers from is
lack of consent of the husband, who was out of the country at the time of the execution of the contract. There is no express provision in
the Civil Code governing a situation where the husband is absent and his absence incapacitates him from administering the conjugal
partnership property. The following Civil Code provisions, however, are illuminating:

ARTICLE 167. In case of abuse of powers of administration of the conjugal partnership property by the husband, the courts, on petition
of the wife, may provide for receivership, or administration by the wife, or separation of property.

ARTICLE 168. The wife may, by express authority of the husband embodied in a public instrument, administer the conjugal partnership
property.

ARTICLE 169. The wife may also, by express authority of the husband appearing in a public instrument, administer the latter's estate.

While the husband is the recognized administrator of the conjugal property under the Civil Code, there are instances when the wife may
assume administrative powers or ask for the separation of property. In the abovementioned instances, the wife must be authorized
either by the court or by the husband. Where the husband is absent and incapable of administering the conjugal property, the wife must
be expressly authorized by the husband or seek judicial authority to assume powers of administration. Thus, any transaction entered by
the wife without the court or the husband’s authority is unenforceable in accordance with Article 131732 of the Civil Code. That is the
status to be accorded Contract to Sell No. 2491-V,  it having been executed by petitioner Marcelina without her husband’s conformity.

Being an unenforceable contract, Contract to Sell No. 2491-V is susceptible to ratification. As found by the courts below, after being
informed of the execution of the contract, the husband, petitioner Isaias Fabrigas, continued remitting payments for the satisfaction of
the obligation under Contract to Sell No. 2491-V. These acts constitute ratification of the contract. Such ratification cleanses the
contract from all its defects from the moment it was constituted. The factual findings of the courts below are beyond review at this stage.

Anent Del Monte’s claim that Contract to Sell No. 2491-V is a contract of adhesion, suffice it to say that assuming for the nonce that the
contract is such the characterization does not automatically render it void. A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. Such contracts are not void
in themselves. They are as binding as ordinary contracts. Parties who enter into such contracts are free to reject the stipulations
entirely.33

The Court quotes with approval the following factual observations of the trial court, which cannot be disturbed in this case, to wit:

The Court notes that defendant, Marcelina Fabrigas, although she had to sign contract No. 2491-V, to avoid forfeiture of her
downpayment, and her other monthly amortizations, was entirely free to refuse to accept the new contract. There was no clear case of
intimidation or threat on the part of plaintiff in offering the new contract to her. At most, since she was of sufficient intelligence to discern
the agreement she is entering into, her signing of Contract No. 2491-V is taken to be valid and binding. The fact that she has paid
monthly amortizations subsequent to the execution of Contract to Sell No. 2491-V, is an indication that she had recognized the validity
of such contract. . . .34

In sum, Contract to Sell No. 2491-V is valid and binding. There is nothing to prevent respondent Del Monte from enforcing its
contractual stipulations and pursuing the proper court action to hold petitioners liable for their breach thereof.

WHEREFORE, the instant Petition for Review is DENIED and the September 28, 2001 Decision of the Court of Appeals in CA-G.R. CV
No. 45203 is AFFIRMED. Costs against petitioners.

SO ORDERED.
 37. G.R. No. 173565               May 8, 2009

TRANSPACIFIC BATTERY, CORPORATION and MICHAEL G. SAY, Petitioners,

vs.
SECURITY BANK & TRUST CO., Respondent.

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

G.R. No. 173607               May 8, 2009

MICHAEL G. SAY and JOSEPHINE G. SAY, Petitioners,

vs.
SECURITY BANK & TRUST COMPANY, Respondent.

DECISION

TINGA, J.:

Before this Court are two petitions for review on certiorari1 under Rule 45 of the Rules of Court seeking the reversal of the decision2 of
the Court of Appeals in CA-G.R. CV No. 74644 which affirmed with modification the decision3 of Branch 64 of the Regional Trial Court
of Makati City, ordering petitioners Transpacific Battery Company (Transpacific), Michael Go Say (Michael), Melchor G. Say (Melchor)
and Josephine G. Say (Josephine) jointly and severally liable to Security Bank and Trust Company (The Bank).

The facts, as culled from the records, follow.

