FIRST DIVISION

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

JOSE V. DELA RAMA, PETITIONER, V. HON. FRANCISCO G. MENDIOLA, JUDGE, RTC PASAY CITY, THE

COURT OF APPEALS AND TITAN CONSTRUCTION CORP., RESPONDENTS.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for certiorari under Rule 65 of the Revised Rules of Court assailing the orders 1 of the Regional Trial
Court of Pasay City, Branch 115, in Civil Case No. 97-0734 which denied petitioners Motion to Dismiss and Motion For
Direct Contempt based on Forum Shopping, as well as his Motion for Reconsideration.

On December 1, 1978, petitioner sold to the government on expropriation a parcel of land consisting of 1,225 square
meters, which was part of Lot 831-A, covered by Transfer Certificate of Title No. 22066, for use in the construction of
the EDSA Extension Project. The sale was subject to the reconveyance to petitioner of any unused portion of the
property after the project is completed.2cräläwvirtualibräry

On June 17, 1988, petitioner entered into a Contract to Sell, whereby he undertook to sell to respondent Titan
Construction Corporation a parcel of land adjacent to the one expropriated. 3 Subsequently, petitioner failed to comply
with his obligations under the Contract to Sell; thus respondent filed a complaint for rescission/annulment of contract
with the Regional Trial Court of Pasay City, Branch 116, which was docketed as Civil Case No. 6020. The parties
entered into a compromise agreement and, on May 19, 1989, the trial court rendered judgment approving the parties
compromise agreement. The pertinent portion of the judgment reads:

1. That the parties shall execute a deed of absolute sale over the subject property, including the improvements thereon
in the total amount of TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00);

2. That relative to the parcel of land sold to the government, a separate agreement is likewise to be executed by the
parties;

3. That Atty. and Mrs. Dela Rama will be given a period of 60 days from the signing of this document to fully vacate the
premises sold;

4. That failure on their part to vacate within the said period, an ex-parte ejectment writ of execution shall issue;

5. That the written agreement relative to the lease of houses in said premises shall be respected. 4cräläwvirtualibräry

Pursuant to the compromise judgment, petitioner executed a deed of absolute sale of the subject property in favor of
respondent. Likewise, he executed an Agreement to Sell and Buy, stating among others:

1. That in the event the Republic of the Philippines will return to the vendors (Jose Dela Rama and Esperanza
Belmonte) the area sold which is 1,224 sq. ms. or any portion therein, the Vendee (Titan Construction Corporation) is
given the exclusive option to buy any area returned at P2,000.00 per square meter.

2. That in consideration of said exclusive option granted to the said Vendee by the Vendors, the Vendee upon
registration of this instrument at the back of T.C.T. No. 22066 shall pay P200,000.00 to the
Vendors.5cräläwvirtualibräry
After the execution of the Agreement to Sell and Buy, respondent paid petitioner the amount of P200,000.00, for which
the latter issued a receipt which contained the inscription: amount is not refundable & not deductible from the agreed
price.6cräläwvirtualibräry

Meanwhile, petitioner sought the reconveyance of the unused portion of the property from the government. On
December 4, 1996, the Office of the President executed the corresponding Deed of Reconveyance in favor of
petitioner over 303 square meters of unused land.7cräläwvirtualibräry

On January 3, 1997, respondent filed with the Regional Trial Court of Pasay City, Branch 110, a Petition for
Declaratory Relief, Prohibition, Mandamus and Preliminary Injunction with Prayer for Restraining Order, 8 which was
docketed as Civil Case No. 97-1275. It prayed that the Deed of Reconveyance be declared void on the grounds that
the same violated its right of preemption under Article 1622 of the Civil Code; and that no public bidding was
conducted, resulting in a denial of respondents right to bid considering that petitioners had waived any and all rights
over the land by virtue of their Deed of Agreement to Sell and Buy. Respondent also prayed that the Office of the
President be ordered to give due course to its application to purchase the subject land. The trial court dismissed the
case for lack of merit on March 5, 1997.9 Thus, respondent instituted a petition for certiorari before this Court on March
24, 1997 which, however, was referred to the Court of Appeals, where it was docketed as CA-G.R. SP No.
44094.10cräläwvirtualibräry

On June 4, 1997, respondent filed an action for specific performance based on the compromise judgment with the
Regional Trial Court of Pasay City, which was docketed as Civil Case No. 97-0734. 11 Petitioner thus filed with the Court
of Appeals, in CA-G.R. SP No. 44094, a Motion for Direct Contempt and to Dismiss based on Forum Shopping. 12 He
also filed a similar motion with the Regional Trial Court of Pasay City in Civil Case No. 97-0734. 13cräläwvirtualibräry

On July 18, 1997, respondent filed a motion to withdraw the petition in CA-G.R. SP No. 44094, 14 which the Court of
Appeals, in its Resolution dated December 10, 1997, granted. Thus, the case was dismissed with
finality.15cräläwvirtualibräry

Meanwhile, the Regional Trial Court of Pasay City denied the motion to dismiss and for direct contempt based on
forum shopping filed by petitioner. It held that the alleged violation of Supreme Court Circular No. 04-94 was cured
when CA-G.R. SP No. 44094 was dismissed by the Court of Appeals. Moreover, petitioner failed to show that the two
cases have the same causes of action.16 Petitioner filed a motion for reconsideration, which was
denied.17cräläwvirtualibräry

Hence the instant petition based on the sole assigned error:

THE RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN NOT RESOLVING
PETITIONERS MOTION TO DISMISS AND FOR DIRECT CONTEMPT BASED ON FORUM SHOPPING AND, BY
REASON OF THAT SERIOUS ABUSE OF DISCRETION, IT SANCTIONED THE CONTINUANCE OF SAID ACTION
BEFORE THE RESPONDENT RTC WHICH ITSELF GRAVELY AND SERIOUSLY ABUSED ITS DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN REFUSING TO DISMISS THE CASE BASED
ON AUTER ACTION PENDANT AND RES JUDICATA, AND TO PUNISH FOR DIRECT CONTEMPT THE PRIVATE
RESPONDENT AND ITS LAWYERS BASED ON FORUM SHOPPING. 18cräläwvirtualibräry

The decisive issue posed by petitioner is whether or not the specific performance case (Civil Case No. 97-0734) is
barred by the petition for declaratory relief case (Civil Case No 96-1725 and CA-G.R. SP No. 44094) on the ground
of res judicata.

There is res judicata where the following four essential conditions concur, viz: (1) there must be a final judgment or
order; (2) the court rendering it must have jurisdiction over the subject matter and the parties; (3) it must be a judgment
or order on the merits; and (4) there must be, between the two cases, identity of parties, subject matter and causes of
action.19cräläwvirtualibräry
Reviewing the records of the case, there is no question that all the first three elements of res judicata are present. The
declaratory relief case, which was elevated by way of a petition for certiorari to the Court of Appeals, has been
dismissed with finality. The decision was rendered by a court of competent jurisdiction and the case was resolved on
its merits.

As regards the fourth condition, it is clear that there is identity of parties in the two cases. The declaratory relief case
was filed by respondent Titan against Executive Secretary Ruben D. Torres, DPWH Secretary Gregorio R. Vigilar, the
Register of Deed of Pasay City, petitioner Jose V. Dela Rama and Esperanza Belmonte (deceased). On the other
hand, the specific performance case was filed by respondent Titan against petitioner Dela Rama and the heirs of
Esperanza Belmonte. Although the public respondents in the declaratory relief case were not impleaded in the specific
performance case, only a substantial identity is necessary to warrant the application of res judicata.20 The addition or
elimination of some parties does not alter the situation. 21cräläwvirtualibräry

The subject matters and causes of action of the two cases are likewise identical. A subject matter is the item with
respect to which the controversy has arisen, or concerning which the wrong has been done, and it is ordinarily the
right, the thing, or the contract under dispute. In the case at bar, both the first and second actions involve the same real
property. A cause of action, broadly defined, is an act or omission of one party in violation of the legal right of the
other.22 Its elements are the following: (1) the legal right of plaintiff; (2) the correlative obligation of the defendant, and
(3) the act or omission of the defendant in violation of said legal right. 23 Causes of action are identical when there is an
identity in the facts essential to the maintenance of the two actions, or where the same evidence will sustain both
actions. If the same facts or evidence can sustain either, the two actions are considered the same, so that the
judgment in one is a bar to the other.24cräläwvirtualibräry

It is true that the first case was a special civil action for declaratory relief while the second case was a civil action for
specific performance. However, the difference in form and nature of the two actions is immaterial. The philosophy
behind the rule on res judicata prohibits the parties from litigating the same issue more than once. 25 The issue involved
in the declaratory relief case was whether respondent has rights over the property which was reconveyed to petitioner
considering that he waived all his rights by executing the Agreement to Sell and Buy. In the specific performance case,
the issue involved was the same, that is, whether respondent was entitled to the property reconveyed when the
petitioner failed to comply with the terms of their agreement embodied in the same Agreement to Sell and Buy.
Respondents alleged right in both cases depends on one and the same instrument, the Agreement to Sell and Buy.
Clearly, respondents ultimate objective in instituting the two actions was to have the property reconveyed in its favor.

When material facts or questions in issue in a former action were conclusively settled by a judgment rendered therein,
such facts or questions constitute res judicata and may not be again litigated in a subsequent action between the same
parties or their privies regardless of the form of the latter. This is the essence of res judicata or bar by prior judgment.
The parties are bound not only as regards every matter offered and received to sustain or defeat their claims or
demand but as to any other admissible matter which might have been offered for that purpose and of all other matters
that could have been adjudged in that case.26cräläwvirtualibräry

Assuming res judicata finds no application in the instant case, the action for specific performance must nonetheless be
dismissed. The Agreement to Sell and Buy, being one of the prestations of the compromise agreement which was
judicially confirmed and had long become final and executory, cannot be enforced in a separate action. In the case
of Jose Dela Rama v. Hon. Aurora P. Navarrete-Recina, 27 where petitioner assailed the validity of the Deed of Absolute
Sale executed pursuant to the compromise agreement, we held that:

Moreover, the Deed of Absolute Sale being impugned by the petitioners is but an offshoot of the compromise
agreement entered into, with judicial confirmation, by the parties themselves. Thus, as observed by the respondent
court, any further prestations left undone, with regard to the provisions of the compromise judgment, should be the
subject of proceedings on execution, and not a separate action.

In the earlier case of Arkoncel v. Lagamon,28 we held:

The rule is that a judgment rendered in accordance with a compromise agreement is immediately executory unless a
motion is filed to set aside the agreement on the ground of fraud, mistake or duress in which case an appeal may be
taken against the order denying the motion. It then becomes ministerial for the lower court to order the execution of its
final executory judgment.

Even more than a contract which may be enforced by ordinary action for specific performance, the compromise
agreement is part and parcel of the judgment, and may therefore be enforced as such by a writ of execution.

Finally, when the terms of an amicable settlement are violated, as in the case at bar, the remedy of the aggrieved party
is to move for its execution.

The principle of res judicata requires that stability be accorded to judgments. Controversies once decided on the merits
shall remain in repose for there should be an end to litigation which, without the doctrine, would be endless. 29 Given the
circumstances in this case, we find that the trial court committed grave abuse of discretion when it denied the motion to
dismiss filed by petitioners.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Order of the Regional Trial Court of Pasay City,
Branch 115 in Civil Case No. 97-0734, denying petitioners Motion to Dismiss Complaint and For Direct Contempt
Based on Forum Shopping, as well as the Order denying petitioners Motion for Reconsideration, are REVERSED and
SET ASIDE. The Regional Trial Court of Pasay City, Branch 115, is ordered to DISMISS Civil Case No. 97-0734 on the
ground of res judicata. Costs against private respondents.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

 EN BANC

[G.R. No. 96921. January 29, 1993.]

DEVELOPMENT BANK OF THE PHILIPPINES, NATIONAL DEVELOPMENT COMPANY and NATIONAL STEEL
CORPORATION, Petitioners, v. JUDGE AMIR PUNDOGAR, in his capacity as Presiding Judge of the Regional Trial
Court of Iligan City, 12th Judicial Region, Branch III, FERNANDO JACINTO, JACINTO STEEL, INC., and ILIGAN
INTEGRATED STEEL MILLS, INC., Respondents.