Transpacific, represented by its officers, Michael G. Say, Josephine G. Say and Myrna Magpantay, entered into a Credit Line
Agreement4 with the Bank. Consequently, the officers in behalf of Transpacific applied for nine (9) letters of credit (LC) with the Bank to
facilitate the importation and/or purchases of certain merchandise, goods and supplies for its business. The Bank issued the
corresponding LCs to Transpacific. Transpacific then executed and delivered to the Bank, as entrustor, nine (9) trust receipt
agreements

with for the release of the imported merchandise and supplies in its favor, with the aforementioned officers, individual petitioners herein,
binding themselves to be solidarily liable with Transpacific to the Bank for the value of the merchandise and supplies covered by the
trust receipts. The letters of credit and their corresponding trust receipts are listed below:
Letter of Trust Receipt Date Issued Expiry Date of Amount of Trust Entrustees
Credit No. Agreement Ref. No. Trust Receipt Receipt
73 DC-82/492 731B-83/8927 21 July 1983 19 October 1983 ₱359,040.00 Michael G.Say, Josephine G.
Say, Myrna E. Magpantay5
73 DC-83/504 731B-83/9126 8 August 1983 7 November 1983 ₱369,600.00 Michael G. Say, Melchor G. Say,
Myrna E. Magpantay6
73 DC-83/517 731B-83/9259 17 August 15 November 1983 ₱355,200.00 Michael G. Say, Melchor G. Say,
1983 Myrna E. Magpantay7
73 DC- 731B-83/9187 24 August 22 November 1983 ₱119,359.69 Michael G. Say, Melchor G. Say,
83/6278 1983 Myrna E. Magpantay8
73 DC-6994 731B-83/9461 9 September 8 December 1983 ₱68,772.19 Michael G. Say, Melchor G. Say,
1983 Myrna E. Magpantay9
73 DC-6990 731B-83/9617 27 September 26 December 1983 ₱84,032.62 Michael G. Say, Melchor G. Say,
1983 Myrna E. Magpantay10
73 DC- 731B-83/587 6 October 4 January 1984 ₱661,122.00 Michael G. Say, Melchor G. Say,
83/5580 1983 Myrna E. Magpantay11
73 DC- 731B-83/588 6 October 4 January 1984 ₱826,402.50 Michael G. Say, Melchor G. Say,
83/5581 1983 Myrna E. Magpantay12
73 DC-83/432 731B-83/8110 8 November 9 January 1984 ₱338,500.00 Michael G. Say, Melchor G. Say,
1983 Myrna E. Magpantay13

Under the terms of the trust receipts, the entrustees agreed to hold the goods, merchandise and supplies, as well as the proceeds of
the sale and collection thereof, in trust for the Bank for the payment of petitioners’ acceptance, bank commissions and charges, and/or
any
other indebtedness of petitioners to the Bank, and deliver the same to the Bank upon maturity date of said trust receipts.14

On the maturity dates of the trust receipts, petitioners failed to account for and to deliver to the Bank the proceeds of the sale and
collection of the goods, merchandise and supplies subject of the trust receipts. Despite repeated demands, petitioners reneged on their
obligation.lavvphil.zw+

On 8 February 1984, petitioners and the Bank executed a letter-agreement restructuring the former’s obligation in the sum of
₱3,082,029.00, subject to the following terms and conditions:

1. Payment of all interest and other charges prior to restructuring;

2. TR term is for one year with equal monthly principal payments;

3. Interest at 5% p.a. over prime rate or 30% p.a., whichever is higher, amortized monthly;

4. Interest rate subject to review every amortization due; and

5. Against the joint and solidary liability of Sps. Miguel and Mary Say and Michael Go Say.15

Failure to meet one monthly installment when due shall cause the unmatured balance to become due and demandable. The account
shall be referred automatically to our Special Accounts Department for collection.16

Alleging that out of the total obligation of ₱3,082,029.00, the amount of ₱2,290,865.41 remained unpaid, the Bank demanded in writing
the payment of the unpaid balance.17

Despite repeated demands, petitioners failed to comply with the restructuring agreement, prompting the Bank to file a criminal
complaint for violation of Presidential Decree No. 115 or the Trust Receipts Law. However, said complaint was dismissed.