Office of the Government Corporate Counsel for petitioners.

SYLLABUS

1. REMEDIAL LAW; CERTIORARI; PETITIONERS ARE RIGHTFULLY ENTITLED TO THE RECOURSE AVAILED OF
AS IT IS PART OF THE SUPERVISORY AUTHORITY OF THE COURT TO CORRECT THE ERROR COMMITTED.
— Private respondents correctly cited the general rule in elevating cases to this Court. The rule, however, admits of
exceptions, such as when the court, in denying the motion to dismiss acts without or in excess of jurisdiction or with
grave abuse of discretion. In such an instance, certiorari becomes available in order to relieve the defendant of the
trouble of undergoing the ordeal and expense of a useless trial. As will be seen in the subsequent discussion,
petitioners are rightfully entitled to the recourse availed of as it is part of the supervisory authority of the Court to
correct the error committed.

2. ID.;ACTION; RES JUDICATA; ELEMENTS CONSTITUTING RES JUDICATA AS A GROUND FOR THE
DISMISSAL OF A COMPLAINT. — Res judicata is indeed present. Imbedded in Philippine jurisprudence are the
elements constituting res judicata as a ground for the dismissal of a complaint: a) the former judgment must be final; b)
the court which rendered it had jurisdiction over the subject matter and the parties; c) it must be a judgment on the
merits and d) there must be, between the first and second actions, identity of parties, subject matter and causes of
action.

3. ID.;ID.;ID.;ID.; FOR RES JUDICATA TO APPLY, ABSOLUTE IDENTITY OF PARTIES IS NOT REQUIRED
BECAUSE SUBSTANTIAL IDENTITY IS SUFFICIENT. — For res judicata to apply, absolute identity of parties is not
required because substantial identity is sufficient. Inclusion of additional parties will not affect the application of the
principle of res judicata. In both cases, the subject matter involved is the Iligan Integrated Steel Mills, Inc.

4. ID.;ID.;ID.;ID.; THE TEST OF IDENTITY OF CAUSES OF ACTION LIES NOT IN THE FORM OF THE ACTION BUT
ON WHETHER THE SAME EVIDENCE WOULD SUPPORT AND ESTABLISH THE FORMER AND THE PRESENT
CAUSES OF ACTION.— As regards identity of causes of action, this requisite is similarly present although the same
may not be quite apparent. In Civil Case No. 1701, the caption clearly indicates that the action is one for injunction
while in Civil Case No. 111-1549, the caption does not state the title of the action as required by Sec. 1, Rule 7 if the
Rules of Court. This omission notwithstanding, the test of identity of causes of action lies, not in form of the action, but
on whether the same evidence would support and establish the former and the present causes of action.

5. ID.;ID.; PRESCRIPTION; THE SO-CALLED "SPECIAL CIRCUMSTANCES" DO NOT CONVINCE THIS COURT
THAT IN THIS PARTICULAR CASE, MARTIAL LAW SHOULD BE TREATED AS FORCE MAJEURE THAT
SUSPENDS THE RUNNING OF PRESCRIPTION.— If this Court does, then it would be relieving private respondents
of their bounden duty to show that during martial law they were so circumstanced that it was impossible for them to
commence, continue or even resist an action. And yet a fullblown hearing is not even necessary as the so-called
"special circumstances" do not convince this Court that, in this particular case, martial law should be treated as force
majeure that suspends the running of presciption. Likewise, petitioners have consistently pointed out that during the
hearing of the motion to dismiss, private respondents failed to adduce any proof regarding their allegations on the
tolling of the prescriptive period. Private respondents have not, in any of their pleadings, rebutted this.

6. ID.; ID.; ID.; ID.; COURT RULES THAT UNDER THE FACTUAL CIRCUMSTANCES OF THIS CASE, THE
MARTIAL LAW YEARS DID NOT HAVE THE EFFECT OF INTERRUPTING THE RUNNING OF THE PRESCRIPTIVE
PERIOD.— The allegations regarding their absence, the cancellation of their passports, the seizure of their resources
and the incarceration of other IISMI officials had all been raised earlier in the Republic case. Not having been
convinced then, neither is this Court convinced now. Raising them for the second time to compel a relitigation will not
suffice to make this reverse itself. Thus, we rule that, under the factual circumstances of this case, the martial law
years did not have the effect of interrupting the running of the prescriptive period.

7. ID.; ID.; ELEMENTS OF A CAUSE OF ACTION. — A cause of action is an act or omission of one party in violation
of the legal right of the other. Its essential elements are, namely:(1) the existence of a legal right in the plaintiff, (2) a
correlative legal duty on the part of the defendant, and (3) an act or omission of the defendant in violation of plaintiff’s
right with consequential injury or damage to the plaintiff for which he may maintain an action for the recovery of
damages or other appropriate relief.

8. ID.; ID.;ID.; A FINDING THAT A COMPLAINT STATES A CAUSE OF ACTION DOES NOT IMPLY THAT THE
COMPLAINANT IS ASSURED OF A RULING IN HIS FAVOR.— However, a finding that a complaint states a cause of
actin does not imply that the complainant is assured of a ruling in his favor. While a motion to dismiss based on failure
of the complainant to state a cause of action necessarily carries with it the adminission, for purposes of the motion, of
the truth of all material facts pleaded in the complaint, what is submitted for determination therein is the sufficiency of
the allegations in the complaint. Corrolarily, the denial of a motion to dismiss does not necessarily resolve the issues
raised in the complaint in favor of the complainant inasmuch as, after the trial, the defendant might prove to have a
better right to the subject matter in litigation.

9. ID.; ID.;ID.; PRIVATE RESPONDENTS HAVING THE LEGAL RIGHT TO FILE THE INSTANT CASE, COURT
FINDS THAT THE COMPLAINT STATES A CAUSE OF ACTION. — There is no allegation in the complaint that would
show that a demand on the board of directors of IISMI was in fact made. But even if the Jacintos and JSI omitted to
make the same, they can still file the instant case as a derivative suit. They have alleged that "at this time, IISMI is
without a duly or legally constituted board of directors and no election of officers has been held." It would be futile for
them to make a demand on the board of directors whose very constitution is being questioned. Private respondents,
having the legal right to file the instant case, we find that the complaint states a legal cause of action.

10. ID.; ID.; ID.; A MOTION TO DISMISS MAY BE BASED ON ONLYONE OF THE GROUNDS ENUMERATED IN
SEC. 1, RULE 16 OF THE RULES OF COURT. — Moreover, a motion to dismiss may be based on only one of the
grounds enumerated in Sec. 1, Rule 16 of the Rules of Court. That the petitioners were able to prove the presence of
three of the four grounds they raised, viz., res judicata, lack of jurisdiction and prescription, more than warrants the
reversal of the Order below denying the petitioner’s motion to dismiss.

11. ID.; ID.; PLEADINGS AND PRACTICE; THE SOLICITOR GENERAL IS NOT ABSOLUTELY REQUIRED TO
REPRESENT A GOVERNMENT AGENCY NEITHER IS THE LATTER ABSOLUTELY COMPELLED TO AVAIL OF
THE SOLICITOR GENERAL’S SERVICES. — Government agencies, including government corporations, must look to
the Solicitor General to the Solicitor General, in the first instance, to represent them in legal proceedings. However, in
much the same way that the Solicitor General is not absolutely required to represent a government agency, neither is
the latter absolutely compelled to avail of the Solicitor General’s services. A justifiable departure from the general rule
is when the agency has lost confidence in the Solicitor General, as demonstrated by its past actuations exemplified in
the instant case where the DBP would rather rely on its "in house" resources for legal services. In this case, therefore,
we grant DBP’s prayer to terminate the services of the OSG.

GUTIERREZ, JR., J., Dissenting Opinion

1. REMEDIAL LAW; CONSTITUTIONAL LAW; DUE PROCESS; COURT IS SETTING A BAD PRECEDENT IF IT
VALIDATES A STRONG ARM OF GOVERNMENT’S STRIPPING AWAY A PERSON’S LIBERTY AND PROPERTY
ON A FEIGNED SEMBLANCE OF DUE PROCESS. — We are setting a bad precedent if we validate a strong arm
government’s stripping away a person’s liberty and property on a feigned semblance of due process.

2. ID.; ID.; ID.; THE FINDING MADE BY THE TRIAL COURT IS YET TO BE EXAMINED MORE FULLY WHEN THE
PRINCIPAL ACTION IS SET FOR TRIAL ON THE MERITS AND THE PARTIES COMPLETE THEIR EVIDENCE IN
SUPPORT OF THEIR RESPECTIVE POSITIONS.— The due process considerations, are, moreover, highlighted by
the fact that the January 10, 1974 order should not be considered a judgment on the merits as it was a judgment for
the provisional remedy of preliminary injunction. The finding made by the trial court is yet to be examined more fully
when the principal action is set for trial on the merits and the parties complete their evidence in support of their
respective positions.

3. ID.; PRESCRIPTION; PRESCRIPTION IS NOT LIMITED TO PURE AND ABSTRACT MATHEMATICAL

COMPUTATIONS OF A FINITE PERIOD OF TIME. — Prescription is not limited to pure and abstract mathematical
computations of a finite period of time. Under the circumstances of this case, it is the presentation of evidence and not
the automatic counting of days, months, and years which is necessary.

DECISION

ROMERO, J.:

Behind the innocuous title of the case is the unraveling of a tale of the government’s dashed hopes of taking off for an
industrial economy through the setting up of an integrated steel plant that it supported in the sixties through gargantuan
investments therein; of how the said enterprise floundered after repeatedly defaulting in its obligations leading to the
inevitable foreclosure of its assets; of how it laid low for fourteen years spanning the martial law regime only to
resurface now to claim what it vigorously insists is its own; and how the government, through the highest reaches of
officialdom, is now waging an equally relentless fight to permanently keep what it considers to belong to it by just and
legitimate title in order that it may resume its interrupted economic dream.

In legalese, this is a special civil action for certiorari which seeks to annul and set aside the trial court’s Order dated
August 31, 1990 which denied petitioners’ motion to dismiss and also the Order dated December 27, 1990 which
likewise denied petitioners’ motion for reconsideration.

The historical antecedents of the present petition hark back to 1955 when Republic Act No. 1396 was enacted
authorizing National Shipyards and Steel Corporation (NASSCO) to establish a pig-iron smelting plant. When NASSCO
started negotiations with the United States Export-Import Bank (EXIMBANK) for a $62.3 million loan, the latter
suggested that the management of the project be placed in the hands of the private sector. After a public bidding, the
Jacinto Steel, Inc. (JSI) was entrusted with the implementation of the project. Later, in October 1963, Iligan Integrated
Steel Mills, Inc. (IISMI) was incorporated with the Jacintos and the Government, through the GSIS, SSS and NASSCO
as principal investors and about fifty other minority stockholders. 1

On January 22, 1964, an agreement was entered into by the Government, IISMI and the EXIMBANK whereby the latter
would provide the funds required to launch the project into commercial operation, including provisions for overruns and
other financial assistance. On the same date, IISMI and the Government entered into a collateral agreement whereby
the Government committed to extend equity and non-equity funds to IISMI during the construction period, including an
amount of no less than P34 million. Pursuant to a Second Collateral Agreement dated July 26, 1966, the Development
Bank of the Philippines granted IISMI additional loans which were secured by real and chattel mortgages over all of
IISMI’s assets.chanrobles.com:cralaw:red

In order to forestall a threatened foreclosure due to defaults in loan payments, IISMI instituted on June 1, 1971 an
injunction suit against the Republic of the Philippines, Development Bank of the Philippines (DBP), Central Bank of the
Philippines (CB), Board of Investments (BOI) and the Sheriff of Lanao del Norte and Iligan City. The complaint 2 which
was docketed as Civil Case No. 1701 alleged that the inability of IISMI to meet its obligations was due to" (g)overnment
violations of its commitments to the Integrated Steel Project" which "were all in pursuance of the concerted and single-
minded plan of the defendants to foreclose the mortgaged properties of the plaintiff and/or take over the management
and ownership of IISMI or its properties, plants, or mills."cralaw virtua1aw library