On 24 January 1992, the Bank filed a complaint for recovery of a sum of money with the RTC of Makati.18

In his answer,19 Michael countered that the obligation had already been paid or if not totally paid, the same is very minimal. He further
contended that said obligation had already been extinguished by novation when the Bank restructured the obligation of Transpacific. He
also claimed that the Bank is guilty of laches for its inaction for an unreasonable length of time.20

Melchor and Josephine, for their part, argued that the trust receipts have not been executed in strict compliance with the requirements
of the Trust Receipts Law; that their participation in the questioned transactions was in their capacity as officers of Transpacific and
consequently, cannot be held liable in their individual capacities; that their signatures in some of the documents were forged; and that
the obligation had been extinguished by novation.21

Ma. Fe Rosadio (Rosadio), who was employed at the Foreign Department of the Bank and tasked with documentation, processing and
releasing of import bills and trust receipts, testified for the Bank. She identified the trust receipts and attested to the genuineness of the
signatures of petitioners.

Instead of presenting their witnesses, petitioners filed a demurrer to evidence22 which the trial court denied on 8 December 1995.

In a decision dated 5 March 2002, the trial court ruled in favor of the Bank. The dispositive portion reads:

WHEREFORE, IN VIEW OF THE FOREGOING, judgment is rendered in favor of plaintiff Security Bank and Trust Company and
against defendants Transpacific Battery Company, Michael Go Say, Melchor G. Say and Josephine G. Say ordering the defendants to
pay jointly and severally to the plaintiff the following amounts:

1. The sum of ₱2,290,865.41 representing the balance of defendants’ outstanding and unpaid obligation as of the filing of the
complaint on February 4, 1992 plus interest at the rate of 12% per annum from February 4, 1992 until full payment of the
defendants’ obligation under the aforecited Trust Receipts and/or Letter Agreement is made;

2. Attorney’s fees in the amount equivalent to 25% on the amount due;

3. Cost of suit.

SO ORDERED.23
The trial court lent credence to the testimony of Rosadio and upheld the authenticity and genuineness of the signatures of the individual
petitioners on the trust receipts. It also ruled that the restructuring of the obligation did not relieve individual petitioners of their liability as
solidary debtors to the Bank as there was an express agreement on their part to be bound jointly and severally with Transpacific under
the trust receipts.24

On appeal, the Court of Appeals affirmed the ruling of the trial court with modification in that it deleted the award of attorney’s fees.

The Court of Appeals’ decision centered on the finding that there was no novation in the restructuring of the obligation, therefore, the
individual petitioners as solidary debtors cannot be exonerated from the obligation of Transpacific. The appellate court also dismissed
the allegation of forgery for failure of petitioners to present evidence to support their allegation that the purported signatures in the trust
receipts were forged. With respect to the amount of the unpaid obligation, the appellate court concluded that since the issue is factual in
nature, the finding of the trial court should not be disturbed on appeal.

In the petition filed by Michael, he insists that novation had taken place and effectively extinguished his obligation to the Bank.
Moreover, he argues that he did not sign the restructuring agreement; hence, he should not be made liable to pay any obligation due to
the Bank under said agreement.25

Melchor and Josephine question the credibility of witness Rosadio to testify on the authenticity of their signatures on the trust receipts.
They likewise point out the deficiencies in the trust receipts. Finally, they assert that whatever obligation they may have assumed under
the agreements in the trust receipts they signed was fully novated by the restructuring agreement entered into between the Bank and
Transpacific without their knowledge and consent.

The Bank posits that the arguments presented by petitioners involve factual questions and the findings thereof by the courts below are
conclusive upon this Court. It also contends that there is no novation and the restructuring agreement was executed only to make it less
onerous for the debtors to perform their obligation. It avers that although petitioners were no longer signatories in the restructuring
agreement, they are still bound as they were not expressly released from their obligation. On the contrary, it points out that the
restructuring agreement was even made subject to their joint and solidary liability.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place
of the old one, or by subrogating a third person to the rights of the creditor.26 Article 1292 of the Civil Code expressly provides:

Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and new obligations be in every point incompatible with each other.