The preliminary injunction issued by the court 3 on August 11, 1971 was questioned by the DBP in G.R. No. L-34188
and the CB in G.R. No. L-33986. When the motion to dismiss filed by the Republic and the BOI on the grounds of
improper venue and non-suability of the State was denied, the parties likewise questioned the denial order in G.R. No.
L-33949. Subsequently, this Court ordered the consolidation of these petitions and set them all for a joint hearing. 4
While these cases were pending before the Court, then President Marcos issued Proclamation 1081 on September 21,
1972 declaring a state of martial law. He thereafter issued four Letters of Instructions 5 directing the Secretary of
National Defense to take over and control the operation of IISMI and other Jacinto-held companies "for the duration of
the present national emergency or until otherwise ordered" because the acts of management of IISMI "indicated that
IISMI disposed of property by fraudulent means and that the funds or money earned was (sic) not properly accounted
for, and neither were they applied for payment of obligations due the Government and the government-owned
corporations."cralaw virtua1aw library

On October 23, 1973, the Court ordered the lower court "to resume proceedings in Civil Case No. 1701 by receiving
further evidence which the parties may desire to present relative to all the issues they have so far raised and,
thereafter, to resolve all the incidents related to the writ of preliminary injunction said court has issued and every other
incident in the said case and/or render final judgment in the main case on the merits." 6

On January 10, 1974, the lower court 7 issued an Order dissolving the writ of preliminary injunction. 8 It held that there
was mismanagement of the financial affairs of IISMI by its corporate officials through the diversion of its profits to other
Jacinto-controlled corporations especially to Ferro Products Inc. (FERRO), its known marketing instrumentality and
biggest single buyer, which led to its failure to meet its different due and demandable obligations to DBP. More
specifically, mismanagement was shown by the setting up of an unrealistic pricing scheme where, while the floating
exchange rate jacked up the cost of materials by 50%, the selling price of goods sold to FERRO was increased by only
25% and FERRO resold the goods at prices higher by 30%, thus realizing in the process additional gross profits of 5%;
by giving FERRO extraordinarily long credit terms of 90-180 days; by unduly postponing FERRO’s payments of its
matured payables through reinvoicing; by unjustifiably delaying the collecting trade and non-trade receivables from
FERRO and other Jacinto-controlled corporations; by heavily loading the selling expenses of IISMI with other non-
legitimate charges which created an economic imbalance between its income and expenses; by giving interest-free
loans and direct advances from IISMI funds to the Jacintos and their corporations; by passing on to IISMI travel and
representation expenses of the Jacintos and their own corporations thus, using IISMI funds to pay expenses of some
Jacinto-controlled corporations; by making IISMI borrow at 12% interest per annum from Jacinto-controlled
corporations instead of IISMI collecting receivables from its debtors especially FERRO; by appropriating IISMI’s money
to the Jacintos’ private benefit; by debiting IISMI for goods and shipments actually received not by IISMI but by the
Jacintos and their corporations; and by importing raw materials for Jacinto-controlled corporations through the use of
DBP guaranties intended for IISMI.chanrobles.com.ph : virtual law library

Likewise, the court found that there were attempts to hide these corporate malpractices by "window dressing" of the
financial statements and records of IISMI and of the Jacinto-controlled corporations. This consisted in understating
profits to create the impression that losses were not due to improper operations but rather to other factors like the
floating exchange rate; painting a favorable but unreal cash position on the part of IISMI; creating an ostensibly
favorable asset position by including as IISMI’s assets goods returned by FERRO to the Security Bank and Trust Co.;
by overstating the inventories account; and by understating the account receivables from FERRO and other Jacinto-
controlled corporations by intercepting legitimate payables to IISMI.

Moreover, the lower court rejected the claim of IISMI that its failure to meet its obligations was due to the floating
exchange rate, holding that IISMI could only claim a loss of P51.9 million owing to the floating rate as importations
before February 1970 were sold at pre-devaluation prices even after devaluation. However, no such loss could be
claimed after June 1970 since price adjustments could and should have been instituted by IISMI after that time.
Furthermore, despite the disposition of the processed raw materials, IISMI failed to use the proceeds to liquidate its
accounts which, as of June 30, 1972 had ballooned to P407 million. Such failure compelled DBP to assume payments
in its capacity as guarantor to assume payments due to IISMI’s creditors.

Lastly, the court held that IISMI cannot pin the blame for the delay in payments of its obligations on the alleged delay in
the release of DBP, SSS and GSIS funds. The bulk of IISMI’s obligations arose from subsequent raw material
importations guaranteed by DBP. These accounts were only incurred by IISMI after DBP, SSS and GSIS had released
their respective funds to IISMI.

Thus, the lower court concluded:jgc:chanrobles.com.ph

"It is settled jurisprudence that an applicant for writ of preliminary injunction should be able to establish a clear case,
free from doubt and dispute. Since injunction is an equitable remedy, an applicant must also come to court with clean
hands. As discussed above, the evidence show that IISMI has failed to satisfy both basic requirements to entitle it to a
writ of preliminary injunction." 9

On February 25, 1974, the court deemed the pre-trial conference terminated and dismissed the complaint filed by IISMI
with prejudice for its failure to appear during the pre-trial despite due notice. 10

After the finality of the January 10, 1974 Order, DBP filed an application for extra-judicial foreclosure of the IISMI
mortgages. On February 26, 1974, the IISMI plant and assets were thus auctioned to DBP as the highest bidder. After
one year, or on March 24, 1975, DBP consolidated its ownership over the said properties. 11

On December 29, 1989 or fourteen (14) years from said consolidation of ownership, IISMI, Fernando Jacinto and
Jacinto Steel, Inc. (JSI) filed a complaint 12 docketed as Civil Case No. 111-1549 before Branch 3 of the Iligan
Regional Trial Court against petitioners DBP, National Development Corporation (NDC) and National Steel Corporation
(NSC) praying that judgment be rendered —

"1. Setting aside and declaring as null and void:cralawnad

1.1 The extra-judicial foreclosure conducted by the provincial sheriff of Iligan City on February 26, 1974 of the
mortgage contract dated August 1, 1966, additional mortgage dated January 13, 1967, addendum to chattel mortgage
dated January 13, 1967, additional mortgage dated May 20, 1968 and additional mortgage dated December 22, 1969,
all executed by IISMI in favor of DBP.

1.2 The certificate of sale issued by the provincial sheriff of Iligan City in consequence of the extra-judicial foreclosure
of the mortgages referred to in 1.1 of this prayer;

2. Ordering all defendants, jointly and severally, to restore and/or return to IISMI all the properties subject of the extra-
judicial foreclosure of the mortgages referred to in 1.1 or 1.2 of this prayer portion;

3. Ordering the Register of Deeds, Iligan City, to cancel Transfer Certificate of Title No. P-25, 959 (a.f.) of the Registry
of Deeds for Iligan City and to issue replacement transfer certificates of title in the name of IISMI." 13

Petitioners filed their respective motions to dismiss 14 on the grounds of lack of jurisdiction, failure to state a cause of
action, prescription and res judicata. On March 31, 1990, private respondents filed an amended complaint. 15
Petitioners adopted their earlier motions to dismiss as their motion to dismiss the amended complaint. 16 On May 4,
1990, National Steel Corporation filed a motion to cancel notice of lis pendens which was opposed by private
respondents on June 22, 1990.

On August 31, 1990, the lower court 17 issued an order denying the motions to dismiss. 18 The motion for
reconsideration was likewise denied on December 27, 1990. 19

Hence, the present petition for certiorari which was filed on February 5, 1991 seeking the nullification of the two
aforementioned orders. On February 7, 1991, this Court issued a Temporary Restraining Order requiring respondent
Judge Amir Pundogar to desist from taking any further proceeding in Civil Case No. 111-1549.

For a clear disposition of the issues raised, we shall consider them seriatim.

I. PROCEDURAL GROUND

Private respondents question the propriety of the instant petition for certiorari before the Court on the ground that the
Order denying a motion to dismiss, being interlocutory, cannot be the subject of a special civil action. They aver that
the proper remedy is to file in the lower court an answer interposing as defenses the objections raised in the motion to
dismiss, proceed to trial and, in case of an adverse decision, elevate the same by appeal.

Petitioners, on the other hand, argue that the case at bar is an exception to the general rule. Besides, there is no
appeal nor any other plain, speedy and adequate remedy. They contend that the instant petition can be entertained by
the Court for the purpose of correcting the questioned Orders which were issued by respondent judge with grave
abuse of discretion.chanrobles law library

Private respondents correctly cited the general rule in elevating cases to this Court. The rule, however, admits of
exceptions, such as when the court, in denying the motion to dismiss acts without or in excess of jurisdiction or with
grave abuse of discretion. In such an instance, certiorari becomes available in order to relieve the defendant of the
trouble of undergoing the ordeal and expense of a useless trial. 20 As will be seen in the subsequent discussion,
petitioners are rightfully entitled to the recourse availed of as it is part of the supervisory authority of the Court to
correct the error committed. 21

Furthermore, the direct invocation of this Court’s original jurisdiction to issue writs of certiorari should be allowed as
there are special reasons therefor clearly and specifically set out in the petition 22 as quoted
hereunder:jgc:chanrobles.com.ph

"The Respondent Judge’s unlawful refusal to immediately dismiss, and the continuing pendency of Civil Case No. 111-
1549 has coated the Jacinto claim with a misleading veneer of plausibility which is obstructing and causing inevitable
delays in (i) the government’s and NDC’s plans to privatize NSC at the earliest possible time and under optional
conditions generating the maximum returns for NDC, the country and the Filipino people; (ii) NSC’s Integrated Steel
Mill Project and (iii) the development of the nation’s steel industry as well as the country’s industrialization both of
which have already suffered an incalculable fall due to IISMI’s ruin masterminded and engineered by Jacinto and his
family." 23

II. SUBSTANTIVE GROUNDS

A. RES JUDICATA

Petitioners contend that the final Orders of January 10, 1974 and February 25, 1974 in Civil Case No. 1701 bar IISMI
from filing Civil Case No. 111-1549, which questions the same DBP foreclosure upon the very same claim that the
foreclosure was fraudulent, that is, IISMI defaulted on its loans due to GSIS-SSS-DBP-CB conspiracy. The only
difference is that in Civil Case No. 1701, they asked for a prospective relief (that the threatened DBP foreclosure be
enjoined) while in Civil Case No. 111-1549, they asked for a retrospective relief (that the foreclosure be annulled).

Private respondents, on the other hand, argue that the present action cannot be barred by res judicata because the
proceedings in Civil Case No. 1701 is not a judgment on the merits and there is no identity of causes of action between
the first and the second cases.

Res judicata is indeed present. Imbedded in Philippine jurisprudence are the elements constituting res judicata as a
ground for the dismissal of a complaint: a) the former judgment must be final; b) the court which rendered it had
jurisdiction over the subject matter and the parties; c) it must be a judgment on the merits and d) there must be,
between the first and second actions, identity of parties, subject matter and causes of action. 24

The first three requisites are obviously present. The Orders of January 10, 1974 and February 25, 1974 attained finality
as no motion for reconsideration or appeal had been filed. 25 The said Orders were issued by the CFI of Lanao del
Norte, Branch 11 which had jurisdiction over the injunction case as the property subject of the complaint is located
within its territorial jurisdiction. These Orders are judgments on the merits. In the Order of January 10, 1974 where the
writ of preliminary injunction was lifted, then Judge Tutaan, after considering not only the evidence presented during
the hearing of the motion for preliminary injunction but also the additional evidence presented after this Court ordered
the resumption of proceedings, found that a case of mismanagement existed. On the other hand, the Order of
February 25, 1974 whereby the complaint was dismissed with prejudice for failure to appear during the pre-trial despite
due notice, had the effect of an adjudication upon the merits. 26

For the fourth requisite to exist, the identity required is not only of the parties and subject matter but also of the causes
of action. In Civil Case No. 1701, the complaint was filed by IISMI against the Republic, BOI, CB and DBP. In Civil
Case No. 111-1549, the complaint was filed by IISMI, Fernando Jacinto and Jacinto Steel, Inc. against DBP, NDC and
NSC. For res judicata to apply, absolute identity of parties is not required because substantial identity is sufficient. 27
Inclusion of additional parties will not affect the application of the principle of res judicata. 28 In both cases, the subject
matter involved is the Iligan Integrated Steel Mills, Inc.chanrobles virtual lawlibrary

As regards identity of causes of action, this requisite is similarly present although the same may not be quite apparent.
In Civil Case No. 170l, the caption clearly indicates that the action is one for injunction while in Civil Case No. 111-
1549, the caption does not state the title of the action as required by Sec. 1, Rule 7 of the Rules of Court. This
omission notwithstanding, the test of identity of causes of action lies, not in the form of the action, but on whether the
same evidence would support and establish the former and the present causes of action. 29

A comparison between the allegations of the complaints in Civil Case No. 1701 and that of Civil Case No. 111-1549
reveals that there is indeed identity of causes of action. In both cases, private respondents claim that DBP has no right
to foreclose because it violated its financial commitments to IISMI and that it conspired with other agencies of the
government to cause the latter’s financial ruin. It follows, therefore, that the evidence that private respondents used to
support Civil Case No. 1701 is the same evidence that they would utilize to establish Civil Case No. 111-1549.