In order for novation to take place, the concurrence of the following requisites are indispensable:

1. There must be a previous valid obligation;

2. There must be an agreement of the parties concerned to a new contract;

3. There must be the extinguishment of the old contract; and

4. There must be the validity of the new contract.27

Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or
by their acts that are too clear and unmistakable. The extinguishment of the old obligation by the new one is a necessary element of
novation, which may be effected either expressly or impliedly. The contracting parties must incontrovertibly disclose that their object in
executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and
all that is prescribed by law would be an incompatibility between the two contracts.28

The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot,
they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish
the original obligation.29

Petitioners proffer that the terms of the restructuring agreement are absolutely incompatible with the terms of the trust receipts. First,
the maturity date under the trust receipts is reckoned at ninety (90) days from their respective issuance dates whereas it is one (1) year
under the restructuring agreement. Second, payment is in full under the trust receipts while under the restructured obligation, it is to be
made in equal monthly installments. Third, the rate of interest under the trust receipts is 16% or 18% per annum whereas it is 5% per
annum over prime rate or 30% per annum, whichever is higher, under the restructured obligation. Fourth, the restructuring agreement
has a provision on the time of interest payments, as well as a review of the interest rate, whereas there are no such provisions under
the trust receipts. Fifth, the obligation under the trust receipts is secured by the joint and solidary liability of the alleged signatories,
whereas the restructured obligation is secured by the joint and solidary liability of Spouses Miguel and Mary Say and Michael G. Say.
Sixth, there is no acceleration clause under the trust receipts whereas the restructured obligation is subject to an acceleration clause.

On the other hand, the Bank dismisses any incompatibility between the restructuring agreement and the trust receipt transactions. It
alleges that the restructuring agreement even made an express recognition of the trust receipts when it obliged the debtors pay all
interests and other charges prior to restructuring. Moreover, only the interest rates and the term of the trust receipts were modified,
according to the Bank. In fact, it claims that the restructuring agreement was executed to make it less onerous for the debtors to
perform their obligation.

The primary issue for resolution is whether the obligation under the trust receipts was novated by the restructuring agreement. We rule
in the negative.

The material portions of the restructuring agreement is hereby reproduced for brevity:

Gentlemen:

We are pleased to inform you that our Executive Committee has approved the restructuring of your outstanding past due trust receipts
amounting to ₱3,082,029.00, subject to:

1. Payment of all interest and other charges prior to restructuring;

2. TR term is for one year with equal monthly principal payments

3. Interest at 5% p.a. over prime rate or 30% p.a., whichever is higher, amortized monthly;

4. Interest rate subject to review every amortiaton due;

5. Against the joint and solidary liability of Sps. Miguel and Mary Say and Michael Go Say;

Failure to meet one monthly installment when due shall cause the unmatured balance to become due and demandable. The account
shall be referred automatically to our Special Accounts Department for collection.30

Undoubtedly, there is no express novation since the restructuring agreement does not state in clear terms that the obligation under the
trust receipts is extinguished and in lieu thereof the restructuring agreement will be substituted. Neither is there an implied novation
since the restructuring agreement is not incompatible with the trust receipt transactions.

Indeed, the restructuring agreement recognizes the obligation due under the trust receipts when it required "payment of all interest and
other charges prior to restructuring." With respect to Michael, there was even a proviso under the agreement that the amount due is
subject to "the joint and solidary liability of Spouses Miguel and Mary Say and Michael Go Say." While the names of Melchor and
Josephine do not appear on the restructuring agreement, it cannot be presumed that they have been relieved from the obligation. The
old obligation continues to subsist subject to the modifications agreed upon by the parties.

The circumstance that motivated the parties to enter into a restructuring agreement was the failure of petitioners to account for the
goods received in trust and/or deliver the proceeds thereof. To remedy the situation, the parties executed an agreement to restructure
Transpacific’s obligations.

The Bank only extended the repayment term of the trust receipts from 90 days to one year with monthly installment at 5% per annum
over prime rate or 30% per annum whichever is higher. Furthermore, the interest rates were flexible in that they are subject to review
every amortization due. Whether the terms appeared to be more onerous or not is immaterial. Courts are not authorized to extricate
parties from the necessary consequences of their acts. The parties will not be relieved from their obligations as there was absolutely no
intention by the parties to supersede or abrogate the trust receipt transactions. The intention of the new agreement was precisely to
revive the old obligation after the original period expired and the loan remained unpaid. Well-settled is the rule that, with respect to
obligations to pay a sum of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only the
terms of payment, adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one.31

Equally unmeritorious is petitioners’ claim that they cannot be held liable to pay any obligation due to the Bank under the restructuring
agreement because they did not participate or sign the same. To reiterate, there is no novation. The trust receipts transactions and the
restructuring agreement can both stand together. Petitioners have not shown that they were expressly released from the obligation.
From the beginning, they were joint and solidary debtors under the trust receipts, the obligation of which subsist vis-à-vis the
restructuring agreement. Being joint and solidary debtors, they are liable for the entirety of the obligation.
While petitioners Melchor and Josephine insist that they never claimed forgery, the crux of the matter still pertains to the credibility of
the witness, which the courts below chose to uphold. Suffice it to say that in the absence of any of the recognized exceptions,32 the
factual findings of the trial court, especially when affirmed by the Court of Appeals are conclusive on this Court.