Private respondents claim that there is no identity of causes of action because the amended complaint added several
allegations which were not present in the complaint for injunction (Civil Case No. 1701) as they could not have been
alleged in that case, and therefore, the evidence necessary to sustain Civil Case No. 111-1549 could not have been
the same as in the former case. On the contrary, petitioners insist that there is identity of causes of action because
respondent Judge cannot resolve the issue presented in Civil Case No. 111-1549 and grant the reliefs sought without
annulling the 1974 Orders. Hence, the additional allegations will not change the cause of action in the two cases.

We agree with petitioners. It should be noted that said additional allegations may be categorized into three: first, those
that have arisen after the filing of Civil Case No. 1701; second, those that pertain to the foreclosure; and third,
developments after the EDSA Revolution.

The first group of allegations supposedly affecting the validity of the foreclosure consists of the declaration of Martial
Law, 30 the issuance of LOI No. 27, 31 the seizure of IISMI’s records and the detention of some of its officers, 32 the
cancellation of passports of the members of the Jacinto family, 33 and the withdrawal of IISMI’s counsel. 34 It is
significant to note that while these matters were not alleged in Civil Case No. 1701 as they developed only after its
filing, said events had in fact been brought to the attention of this Court which disposed of them in this
wise:jgc:chanrobles.com.ph

". . . the Court finds no other alternative but to terminate the present proceedings in this Court, so as to give way to
further proceedings in the Court below, wherein all pertinent issues arising from the developments which have taken
place since August 17, 1972 may be appropriately and fully threshed out, considering that the factual matters involved
therein would require the formal and proper presentation of varied and voluminous evidence which the Court is not
adequately equipped to receive." 35 (Emphasis supplied).

Thus, the CFI of Lanao del Norte, when it resumed the hearing, was expected to settle, not only the allegations in the
complaint, but even those matters that had developed during the pendency of the three petitions for certiorari before
this Court. It follows perforce, that the subsequent dismissal of Civil Case No. 1701 for failure to prosecute is not
limited solely to the allegations of the complaint therein. Hence, these additional allegations can no longer be raised for
the second time as res judicata now operates. This is supported by Sec. 49 of Rule 39 of the Rules of Court which
states:jgc:chanrobles.com.ph

"SECTION 49. Effect of Judgments.—

x       x       x

(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any other matter that
could have been raised in relation thereto, conclusive between the parties and their successors in interest by title
subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same
title and in the same capacity; (Emphasis supplied).chanrobles law library
x       x       x"

The second group of allegations pertaining to the foreclosure are specifically, that the sheriff sold IISMI at public
auction when it was not in the possession of the mortgagee 36 and that the Jacintos offered to redeem the same. 37
We make short shrift of these allegations by pointing out that the sheriff’s act of selling the property which was then
under government control is woven into the very warp and woof of the issue of the legality of the take-over.

Considering that private respondents had waived their opportunity to question the take-over, they cannot raise the
same belatedly. Otherwise, the effect would be to allow private respondents to evade their liabilities simply because
the foreclosure happened at the time when martial law was in effect.

As to the claim that the Jacintos offered in a letter to redeem IISMI through a credit line facilitated by a foreign bank,
suffice it to say that this is not the redemption contemplated by the law and its inclusion will not make res judicata
inoperable. 38

Lastly, private respondents alleged "facts which transpired after EDSA", viz.: the Enrile Memorandum to President
Aquino, the Enrile Memorandum to former Department of Trade and Industry Secretary Jose Concepcion, the Order of
Dismissal issued by the PCGG, the Legal Opinion of DBP’s former Chief Legal Counsel dated December 5, 1986, the
Opinion of the Deputy Government Corporate Counsel dated January 14, 1984, and the Letter of the Undersecretary of
Justice dated February 13, 1987. 39 Private respondents have erroneously termed these "opinions" written after the
EDSA Revolution as "facts." Truth to tell, no factor event has supervened which may justify the overturning of a finding
of the court which had long become final. These are but long debunked, tired reiterations of the same Jacinto refrain, of
"fraudulent, illegal and systematic deprivation of IISMI of its assets (w)as part of a general preconceived plan . . . to
oppress, impoverish and destroy Jacinto and his family and their interests." 40

B. JURISDICTION

Petitioners assert that the lower court has no jurisdiction because the present case seeks to annul the Orders of
January 10, 1974 and February 25, 1974 of the then CFI of Lanao del Norte. As such, it is the Court of Appeals which
has the exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts. 41 They
observe that while private respondents concede that this case does not expressly pray for the annulment of the said
decision, their prayers, if granted, will, of necessity, invalidate the foreclosure. Furthermore, petitioners assert that
since the allegations raised in both cases are the same, respondent Judge cannot resolve the issues presented without
annulling the questioned Orders in Civil Case No. 1701.

On the other hand, private respondents believe that the lower court has jurisdiction over the instant case as it involves
reconveyance of real property 42 and that the Orders are limited to the circumstances prevailing at the time of the filing
of the complaint.

For its part, the lower court did not consider the attack on jurisdiction well-taken because the annulment of the decision
in Civil Case No. 1701 is not being sought by private respondents. 43

We agree with petitioners that the lower court committed grave abuse of discretion in taking jurisdiction over Civil Case
No. 111-1549. The failure of respondents to expressly pray for the annulment of the Orders dated January 10, 1974
and February 25, 1974 does not mean lack of interest on their part in having them declared void. To be sure, the
prayers are explicitly limited to seeking the nullification of the extrajudicial foreclosure on February 26, 1974 and the
certificate of sale issued by the provincial sheriff of Iligan City, the restoration and/or return to IISMI of all the foreclosed
properties and the cancellation of TCT No. P-25.959 (a.f.), as well as the issuance of a replacement transfer certificate
of title in the name of IISMI. A close scrutiny of the allegations in the complaint, however, would reveal that if the
prayers are to be granted, the resultant effect would be to annul the findings of mismanagement made in the Order of
January 10, 1974 and to re-litigate the same claims which had been earlier dismissed with prejudice in the Order of
February 25, 1974. Private respondents’ submission that the action is one for reconveyance of property is misleading,
as reconveyance is but the inevitable consequence once these two Orders are annulled.chanrobles.com.ph : virtual
law library

C. PRESCRIPTION
Petitioners contend that the action has prescribed since the case was filed almost sixteen (16) years after the 1974
Orders. They assert that, based on the allegations in the complaint, if tort or quasi-delict were committed, the four-year
prescriptive period 44 has obviously lapsed. If constructive trust is established, the ten-year prescriptive period 45 has
likewise expired.

Private respondents counter that regardless of the prescriptive period (four or ten years) applicable, the same was
suspended during the martial law regime which should be treated as a force majeure and hence, the prescriptive
period should start to run only on February 25, 1986. 46 Involving as it does an issue of fact, they aver that the
presentation of evidence must be made before the trial court. Furthermore, they allege that since the action is one to
recover immovable property, the same prescribes in thirty (30) years. 47 In any case, they assert that the action is
imprescriptible under Art. 1410 of the New Civil Code.48

We can do no better than to cite the case of Tan v. Court of Appeals, 49 reiterated in National Development Co. v.
Court of Appeals 50 and quote the portion of the decision which deals with the issue of whether or not martial law
interrupted the running of the prescriptive periods:jgc:chanrobles.com.ph

"We cannot accept the petitioners’ contention that the period during which authoritarian rule was in force had
interrupted prescription and that the same began to run only on February 25, 1986, when the Aquino government took
power. It is true that under Article 1154:chanrob1es virtual 1aw library

‘ARTICLE 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not
reckoned against him.’

fortuitous events have the effect of tolling the period of prescription. However, we cannot say, as a universal rule, that
the period from September 21, 1972 through February 25, 1986 involves a force majeure. Plainly, we cannot box 1n
the `dictatorial’ period within the term without distinction, and without, by necessity, suspending all liabilities, however
demandable, incurred during that period, including perhaps those ordered by this Court to be paid. While this Court is
cognizant of acts of the last regime, especially political acts, that might have indeed precluded the enforcement of
liability against that regime and/or its minions, the Court is not inclined to make quite a sweeping pronouncement,
considering especially the unsettling effects such a pronouncement is likely to bring about. It is our opinion that claims
should be taken on a case-to-case basis. This selective rule is compelled, among others, by the fact that not all those
imprisoned or detained by the past dictatorship were true political oppositionists, or, for that matter, innocent of any
crime or wrongdoing. Indeed, not a few of them were manipulators and scoundrels." 51 ( Emphasis supplied)

In order to prove that they were prevented from commencing the suit during the Marcos regime, private respondents
narrated that the passports of the Jacinto family, who were then abroad, were cancelled; all their resources were taken
over by the Government; their lawyers were constrained to withdraw their appearances because of the change in the
membership of the Board of Directors of IISMI, and the incarceration of the executives of IISMI who would have been
witnesses in the case. They would have the Court take judicial notice of these facts.

We cannot do so. If this Court does, then it would be relieving private respondents of their bounden duty to show that
during martial law they were so circumstanced that it was impossible for them to commence, continue or even resist an
action. And yet a fullblown hearing is not even necessary as the so-called "special circumstances" do not convince this
Court that, in this particular case, martial law should be treated as force majeure that suspends the running of
prescription. Likewise, petitioners have consistently pointed out that during the hearing of the motion to dismiss, private
respondents failed to adduce any proof regarding their allegations on the tolling of the prescriptive period. Private
respondents have not, in any of their pleadings, rebutted this.

The allegation regarding the refugee status of the Jacintos finds utterly no support in the records. Considering the
voluminous pleadings they had filed before this Court, it comes as a surprise that they never offered documentary
evidence to prove their possession of such status, let alone explain its legal implications. For the Court to now give
evidentiary value to this unsupported allegation is to be recreant to its sworn duty to uphold and apply the law.

The dissenting opinion of our respected Colleague poses as the threshold issue: "whether or not in the name of
economic development, the Government can act in a manner basically unfair and arbitrary and deny to a party with a
legitimate grievance, a remedy in law." To the extent that it anchors practically the whole opinion on the assumption
that the Government has indeed acted "in a manner basically unfair and arbitrary" as to "deny to a party with a
legitimate grievance, a remedy in law" is to mislead him who seeks to address the imponderables of the case
objectively, impartially and fairly.chanrobles.com : virtual law library

To cast the issue in such terminology is to ensnare the unwary who, in much the same manner, is confronted with the
question: "When did you stop beating your wife?" on the false assumption that the addressee is in fact guilty of the
obnoxious act of wife-bashing.

The dissenting opinion stands for the proposition that the private respondents were denied due process inasmuch as,
being abroad when part of the trial was being conducted, they were not given their day in court.

We are strongly convinced, however, upon careful scrutiny of the records that private respondents have in fact been
accorded the guaranties of due process. There is no question that they were accorded the opportunity to be heard
which is the touchstone for determining whether a party litigant has been granted the right to due process, but they can
hardly blame anyone if they somehow failed to fully utilize this. To over now that they have been deprived of the same
is not to prove said assertion. It is important to note that when martial law was declared, the Jacintos were already
abroad. Their physical absence did not, however, deter them from filing Civil Case No. 1701. They had present counsel
as their counsel at the time. For almost a year, these lawyers acted on their behalf and obtained appropriate judicial
relief. Their lawyer-client relationship was only terminated when their counsel filed on July 30, 1973 a Manifestation
and Omnibus Motion praying for leave to withdraw from representation in the cases before us. On this point, we made
this observation in Republic v. CFI of Lanao del Norte:jgc:chanrobles.com.ph

"From the latest pleadings of petitioners, however, supported, as they are, by official reports which are more specific
and factual, the situation relative to the equities in these cases appears to Us to have changed considerably. And in the
face of this circumstance, counsel for IISMI have not been able to present sufficiently documented denials and
rebuttals of the new allegations of petitioners, albeit they excuse themselves by alleging that they have lost contact
with their clients, the principal private investors who used to be in control of respondent corporation. It is claimed that
said private investors have gone abroad to places unknown to said counsel, for which reason, precisely, the latter are
even asking for leave to be allowed to withdraw their representation. Under the circumstances, and considering that to
await the uncertain return of the private investors would jeopardize the efforts of the government to make the national
project herein involved, as conceived in the triangular agreement among the Republic, the Exim Bank and IISMI itself,
namely, the establishment of an integrated steel complex to meet the requirements of the industry and economy of the
whole country, totally operative without further loss of time, the Court is of the considered opinion that all the matters
here in dispute, should be referred to the respondent court for further proceedings and appropriate resolution. Indeed,
having in view the nature and volume of the evidence which the parties would have to present in connection with the
factual issues raised by petitioners regarding what they claim to have discovered or unearthed after the Secretary of
National Defense took over the `management, control and operation’ of IISMI, may be justly and comprehensively
resolved only after such evidence have been received by the trial court, rather than this Court, since it has the ready
adequate machinery for the purpose. And with such additional evidence, the trial court would naturally be in a better
position than before to rule on the injunctions which have given rise to these proceedings.chanrobles.com.ph : virtual
law library

x       x       x

Anent the prayer of all the counsel of IISMI to be given leave to withdraw their representation of said respondent, it is
important to note that said request is not accompanied by proof of their client’s consent to such withdrawal. Ordinarily,
under Section 26 of Rule 138, such consent is required. And even in the instances where the same section dispenses
with the client’s consent, it is generally the rule that the client should be notified of the petition of counsel. But it is not
inconceivable that under peculiar circumstances, the court may be justified in relieving a lawyer from continuing his
appearance in an action or proceeding, without hearing the client, as, for instance, when a situation develops, like in
the cases at bar where the client stops having any contact with the lawyer, who 1s thereby left without the usual means
which are indispensable in the successful or, at least, proper defense of the client’s cause, such as, actual knowledge
of relevant facts, the identity of usable witnesses, pertinent documents and other evidence, not to speak of the money
needed for even the minimum of litigation expenses and the possible advances of attorney’s fees. Understandably, no
responsible lawyer can be expected to do justice to any cause under such conditions, and, it would be an unjust
imposition to compel him to continue his services in relation thereto. While perhaps the absence of legal counsel may
create an apparent denial of the party’s inherent right to legal assistance, in these particular cases, it can rightly be
said that in a large sense and for obvious reasons, movant counsel’s clients have it in their power to remedy the
situation." 52 (Emphasis supplied)

The foregoing shows that, contrary to the present claim of private respondents that their lawyers were constrained to
withdraw their appearances, this Court had earlier found this not to be the case and even impressed upon the Jacintos
that they had it in their power to remedy the situation. When their counsel’s motion to withdraw was granted by this
Court, their logical move should have been to engage the services of other lawyers to represent them before the CFI of
Lanao del Norte. This they failed to do.

However, while abroad, they managed to hire the services of one Mr. Floyd H. Shebley and Mr. Jose W. Diokno, a
staunch anti-Marcos man and former senator of the Philippines. Considering this and the fact that the absence of
private respondents did not actually prevent them from filing the injunction case, perforce, when they lost therein, they
could have filed an appeal or a separate action to annul the same.

The allegations regarding their absence, the cancellation of their passports, the seizure of their resources and the
incarceration of other IISMI officials had all been raised earlier in the Republic case. Not having been convinced then,
neither is this Court convinced now. Raising them for the second time to compel a relitigation will not suffice to make
this Court reverse itself. Thus, we rule that, under the factual circumstances of this case, the martial law years did not
have the effect of interrupting the running of the prescriptive period.

The dissenting opinion would have us remand the case to the trial court to give it the opportunity to examine "if the
doctrine of constructive or implied trust should be applied under the circumstances of this case." And yet, it pre-empted
the lower court by concluding that certainly DBP, NDC and NSC are constructive trustees because they had full and
complete knowledge of the dispossession of valuable properties. Thus, they are supposed to be the trustees who
should hold the properties of IISMI for the benefit of the beneficiary or cestui que trust, the Jacintos. Under Article 1456
of the New Civil Code, a constructive trust is created if the property is acquired through mistake or fraud. But this basic
requisite is utterly wanting in the instant case. Here, the assets of IISMI mortgaged to DBP were eventually foreclosed
lawfully upon repeated default of the debtor IISMI to pay its debts. Subsequently, DBP sold the property to NSC under
legally-sanctioned procedures. Nowhere is there an iota of evidence showing acquisition of property through mistake or
fraud by DBP and later, NSC. If there be anyone guilty of fraud, it is the Jacintos, as determined and ruled upon by the
Court of First Instance of Lanao del Norte. Clearly, there can be no room for the application of the concept of
constructive trust in favor of the Jacintos.chanrobles law library : red

The dissenting opinion finds it strange that "in the 20 years which followed these executive and trial determinations, no
charges — criminal or civil — were filed against the alleged saboteurs." If the petitioners did not file criminal or civil
charges against the Jacintos despite findings of fraud and mismanagement by the lower court, it was merely exercising
the option open to any creditor-mortgagee. From its arsenal, it may choose any legal weapon which it deems proper to
accomplish its objective and which is suitable for its planned strategy. Why fault it if it merely wants to recover debts
and recoup losses without having to necessarily draw blood by jailing its debtors? Obviously, too, no criminal charges
can be filed against them as they were then beyond the jurisdiction of the courts.

D. FAILURE TO STATE CAUSE OF ACTION

A cause of action is an act or omission of one party in violation of the legal right of the other. Its essential elements are,
namely: (1) the existence of a legal right in the plaintiff, (2) a correlative legal duty on the part of the defendant, and (3)
an act or omission of the defendant in violation of plaintiff’s right with consequential injury or damage to the plaintiff for
which he may maintain an action for the recovery of damages or other appropriate relief. 53

Petitioners maintain that the Jacintos and JSI have no legal right to file the instant case as they were mere
stockholders of IISMI which, as a corporation having a personality distinct and separate from its stockholders, is the
proper party to institute the same. On the other hand, private respondents argue that they are instituting a derivative
suit on behalf of IISMI.
Before a derivative suit can be filed, the stockholder or member bringing the suit must first exhaust his remedies within
the corporation, i.e., he must have made a demand on the directors or trustees to sue and the latter must have either
failed or refused to do so. This demand, however, is not necessary where it would be futile to make it. 54

There is no allegation in the complaint that would show that a demand on the board of directors of IISMI was in fact
made. But even if the Jacintos and JSI omitted to make the same, they can still file the instant case as a derivative suit.
They have alleged that "at this time, IISMI is without a duly or legally constituted board of directors and no election of
officers has been held." 55 It would be futile for them to make a demand on the board of directors whose very
constitution is being questioned. Private respondents, having the legal right to file the instant case, we find that the
complaint states a cause of action.

However, a finding that a complaint states a cause of action does not imply that the complainant is assured of a ruling
in his favor. While a motion to dismiss based on failure of the complainant to state a cause of action necessarily carries
with it the admission, for purposes of the motion, of the truth of all material facts pleaded in the complaint, 56 what is
submitted for determination therein is the sufficiency of the allegations in the complaint. 57 Corollarily, the denial of a
motion to dismiss does not necessarily resolve the issues raised in the complaint in favor of the complainant inasmuch
as, after the trial, the defendant might prove to have a better right to the subject matter in litigation.

Moreover, a motion to dismiss may be based on only one of the grounds enumerated in Sec. 1, Rule 16 of the Rules of
Court. That the petitioners were able to prove the presence of three of the four grounds they raised, viz., res judicata,
lack of jurisdiction and prescription, more than warrants the reversal of the Order below denying the petitioners’ motion
to dismiss.

III. INCIDENTAL ISSUES

A. TERMINATION OF COUNSEL

After having been served with summons in Civil Case No. 111-1549, DBP engaged the services of the Office of the
Solicitor General (OSG) which represented it earlier in Civil Case No. 1701. 58 Then Solicitor General Francisco I.
Chavez "graciously accepted" this request 59 in a letter dated February 7, 1990. Suprisingly, however, on February 8,
1992, DBP filed a Notice of Termination of Counsel.chanrobles law library : red

The conflict between DBP and OSG had its roots when Mr. Jose Ma. P. Jacinto sent a letter dated August 8, 1991
addressed to then Acting Secretary of Justice Silvestre H. Bello III requesting a "review of the government position on
the matter of our claims, so that action can be taken — or at least a recommendation made — for a speedy settlement
thereof." 60 This request was made in view of the following opinions which, according to the said letter, "previously
acknowledged the merits of our claims" .

a) PCGG Order dated February 19, 1987 which said that "the takeover of the assets of IISMI was effected thru Letters
of Instructions Nos. 27, 35, 39 and 49" and that "due process may not have been observed when DBP foreclosed the
IISMI."cralaw virtua1aw library

b) Memorandum-Letter dated December 5, 1986 by Atty. Prospero C. Nograles, DBP Chief Legal counsel, which
states that the "IISMI case established a clear example of aggression by the past regime and smacks of an abuse of
human rights through the use of sheer force by the military."cralaw virtua1aw library

c) Opinion No. 003, series of 1987, dated January 14, 1987 by Atty. Ariel F. Aguirre of the Office of the Government
Corporate Counsel (OGCC) which concluded that LOI No. 27 "directing the then Secretary of National Defense to take
over or cause the take over of the management, control and operation of IISMI was an arbitrary and unprecedented
excuse of undefinable state power" and that LOI Nos. 35, 39, and 49 "likewise suffer the same infirmity" and

d) Letter dated February 13, 1987 by Undersecretary Silvestre H. Bello III of the Department of Justice stating that "we
find no cogent reason to disagree with both opinions (of Messrs. Nograles and Aguirre) upon the facts as presented
and hereby confirm the same."cralaw virtua1aw library

Acting Secretary of Justice Silvestre H. Bello III issued 1st Indorsement dated September 19, 1991 referring the letter
of Mr. Jose Ma. P. Jacinto to the Office of the Solicitor General "it appearing that there is a pending case in court being
handled by the Office of the Solicitor General." 61

In response, the OSG thru the former Solicitor General Ramon S. Desuasido, Assistant Solicitor General Edgardo L.
Kilayko and Solicitor Felixberto C. de la Cruz sent a Second Indorsement which said:jgc:chanrobles.com.ph

"We share the opinion dated December 5, 1986 of the then DBP counsel (now Congressman) Prospero Nograles that
the foreclosure proceedings on IISMI were legally flawed because at the time of foreclosure the mortgaged assets
were in the possession of the military pursuant to Letter of Instruction No. 27 ordering the military to take over the IISMI
plant." 62

and recommended:jgc:chanrobles.com.ph

"We could have recommended that the Jacintos be given a fresh period of time to pay their loan to DBP. One big
obstacle, however, is that DBP sold the foreclosed IISMI assets to the National Steel Corporation in 1981. We do not
believe that the NSC would be willing to return the assets to the Jacintos after paying P983 million for them to DBP.

Perhaps the Office of the President and/or the Department of Justice could summon the parties to explore avenues of
an out-of-court settlement. For, really if there are incontrovertible badges of confiscation of the Jacintos’ property by the
Marcos dictatorship, this Government should not perpetuate that injustice." 63

Because of the above-quoted Second Indorsement carrying the signatures of the very same Solicitors representing
DBP, the latter filed the Notice of Termination of Counsel alleging that the OSG without consulting DBP "advanced a
conclusion prejudicial to its client" considering that it consistently maintained "that DBP’s foreclosure of IISMI plant and
assets in 1974 is legally valid, binding, conclusive and final" and that issues in the instant petition are sub judice.