WHEREFORE, the twin petitions are DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 74644 is AFFIRMED. Costs
against petitioners.

SO ORDERED.
 38. G.R. No. 159709               June 27, 2012

HEIRS OF SERVANDO FRANCO, Petitioners,

vs.
SPOUSES VERONICA AND DANILO GONZALES, Respondents.

DECISION

BERSAMIN, J.:

There is novation when there is an irreconcilable incompatibility between the old and the new obligations. There is no novation in case
of only slight modifications; hence, the old obligation prevails.

The petitioners challenge the decision promulgated on March 19, 2003,1 whereby the Court of Appeals (CA) upheld the issuance of a
writ of execution by the Regional Trial Court (RTC), Branch 16, in Malolos, Bulacan.

Antecedents

The Court adopts the following summary of the antecedents rendered by the Court in Medel v. Court of Appeals,2 the case from which
this case originated, to wit:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R.
Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", in the
amount of ₱50,000.00, payable in two months. Veronica gave only the amount of ₱47,000.00, to the borrowers, as she retained
₱3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executed a promissory note for ₱50,000.00, to
evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of ₱90,000.00, payable in two
months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on January 19, 1986. They received
only ₱84,000.00, out of the proceeds of the loan.

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

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of ₱300,000.00, maturing in one
month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of
attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of
Veronica to pay the sum of ₱300,000.00, after a month, or on July 11, 1986. However, only the sum of ₱275,000.00, was given to them
out of the proceeds of the loan.

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

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling
₱440,000.00, and sought from Veronica another loan in the amount of ₱60,000.00, bringing their indebtedness to a total of
₱500,000.00, payable on August 23, 1986. They executed a promissory note, reading as follows:

"Baliwag, Bulacan July 23, 1986

"Maturity Date August 23, 1986

"₱500,000.00

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

"Payment will be made in full at the maturity date.

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

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

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

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

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

On maturity of the loan, the borrowers failed to pay the indebtedness of ₱500,000.00, plus interests and penalties, evidenced by the
above-quoted promissory note.

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

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loan from
the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of ₱500,000.00, and actually
received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs,
and that he (Servando Franco) signed the promissory note only as a witness.

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

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

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

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

"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of ₱47,000.00 plus
12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full.

"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of ₱84,000.00 with
12% interest per annum and 1% per cent per month as penalty from November 19,1985 until the whole amount is fully paid;

"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of ₱285,000.00 plus 12% interest per annum and 1%
per month as penalty from July 11, 1986, until the whole amount is fully paid;

"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of ₱50,000.00 as attorney's fees;

"5. All counterclaims are hereby dismissed.

"With costs against the defendants."

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

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

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

"WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of
₱500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges effective August 24, 1986, until the entire amount is fully paid.

"The award to the plaintiffs of ₱50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants.

"SO ORDERED."

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated November 25,
1997, the Court of Appeals denied the motion.3

On review, the Court in Medel v. Court of Appeals struck down as void the stipulation on the interest for being iniquitous or
unconscionable, and revived the judgment of the RTC rendered on December 9, 1991, viz:

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

No pronouncement as to costs in this instance.

SO ORDERED.4

Upon the finality of the decision in Medel v. Court of Appeals, the respondents moved for execution.5 Servando Franco
opposed,6 claiming that he and the respondents had agreed to fix the entire obligation at ₱775,000.00.7 According to Servando, their
agreement, which was allegedly embodied in a receipt dated February 5, 1992,8 whereby he made an initial payment of ₱400,000.00
and promised to pay the balance of ₱375,000.00 on February 29, 1992, superseded the July 23, 1986 promissory note.

The RTC granted the motion for execution over Servando’s opposition, thus:

There is no doubt that the decision dated December 9, 1991 had already been affirmed and had already become final and executory.
Thus, in accordance with Sec. 1 of Rule 39 of the 1997 Rules of Civil Procedure, execution shall issue as a matter of right. It has
likewise been ruled that a judgment which has acquired finality becomes immutable and unalterable and hence may no longer be
modified at any respect except only to correct clerical errors or mistakes (Korean Airlines Co. Ltd. vs. C.A., 247 SCRA 599). In this
respect, the decision deserves to be respected.

The argument about the modification of the contract or non-participation of defendant Servando Franco in the proceedings on appeal
on the alleged belief that the payment he made had already absolved him from liability is of no moment. Primarily, the decision was for
him and Leticia Medel to pay the plaintiffs jointly and severally the amounts stated in the Decision. In other words, the liability of the
defendants thereunder is solidary. Based on this aspect alone, the new defense raised by defendant Franco is unavailing.

WHEREFORE, in the light of all the foregoing, the Court hereby grants the Motion for Execution of Judgment.

Accordingly, let a writ of execution be issued for implementation by the Deputy Sheriff of this Court.

SO ORDERED.9

On March 8, 2001, the RTC issued the writ of execution.10

Servando moved for reconsideration,11 but the RTC denied his motion.12

On March 19, 2003, the CA affirmed the RTC through its assailed decision, ruling that the execution was proper because of Servando’s
failure to comply with the terms of the compromise agreement, stating:13

Petitioner cannot deny the fact that there was no full compliance with the tenor of the compromise agreement. Private respondents on
their part did not disregard the payments made by the petitioner. They even offered that whatever payments made by petitioner, it can
be deducted from the principal obligation including interest. However, private respondents posit that the payments made cannot alter,
modify or revoke the decision of the Supreme Court in the instant case.

In the case of Prudence Realty and Development Corporation vs. Court of Appeals, the Supreme Court ruled that:

"When the terms of the compromise judgment is violated, the aggrieved party must move for its execution, not its invalidation."

It is clear from the aforementioned jurisprudence that even if there is a compromise agreement and the terms have been violated, the
aggrieved party, such as the private respondents, has the right to move for the issuance of a writ of execution of the final judgment
subject of the compromise agreement.

Moreover, under the circumstances of this case, petitioner does not stand to suffer any harm or prejudice for the simple reason that
what has been asked by private respondents to be the subject of a writ of execution is only the balance of petitioner’s obligation after
deducting the payments made on the basis of the compromise agreement.

WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE and consequently DISMISSED for lack of
merit.

SO ORDERED.

His motion for reconsideration having been denied,14 Servando appealed. He was eventually substituted by his heirs, now the
petitioners herein, on account of his intervening death. The substitution was pursuant to the resolution dated June 15, 2005.15

Issue

The petitioners submit that the CA erred in ruling that:

THE 9 DECEMBER 1991 DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN WAS
NOT NOVATED BY THE COMPROMISE AGREEMENT BETWEEN THE PARTIES ON 5 FEBRUARY 1992.

II

THE LIABILITY OF THE PETITIONER TO RESPONDENTS SHOULD BE BASED ON THE DECEMBER 1991 DECISION OF
BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN AND NOT ON THE COMPROMISE
AGREEMENT EXECUTED IN 1992.

The petitioners insist that the RTC could not validly enforce a judgment based on a promissory note that had been already novated;
that the promissory note had been impliedly novated when the principal obligation of ₱500,000.00 had been fixed at ₱750,000.00, and
the maturity date had been extended from August 23, 1986 to February 29, 1992.

In contrast, the respondents aver that the petitioners seek to alter, modify or revoke the final and executory decision of the Court; that
novation did not take place because there was no complete incompatibility between the promissory note and the memorandum receipt;
that Servando’s previous payment would be deducted from the total liability of the debtors based on the RTC’s decision.

Issue

Was there a novation of the August 23, 1986 promissory note when respondent Veronica Gonzales issued the February 5, 1992
receipt?

Ruling

The petition lacks merits.

I
 Novation did not transpire because no
irreconcilable incompatibility existed
between the promissory note and the receipt

To buttress their claim of novation, the petitioners rely on the receipt issued on February 5, 1992 by respondent Veronica whereby
Servando’s obligation was fixed at ₱750,000.00. They insist that even the maturity date was extended until February 29, 1992. Such
changes, they assert, were incompatible with those of the original agreement under the promissory note.

The petitioners’ assertion is wrong.