The OSG filed a Manifestation 64 dated February 26, 1992 stating that the "ground for the contemplated termination of
services of OSG as DBP’s counsel is "baseless" since the second Indorsement merely suggested an out-of-court
settlement or compromise which the law encourages especially in civil cases 65 and that the Second Indorsement is a
mere opinion between the OSG and the DOJ of which no copy was ever furnished to anyone, let alone the Jacintos.

Although the OSG had been representing DBP, the latter wishes to terminate such relation and assign its own Legal
Department created under Section 12 of E.O. 81 (Revised Charter of DBP) 66 to act as its counsel. We hold that in the
circumstances of this case, we should grant the prayer.cralawnad

As early as January 11, 1989, then Secretary of Justice Sedfrey Ordoñez issued Opinion No. 16, Series of 1989
addressed to Ms. Lilia R. Bautista of the Department of Trade and Industry regarding her query as to the legal
impediment to the privatization of the NSC due to the "claims of the Fernando Jacinto family to certain properties or
assets of the Iligan Integrated Steel Mills, Inc. (IISMI)." This opinion earlier reviewed the same matters raised in the
August 8, 1991 letter of Mr. Jose Ma. P. Jacinto. We quote the pertinent portions:jgc:chanrobles.com.ph

"As a matter of policy and by well-settled precedents this Department has consistently declined to render an opinion on
questions that are fundamentally judicial or which might subsequently be the subject of litigation before the courts,
particularly, those questions which involve the interest of private parties who may take issue with said opinion and
bring the matter before the courts (see DOJ Ops. No. 125, s. 1958; No. 112, s. 1971; No. 76, s. 1977 and No. 117, s.
1985).

Nonetheless, we are stating our comments and observations on the `issuances’ mentioned in your request to assist
DTI in resolving the controversy regarding the IISMI assets in question vis-a-vis the implementation of its program of
privatization as mandated by existing policies.

At the outset, it must be stressed that the Memorandum dated March 7, 1986, issued by the former head of the
Ministry of National Defense (MND) for the President, which the counsel for the Jacintos claimed to have been
confirmed by the subject four (4) ‘issuances’, merely advised the President of the action taken by the said official in his
capacity as sequestrator with respect to the Jacinto assets. The directive, referred to in the said Memorandum, which
was to return the said assets to their ‘rightful owners’ proceeded from the view of their sequestrator that the ‘continued
sequestration’ of said assets had become untenable due to the dismantling and abolition of the old regime.

To begin with, the IISMI assets were not owned by the Jacintos but by IISMI; it appears that IISMI, in turn, was owned
by public and private stockholders among whom the Jacintos were just a minority. In fact, we note from the
memorandum of NSC’s legal counsel that the Government, through the GSIS and the SSS, was the single biggest
stockholder of IISMI. Moreover, the IISMI assets were no longer under sequestration at the time of the toppling of the
Marcos regime. The said assets have long been in the possession of NSC which purchased and holds the same, not
by virtue of sequestration, but as an incident of its ownership, otherwise known as ‘jus possidendi’. Hence, we do not
see the relevance of the aforesaid memorandum of March 7, 1986, insofar as the former IISMI assets, now owned by
NSC, are concerned. The NSC was a purchaser of the IISMI assets for value and in good faith. With reference to the
said assets no question of ‘continued sequestration’ can be raised. It must also be emphasized that the NSC bought
said property not from the sequestrator, but from a mortgagee, DBP, which had foreclosed the mortgage from the said
assets.

With reference to the four so-called issuances it suffices here to note that the DBP, through its Chairman’s letter dated
February 8, 1988, has clarified that the Nograles opinion contained in this memorandum of December 5, 1986 merely
represent his own personal opinion that it ‘does not represent DBP’s position with respect to the Jacinto family’s claim
regarding the plant and assets of . . . IISMI’ and that, contrary to the conclusion of Atty. Nograles —

‘1. DBP effected the foreclosure of the IISMI plant and assets in good faith and after obtaining judicial clearance. The
foreclosure was, and remains, valid, legal, binding and final.

2. The foreclosure was a necessary, last resort measure which DBP had to take in order to protect the Government’s
interests and huge exposure in IISMI after IISMI continued unabatedly to default on its obligations to DBP despite
numerous extensions and other relief measures granted by DBP.’

The same observation can be made with respect to the letter dated February 13, 1987 of Undersecretary of Justice
Silvestre H. Bello III, confirming the Nograles opinion. It is clear that the facts or circumstances surrounding the former
IISMI assets have not been fully disclosed to the latter by Atty. Nograles. In fact, the aforementioned DBP Counsel
secured the said letter after then Minister of Justice Neptali A. Gonzales has sent him a letter dated January 27, 1987
which declined his request for an approval of his Memorandum.

The lack of full disclosure of the facts and circumstances referred to above is also evident in the case of Opinion No.
003 dated January 14, 1937 of the Deputy Government Corporate Counsel, the pertinent portion of which
reads:chanrobles law library : red

‘Considering that we have no access to the pertinent documents relative to the transactions of proceedings affecting
the IISMI and you did not also furnish us copies thereof and considering further the urgency of your request for our
comments, we will endeavor to delve into the issues in the light of your factual account contained in your memorandum
to the Chairman and Vice-Chairman of the DBP’s Board of Governors and which was the basis of the opinion you
articulated therein.’

Aside from the fact that the opinion of the OGCC is merely persuasive and has no binding force, the admitted absence
of a full consideration of the pertinent facts involved, and the fact that the opinion (OGCC’s) was prematurely rendered
and based on a personal opinion (Atty. Nograles’) give us cogent reasons to conclude that the aforesaid opinion of the
OGCC has no relevance or pertinency to your privatization plans for NSC.

Upon the other hand, the PCGG pronouncement that due process may not have been observed in the foreclosure by
the DBP of the IISMI assets was embodied in the same issuance wherein the PCGG acknowledged that it had no
jurisdiction to act on the matter and dismissing the Jacinto’s claim for lack of jurisdiction, as it raised judicial questions
which must be addressed to the regular courts of justice. Given the absence of jurisdiction, the PCGG’s opinions about
due process are of the same character as an obiter dictum or a dictum not necessarily involved in the case or which
was made without full consideration of the point or which a tribunal is not required to decide and therefore, lacks the
force of an adjudication (Morales v. Paredes, 55 Phil. 565, 567 [1931]; People v. Macadaeg, Et Al., 91 Phil. 410, 413
[1952]). Worse, since PCGG ruled itself without jurisdiction over the questions raised, it follows that it had no
jurisdiction to render an obiter dictum. Accordingly, the above-mentioned pronouncement of the PCGG also served no
useful purpose or was a surplusage, since it would not bind the parties to the case nor any court, which the PCGG
conceded as the sole authority to pass upon the questions raised in the Jacinto petition and to grant the relief therein
prayed for. We took note, however, of the issue of prescription of any judicial action that the Jacintos may file, raised
by the NSC Legal Counsel which is likewise an issue addressed to the court." 67

The foregoing opinion of his predecessor should have guided then Acting Secretary Silvestre H. Bello III. It should be
noted that it was his First Indorsement which led to the issuance by the OSG lawyers concerned of the controversial
Second Indorsement. While the same was not issued publicly as it was merely addressed to the Acting Secretary of
the Department of Justice, the fact that it might be used, as in fact it was used, by private respondents in their pleading
before this Court, should have cautioned the OSG to be more careful in dealing with matters which may have legal
repercussions.

Government agencies, including government corporations, must look to the Solicitor General, in the first instance, to
represent them in legal proceedings. However, in much the same way that the Solicitor General is not absolutely
required to represent a government agency, neither is the latter absolutely compelled to avail of the Solicitor General’s
services. A justifiable departure from the general rule is when the agency has lost confidence in the Solicitor General,
as demonstrated by its past actuations exemplified in the instant case where the DBP would rather rely on its "in
house" resources for legal services. In this case, therefore, we grant DBP’s prayer to terminate the services of the
OSG.chanrobles virtual lawlibrary

B. TEMPORARY RESTRAINING ORDER.

In a Manifestation and Motion 68 dated April 29, 1992, private respondents prayed that an order be issued
commanding the petitioners NDC and NSC to cease and desist from conducting the privatization and sale of NSC
during the pendency of the action. They explained that the claims of IISMI and JACINTO on the assets held by NSC
and the privatization of NSC through the sale of 51% of its shares, are so inextricably intertwined," so that a decision in
their favor "will greatly prejudice the buyers of these shares." They added that the sale "will further complicate the
already complex issues" and might render the implementation or execution of a favorable decision "extremely difficult,
if not impossible."cralaw virtua1aw library

On May 19, 1992, we resolved to issue a Temporary Restraining Order (TRO) enjoining the petitioners National
Development Corporation (NDC) and National Steel Corporation (NSC), "to CEASE and DESIST from conducting the
privatization and sale of National Steel Corporation (NSC) during the pendency of this action." 69

Petitioners filed an Urgent Motion to Lift TRO 70 explaining that any sale of the 51% shares does not in any way
threaten the private respondents’ claim over the IISMI assets which constitute only "1.1% of the total financial asset
base of NSC of P24.8 billion."cralaw virtua1aw library

In the Resolution of May 28, 1992, 71 we granted petitioners’ urgent motion to set the case for Oral Argument. At the
hearing on June 4, 1992, the counsel for private respondents admitted that they had actually no facts to support their
assertion of ownership over the 51% shares of NSC but were merely proceeding from inference. 72

After the hearing, the Court resolved to deny the petitioners’ motion to lift the temporary restraining order and to require
private respondents to post a cash or surety bond in the amount of P1.5 million. 73

WHEREFORE, there being grave abuse of discretion on the part of the court a quo in denying petitioners’ motion to
dismiss and motion for reconsideration, the instant petition is hereby GRANTED. The Temporary Restraining Order
issued on February 7, 1991 is made PERMANENT and respondent Judge Amir Pundogar is hereby ordered to
DISMISS Civil Case No. 111-1549. The Temporary Restraining Order issued on May 9, 1992 is hereby DISSOLVED.

SO ORDERED.

Bidin, Griño-Aquino, Regalado, Davide, Jr., Nocon, Bellosillo and Melo, JJ., concur.

Narvasa, C.J., Feliciano and Padilla, JJ., took no part.

 Separate Opinions

CAMPOS, JR., J., concurring opinion:chanrob1es virtual 1aw library

I agree with the majority decision that the petitioner’s claim to recover the IISMI be denied. I wish to add a short remark
on the issue of due process as invoked by my dissenting colleagues.

Nowhere has the oft-repeated remark that the Due Process Clause has been utilized and exploited as a haven of
refuge by the shrewd and cunning been more vividly demonstrated in all its subtle and manipulative forms as in this
case. In a nutshell, we have in this case a reputedly wealthy family utilizing the corporate form of business organization
to borrow hundreds of millions of pesos from a government bank and from foreign banks under guaranty of the
Philippine government, for the ostensibly worthwhile project of establishing a national steel plant for our country, but
who funneled the borrowed money to some other purpose than to develop the steel industry. Instead, the family, long
before martial law was declared, ran away with the funds to a foreign country, defaulted in paying their loans and when
sued by the banking institution, escaped to America and Europe. Returning to the Philippines after more than ten years
of self-imposed exile, they are now claiming back their foreclosed properties on the lame excuse that, as political
refugees, they were persecuted and were denied due process of law. How much fraud and misrepresentation can be
perpetrated under the mantel of due process?

The majority decision is not in defense of the martial law regime nor an attempt to justify the events which took place
during such period. It is a conclusive denial of the right of the petitioners to recover, and I find the conclusion to be just
and equitable in the light of the applicable law on the matter, and a different judgment would tend to unsettle long
standing rules and principles governing similar situations.chanrobles law library

GUTIERREZ, JR., J., dissenting opinion:chanrob1es virtual 1aw library

The issue in this petition is whether or not in the name of economic development, the Government can act in a manner
basically unfair and arbitrary and deny to a party with a legitimate-grievance, a remedy in law.

With all due respect to the majority of the Court, I find its recitation of the alleged facts unfair. The absorbing litany of
mismanagement, diversion of profits, fixing of financial statements, and other horrifying corporate malpractices arose
from a court trial where only one party could present its side. The owners were stripped through military action of all
their properties. They could not come home as they would have been immediately arrested and tried before a military
tribunal. The respondents were abandoned by their lawyers who refused to appear in a delusive trial where their clients
could not take part in their own defense.

The very conclusion which the majority opinion sustains is quite revealing.

The trial court concluded "that an applicant for writ of preliminary injunction should be able to establish a clear case
free from doubt and dispute." How could the applicant in forced exile several thousand kilometers away establish any
case at all?

The Government had brilliant lawyers appearing in the case; the key witnesses had every opportunity to memorize the
facts they wanted to perpetuate in the records, quote their own prepared notes freely, and say anything favorable to
their case with absolutely no fear of cross-examination, rebuttal, or contradiction.

The trial court stated that "since injunction is an equitable remedy, an applicant must come to court with clean hands."
Whether the applicant had clean hands or dirty hands was beyond ascertainment as he could not enter the country,
much less appear in court. That is precisely what this dissent maintains — the respondents should be allowed to show
their hands in court and to prove that those hands are not dirty.

We are setting a bad precedent if we validate a strong arm government’s stripping away a person’s liberty and property
on a feigned semblance of due process.

The complaint in this case, docketed as Civil Case No. 111-1549, prays among other things that the extrajudicial
foreclosure conducted by the provincial sheriff of Iligan City on February 26, 1974 of the mortgaged properties of Iligan
Integrated Steel Mills, Inc. (IISMI) be set aside as null and void and for said properties to be returned to IISMI.

The petitioners asked for the summary dismissal of the complaint on the grounds of —

(1) failure to state a cause of action and lack of capacity to sue;

(2) prescription of the cause of action and its being barred by laches;

(3) existence of a prior judgment on the same subject matter and issues between the same parties barring the refiling
of the respondent’s case; and

(4) lack of jurisdiction of the trial court over the case.

The respondent court denied both the motion to dismiss and a motion for reconsideration of the order to dismiss.

Hence, this petition.

As earlier stated, the basis for this dissent is simple — the private respondents must be given their day in court.
Valuable properties whose initial values have now multiplied several times through the passage of the years should not
have been arbitrarily seized and the seizure validated through a default judgment even as the original owners were
denied the opportunity to defend themselves. We do not assert that the Jacinto family is correct on the merits and that
the foreclosed properties should be returned to them. The rules of orderly justice mandate that an opportunity should
be given the respondents to prove their allegations. We should not accept as facts a one-sided presentation made at a
time when the forces of Government were marshalled against people who refused to cooperate in the stripping away of
their properties.

The historical antecedents of the case go back to 1955 when Republic Act No. 1396 authorized the National Shipyards
and Steel Corporation (NASSCO) to establish a pig-iron smelting plant The law prohibited the establishment of similar
plants until NASSCO could make the venture operational. P50,000,000.00 was appropriated for the project. NASSCO
committed itself to provide P36,000.000.00 worth of foreign supply contracts for machinery. It was later authorized to
borrow $62,300,000.00 from the Export-Import Bank (EXIMBANK) in the United States.chanrobles.com : virtual law
library

Upon the urgings of EXIMBANK, a 51 - 49% joint venture was set-up, with the government controlling the ownership
but the private group exercising management. After the public bidding and pre-incorporation agreement in favor of
Jacinto Steel, Inc., the Philippine Steel Corporation (PHISCOR) was set up. Various incentives were given to the new
corporation. In 1962, however, the Government decided that instead of the joint venture, the steel project should be a
wholly private venture but with full government support. Thus, in 1963, IISMI was incorporated.

In order to forestall a threatened foreclosure due to defaults in loan payments, IISMI filed an injunction suit on June 1,
1971 against the Republic of the Philippines, Development Bank of the Philippines (DBP), Central Bank of the
Philippines (CB), Board of Investments (BOI) and the Sheriff of Lanao del Norte and Iligan City. The complaint which
was docketed as Civil Case No. 1701 alleged that the inability of IISMI to meet its obligations was due to" (g)overnment
violations of its commitments to the Integrated Steel Project" which "were all in pursuance of the concerted and single-
minded plan of the defendants to foreclose the mortgaged properties of the plaintiff and/or take over the management
and ownership of IISMI or its properties, plants, or mills."cralaw virtua1aw library

The preliminary injunction issued by the court on August 11, 1971 was questioned by the DBP in G. R. No. L-34188
and the CB in G. R. No. L-33986. When the motion to dismiss filed by the Republic and the BOI on the grounds of
improper venue and non-suability of the State was denied, the parties likewise questioned the denial order in G. R. No.
L-33949. Subsequently, this Court ordered the consolidation of these petitions and set them all for a joint hearing.

While these cases were pending before the Court, then President Marcos issued Proclamation 1081 on September 21,
1972 declaring a state of martial law. He thereafter issued four Letters of Instructions directing the Secretary of
National Defense to take over and control the operation of IISMI and other Jacinto-held companies "for the duration of
the present national emergency or until otherwise ordered" because the acts of management of IISMI "indicated that
IISMI disposed of property by fraudulent means and that the funds or money earned was (sic) not properly accounted
for, and neither were they applied for payment of obligations due the Government and the government-owned
corporations."cralaw virtua1aw library

On October 23, 1973, the Court ordered the lower court "to resume proceedings in Civil Case No. 1701 by receiving
further evidence which the parties may desire to present relative to all the issues they have so far raised and,
thereafter, resolve all the incidents related to the writ of preliminary injunction said court has issued and every other
incident in the said case and/or render final judgment in the main case on the merits."cralaw virtua1aw library

On January 10, 1974, the trial court issued an order dissolving the writ of preliminary injunction. On February 25, 1974,
the court deemed the pre-trial conference terminated and dismissed the complaint filed by IISMI with prejudice for its
failure to appear during the pre-trial hearings despite due notice.

Extrajudicial foreclosure proceedings followed. One day after the complaint was finally dismissed, DBP acquired the
IISMI plant and assets as the highest bidder at a public auction. On March 24, 1975, DBP consolidated ownership over
the foreclosed properties.

It should be emphasized at this point that as early as October 23, 1973, this Court in Republic v. Court of First Instance
of Lanao del Norte (53 SCRA 317 [1973]) saw the need to remand the case for further proceedings. However, in
remanding the case, we wanted a full opportunity for all the evidence of both parties to be presented.

We stated:jgc:chanrobles.com.ph

" ". . . the Court is of the considered opinion that all the matters here in dispute should be referred to the respondent
court for further proceedings and appropriate resolution. Indeed, having in view the nature and volume of the evidence
which the parties would have to present in connection with the factual issues raised by petitioners regarding what they
claim to have discovered or unearthed after the Secretary of National Defense took over the `management, control and
operation’ of IISMI, may be unjustly and comprehensively resolved only after such evidence have been received by the
trial court, rather than this Court, since it has the ready adequate machinery for the purpose. And with such additional
evidence, the trial court would naturally be in a better position than before to rule on the injunctions which have given
rise to these proceedings." (At p. 348, Emphasis supplied).chanroblesvirtualawlibrary

The lower court, indeed, proceeded with the hearing of Civil Case No. 1701, issuing the January 10, 1974 and
February 25, 1974 orders. However, IISMI had no opportunity to present evidence on its behalf at that time.

The basis of the January 10, 1974 order of the lower court dissolving the writ of preliminary injunction granted in favor
of IISMI on August 11, 1971 was only the evidence presented by the DBP.

As earlier stated, the pre-trial order dated February 25, 1974, dismissed the complaint filed by IISMI with prejudice for
its failure to appear during the pre-trial despite due notice.

The basic unfairness of our majority opinion lies in its unilaterally sustaining the executive determinations of former
President Marcos embodied in his LOI No. 27 dated October 14, 1972 where he stated:jgc:chanrobles.com.ph

"6. That the acts of the Management of Iligan Integrated Steel Mills. Inc. even after the submission of the case between
the Government and IISMI in the Supreme Court and the Courts of Justice indicated that IISMI disposed of property by
fraudulent means, and that funds or money earned were not properly accounted for, and neither were they applied for
payment of obligations due the government and the government-owned corporations."cralaw virtua1aw library

and LOI No. 35 dated October 28, 1972 which stated:jgc:chanrobles.com.ph

"In order to protect the interests of the Government in the Iligan Integrated Steel Mills, Inc. and in furtherance of Letter
of Instruction No. 27 dated October 14, 1972, you are hereby ordered to take over and control the assets of the
following corporation . . . ."cralaw virtua1aw library
inspite of the fact that cases on exactly those issues were pending in court at that time We are also sustaining the ex-
parte findings of the trial court — in absentia — upholding the allegations that the Jacintos are economic saboteurs and
embezzlers who siphoned IISMI funds for the benefit of their other corporations, attempted to hide these malpractices
through window dressing, and lied about the reasons for the losses and other things.

And yet, it is strange that in the 20 years which followed these executive and trial determinations, no charges —
criminal or civil — were filed against the alleged saboteurs. On the contrary, the Government, through Secretary Juan
Ponce Enrile, returned all Jacinto corporations to the Jacinto family in 1986. To this day, no one in Government has
questioned the return, much less tried to annul the return of the corporations. Secretary Ponce Enrile also asked
Secretary Jose Concepcion to return IISMI to the Jacintos without prejudice to accounting. On March 25, 1986,
Secretary Concepcion sent a memorandum to Mr. Ponce Enrile refusing the return of IISMI as requested. One fact
which a reopening of the case could possibly look into is the Jacinto allegation that Concepcion, Industries, Inc. was
one of the members of the consortium which was bidding for IISMI at that time.

There are allegations that the Jacintos were out of the country because they wanted to escape prosecution for their
misdeeds in the management of IISMI. It is stated that they were not political refugees and could have returned to
defend their side of the cases involving IISMI if they wanted to do so.

There is evidence to show, however, that the Jacintos were in the United States even before the proclamation of
martial law. They also assert that they were given the status of refugees by the United Nations.chanrobles law library :
red

There were various circumstances which made the Jacintos’ return during martial law extremely imprudent and unwise.
They claimed that President Marcos had been demanding a majority share in IISMI and that their spurning the
demand, led to the confiscation, of the corporation’s assets. While no criminal or civil charges have been filed against
the Jacintos to this date, they were among the most publicly denounced economic saboteurs under martial law. And
certainly, the Government’s seizure of IISMI at a time when cases were pending in court deserves a full and fair
hearing under an atmosphere clear of coercion and undue influence. It may be emphasized that not only IISMI but all
other Jacinto assets were also seized by the Government.

It is the height of naivette to say that the Jacintos could have returned at a time when all their top executives were
arrested and detained although all were later released without any charges having been filed. It would have been
foolhardy to return when Eugenio Lopez, Jr., Benigno Aquino, Jr., the Osmeñas, Jose Diokno, Francisco Rodrigo, to
name only a few were being jailed and the properties of some of them were being seized.

The denial of a fair day in court is further heightened by the fact that all the lawyers who could have protected, even in
a limited way. the Jacinto interests withdrew their appearances. Among them were Dominador Aytona, Manuel O.
Chan, Jose P. Santillan. Norberto J. Quisumbing, Manuel V. San Jose, and Roberto V. San Jose. All records and
documents essential to their case had been seized and were not available to the lawyers. There was no free
communication with clients. The Philippine consul in the United States refused to authenticate certain documents
which an American lawyer tried to send to the Philippines.

I respectfully dispute the conclusion that the Jacintos, clients of the withdrawing counsel, had it in their power to
remedy the situation.

Regarding the credibility of the ex-parte findings of the trial court, we note that these findings are based on a report by
an independent group of professors of the University of the Philippines that mismanagement and anomalies were
hallmarks of the Jacinto control over IISMI.

On the other hand, there exists an equally persuasive study by a group from the Asian Institute of Management which
postulates the contrary — that losses ballooned after the Government takeover, all income was derived from the
machinery, equipment, and programs installed by the Jacintos, that the properties were leased to NDC but the rentals
were not applied to IISMI obligations, etc.