A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either by changing the
object or the principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the
creditor.16 For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b) an agreement of the parties to
make a new contract; (c) an extinguishment of the old contract; and (d) a valid new contract.17 In short, the new obligation extinguishes
the prior agreement only when the substitution is unequivocally declared, or the old and the new obligations are incompatible on every
point. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance with either of these two
conditions.18

The receipt dated February 5, 1992, excerpted below, did not create a new obligation incompatible with the old one under the
promissory note, viz:

February 5, 1992

Received from SERVANDO FRANCO BPI Manager’s Check No. 001700 in the amount of ₱400,00.00 as partial payment of loan.
Balance of ₱375,000.00 to be paid on or before FEBRUARY 29, 1992. In case of default an interest will be charged as stipulated in the
promissory note subject of this case.

(Sgd)
V. Gonzalez19

To be clear, novation is not presumed. This means that the parties to a contract should expressly agree to abrogate the old contract in
favor of a new one. In the absence of the express agreement, the old and the new obligations must be incompatible on every
point.20 According to California Bus Lines, Inc. v. State Investment House, Inc.:21

The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or
impliedly.1âwphi1 The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the
new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is
prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what
might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an
irreconcilable incompatibility between the old and the new obligations.

There is incompatibility when the two obligations cannot stand together, each one having its independent existence. If the two
obligations cannot stand together, the latter obligation novates the first.22 Changes that breed incompatibility must be essential in nature
and not merely accidental. The incompatibility must affect any of the essential elements of the obligation, such as its object, cause or
principal conditions thereof; otherwise, the change is merely modificatory in nature and insufficient to extinguish the original obligation.23

In light of the foregoing, the issuance of the receipt created no new obligation. Instead, the respondents only thereby recognized the
original obligation by stating in the receipt that the ₱400,000.00 was "partial payment of loan" and by referring to "the promissory note
subject of the case in imposing the interest." The loan mentioned in the receipt was still the same loan involving the ₱500,000.00
extended to Servando. Advertence to the interest stipulated in the promissory note indicated that the contract still subsisted, not
replaced and extinguished, as the petitioners claim.

The receipt dated February 5, 1992 was only the proof of Servando’s payment of his obligation as confirmed by the decision of the
RTC. It did not establish the novation of his agreement with the respondents. Indeed, the Court has ruled that an obligation to pay a
sum of money is not novated by an instrument that expressly recognizes the old, or changes only the terms of payment, or adds other
obligations not incompatible with the old ones, or the new contract merely supplements the old one.24 A new contract that is a mere
reiteration, acknowledgment or ratification of the old contract with slight modifications or alterations as to the cause or object or principal
conditions can stand together with the former one, and there can be no incompatibility between them.25 Moreover, a creditor’s
acceptance of payment after demand does not operate as a modification of the original contract.26

Worth noting is that Servando’s liability was joint and solidary with his co-debtors. In a solidary obligation, the creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously.27 The choice to determine against whom the collection is
enforced belongs to the creditor until the obligation is fully satisfied.28 Thus, the obligation was being enforced against Servando, who, in
order to escape liability, should have presented evidence to prove that his obligation had already been cancelled by the new obligation
or that another debtor had assumed his place. In case of change in the person of the debtor, the substitution must be clear and
express,29 and made with the consent of the creditor.30 Yet, these circumstances did not obtain herein, proving precisely that Servando
remained a solidary debtor against whom the entire or part of the obligation might be enforced.

Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It is settled that an extension of the
term or period of the maturity date does not result in novation.31

II

Total liability to be reduced by ₱400,000.00

The petitioners argue that Servando’s remaining liability amounted to only ₱375,000.00, the balance indicated in the February 5, 1992
receipt. Accordingly, the balance was not yet due because the respondents did not yet make a demand for payment.

The petitioners cannot be upheld.

The balance of ₱375,000.00 was premised on the taking place of a novation. However, as found now, novation did not take place.
Accordingly, Servando’s obligation, being solidary, remained to be that decreed in the December 9, 1991 decision of the RTC, inclusive
of interests, less the amount of ₱400,000.00 that was meanwhile paid by him.

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on March 19, 2003; ORDERS the Regional Trial
Court, Branch 16, in Malolos, Bulacan to proceed with the execution based on its decision rendered on December 9, 1991, deducting
the amount of ₱400,000.00 already paid by the late Servando Franco; and DIRECTS the petitioners to pay the costs of suit.

SO ORDERED.

(sources: LAWPHIL, CHAN ROBLES)