Who is to be believed? In the interest of basic fairness, the trial court should be allowed to receive the other side of the
picture.chanrobles law library
The issues based on prescription and prior judgment deserve a long second look and not a hasty prejudgment based
on assumed or one-side facts.

I will not go into the detailed and technical arguments of the respondents on why res judicata should not apply although
these also deserve a hearing before the trial court. I will only stress that there can be no valid prior judgment
impervious to subsequent challenges where that judgment was not rendered after strict adherence to the principles of
fairness and due process.

The due process considerations are, moreover, highlighted by the fact that the January 10, 1974 order should not be
considered a judgment on the merits as it was a judgment for the provisional remedy of preliminary injunction. The
finding made by the trial court is yet to be examined more fully when the principal action is set for trial on the merits
and the parties complete their evidence in support of their respective positions. (See Olalia v. Hizon. 196 SCRA 665
[1991]; Manila Banking Corporation v. Court of Appeals, 187 SCRA 138 [1990])

It is argued that the February 25, 1974 order had the effect of an adjudication upon the merits. That is the general rule.
However, this rule is not ironclad. In the light of the extraordinary circumstances alleged in the case at bar, it would be
more in keeping with substantial justice if the controversy between the parties is to be resolved on the merits rather
than on a procedural technicality in the light of the express mandate of the Rules that they be "liberally construed in
order to promote their object and to assist the parties in obtaining just, speedy, and inexpensive determination of every
action and proceeding." (Olivares v. Gonzales, 159 SCRA 33, 36 [1988])

On the issue of prescription, will justice not be served if the respondents are given due process and the parties are
allowed to introduce their respective evidences and a decision on the merits is rendered?

The respondents allege that prescription should not lie against them as they could not have brought an action prior to
the EDSA upheaval. They state:chanrob1es virtual 1aw library

x       x       x

"The passports of Fernando Jacinto and his children were cancelled. Their lawyers were constrained to withdraw their
appearances on the IISMI cases because of the change in the membership of the Board of Directors of IISMI and the
incarceration of the executives of IISMI who would have been witnesses in the case. JSI itself was sequestered. The
replacement directors, who were all government appointed, could not be expected to protect the Jacinto properties in
preference over the interests of government. The courts while remaining open were cowed into submission by the
dictatorial regime. Fernando Jacinto could not have come back even if his passport was not cancelled because he
would have been arrested and kept in prison indefinitely. JACINTO and his family were even accorded ‘refugee status’
by the international community in recognition of their persecution by the Marcos regime. All Jacinto resources were
taken over by the Government. Any action attempted from the time of sequestration of the IISMI and other Jacinto
interests would have been futile, if not suicidal.

Indeed, IISMI, JACINTO and JSI were virtually paralyzed from commencing this suit for as long as Pres. Marcos was in
power." (Comment, pp. 18-19)

The majority states that we can not take judicial notice of these alleged facts. In that case, the private respondents,
then. should be allowed to prove their allegations. And to do so requires a presentation of evidence in a full-blown
hearing.

The trial court may examine if the doctrine of constructive or implied trust should be applied under the circumstances of
this case. Certainly, DBP, NDC, and NSC had full and complete knowledge of the dispossession of valuable properties
which they eventually acquired. The government’s own one-sided evidence establishes the military take over, the
arbitrary sequestration of all properties, the jailing of key executives, and the absence of due process in the
subsequent court case. The petitioners are constructive trustees to whom the ordinary defenses of prescription are not
available. At the very least, the parties to whom the dispossessor turned over the properties should justify in court their
alleged valid ownership of the disputed properties.
We cannot arbitrarily assume prescription to the prejudice of an owner forcibly dispossessed of his properties and
unable to fight his case in court because of circumstances he cannot oppose or control.

Prescription is not limited to pure and abstract mathematical computations of a finite period of time. Under the
circumstances of this case, it is the presentation of evidence and not the automatic counting of days, months, and
years which is necessary.chanrobles virtual lawlibrary

One other factor which weighs heavily in favor of sustaining the respondent Judge is the change of heart of the Office
of the Solicitor-General.

The Solicitor-General has the complete records of this case, including matters not divulged to the trial court during
martial law. It is his duty to defend Government actions but not when those actions are arbitrary or contrary to law. If he
is attacked by qualms of conscience and formally reveals "that the foreclosure proceedings on IISMI were legally
flawed . . . ." this Court should take heed and see to it that proceedings without any blot or blemish are conducted. The
dictates of due process require nothing less.

IN VIEW OF THE FOREGOING, I respectfully DISSENT and vote to DISMISS the present petition.

CRUZ, J., dissenting:chanrob1es virtual 1aw library

I join Mr. Justice Hugo E. Gutierrez, Jr. in his excellent dissent.

What bothers me most about this case is the obvious denial of due process from the Jacintos that the ponencia
resolutely refuses to acknowledge. In blandly pronouncing the observance of this guaranty, the majority have closed
their eyes to the realities of the deposed dictatorship and the absoluteness of Marcos’s power then.

We reject history in arbitrarily assuming that the people were free during that era and that the judiciary was
independent and fearless. We know it was not; even the Supreme Court at that time was not free. This is an
undeniable fact that we cannot just blink away. Insisting on the contrary would only make our sincerity suspect and
even provoke scorn for what can only be described as our incredible credulity.

In National Development Company and New Agrix, Inc. v. Philippine Veterans Bank, 192 SCRA 257, this Court en
banc declared:chanrob1es virtual 1aw library

It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this decree. It
must be noted, however, that this was done in 1980, when President Marcos was the absolute ruler of this country and
his decrees were the absolute law. Any judicial challenge to them would have been futile, not to say foolhardy. The
private respondent, no less than the rest of the nation, was aware of that reality and knew it had no choice under the
circumstances but to conform.

It is true that there were a few venturesome souls who dared to question the dictator’s decisions before the courts of
justice then. The record will show, however, that not a single act or issuance of President Marcos was ever declared
unconstitutional, not even by the highest court, as long as he was in power. To rule now that the private respondent is
estopped for having abided with the decree instead of boldly assailing it is to close our eyes to a cynical fact of life
during that repressive time.

It is not enough to say that the Jacintos were represented by counsel, for the real question is whether their attorneys
had adequate opportunity to defend them, including access to evidence secreted in unclassified government files. That
these prestigious lawyers eventually withdrew one by one suggests only too clearly their frustration at the hands of an
administration bent on enforcing the despot’s will at all cost.

On the Jacinto’s failure to return to the country and prosecute their case, I need only to restate my dissent in Marcos v.
Garchitorena, G.R. Nos. 90110-13, February 22, 1990, thus:chanroblesvirtualawlibrary

There is something unfair in preventing a person from appearing in court to defend himself and then declaring him in
default for his inability to do so. This much should be obvious even to the layman; to lawyers, it is an outrage crying for
justice.

Although they may have forfeited the respect of most of their countrymen, the petitioners have not lost the right to due
process as guaranteed in every free society.

I respectfully submit that we should not make any prejudgment on the merits of the Jacinto claim as long as we have
heard only the side of the petitioners as endorsed in the majority opinion. That is only one-half of the picture. Fair play
requires that we also hear the other side before making an impartial judgment based on the evidence and arguments
of both parties.

It is truly mystifying that we should seem so eager now to defend the martial law regime when we were so opposed to
it before, although some were more vocal than others. I am baffled that when what we should do is condemn and
correct its misdeeds, we would instead retroactively validate them.

Finally, let me say that I am not moved by the hysterical alarums of the petitioners that the government is losing
hundreds of millions of pesos every day that we maintain the temporary restraining order. Is money the principal
consideration in this case? I have always believed that due process is not a negotiable commodity that can be traded
in the market for thirty pieces of silver.
 THIRD DIVISION

[G.R. No. 111538. February 26, 1997.]

PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, Petitioner, v. COURT OF APPEALS, CATALINA L.

SANTOS, represented by her attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, Respondents.

Gancayco Law Offices for Petitioner.

Delfin R Sumapo, Jr. for private respondent David Raymundo.

M.B. Tomacruz Law Office for private respondent Catalina L. Santos

SYLLABUS

1. REMEDIAL LAW; CIVIL ACTIONS; ESSENTIAL REQUISITES FOR A CAUSE OF ACTION TO EXIST. — A cause
of action exist if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate
such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a
breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of
damages.

2. ID.; ID.; ID.; THE COMPLAINT IN CASE AT BAR SUFFICIENTLY ALLEGES AN ACTIONABLE CONTRACTUAL
BREACH. — A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach
on the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and
petitioner, the latter was granted the "first option or priority" to purchase the leased properties in case Santos decided
to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such "right."
But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to
petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained.
Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner however, rejected because of
the "ridiculous" price. But Santos again appeared to have violated the same provision of the lease contract when she
finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such
price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a
question which can better be resolved after trial on the merits where each party can present evidence to prove their
respective allegations and defenses.

3. CIVIL LAW; CONTRACTS; LEASE; RIGHT OF FIRST REFUSAL;. BASIS THEREOF MUST BE THE CURRENT
OFFER TO SELL OF THE SELLER OR OFFER TO PURCHASE OF ANY PROSPECTIVE BUYER. — The basis of
the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only
after the grantee fails to exercise its right of first priority under the same terms and within the period contemplated,
could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the
grantee.

4. ID.; ID.; ID.; ID.; NO CAUSE OF ACTION UNDER P.D. 1517; CASE AT BAR. — Petitioner also invokes Presidential
Decree No. 1517, or the Urban Land Reform Law, as another source of its right of first refusal. It claims to be covered
under said law, being the "rightful occupant of the land and its structures" since it is the lawful lessee thereof by reason
of contract. Under the lease contract, petitioner would have occupied the property for fourteen (14) years at the end of
the contractual period. Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say
that this Court has previously ruled that under Section 6 of P.D. 1517, "terms and conditions of the sale in the exercise
of the lessee’s right of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land
Management Committee. Hence, . . . certain prerequisites must be complied with by anyone who wishes to avail
himself of the benefits of the decree." There being no allegation in its complaint that the prerequisites were complied
with, it is clear that the complaint did fail to state a cause of action on this ground.
5. ID.; ID.; ID.; ID.; THE ASSIGNMENT OF THE LEASE CONTRACT INCLUDED THE OPTIONS TO PURCHASE;
CASE AT BAR. — Neither do we find merit in the contention of respondent Santos that the assignment of the lease
contract to petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to
matters assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing
as assignee, it was expressly stated that: ". . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein
ASSIGNEE, all his rights, interest and participation over said premises afore-described, . . ." And under the subsequent
assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President
Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that: . . . the ASSIGNOR hereby sells, transfers
and assigns all his rights, interest and participation over said leased premises, . . ." One such rights included in the
contract of lease and, therefore, in the assignments of rights was the lessee’s right of first option or priority to buy the
properties subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment
need not be very specific as to which rights and obligations were passed on to the assignee. It is understood in the
general provision aforequoted that all specific rights and obligations contained in the contract of lease are those
referred to as being assigned. Needless to state, respondent Santos gave her unqualified conformity to both
assignments of rights.

6. ID.; ID.; ID.; SUBSEQUENT BUYER BECOMES PRIVY TO THE CONTRACT AFTER HAVING STEPPED INTO
THE SHOES OF THE OWNER LESSOR OF THE LAND AS, BY VIRTUE OF HIS PURCHASE, HE ASSUMED ALL
THE OBLIGATIONS OF THE LESSOR UNDER THE LEASE CONTRACT; CASE AT BAR. — With respect to the
contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee
referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he
stepped into the shoes of the owner-lessor of the land as by virtue of his purchase, he assumed all the obligations of
the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the
complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also
alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first
refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent
Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.

DECISION

PANGANIBAN, J.:

Do allegations in a complaint showing violation of a contractual right of "first option or priority to buy the properties
subject of the lease" constitute a valid cause of action? Is the grantee of such right entitled to be offered the same
terms and conditions as those given to a third party who eventually bought such properties? In short, is such right of
first refusal enforceable by an action for specific performance?

These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 of the
Rules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in CA-G.R. CV
No. 34987 entitled "Parañaque Kings Enterprises, Inc. v. Catalina L. Santos, Et Al.," which affirmed the order 3 of
September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-786 for lack of a
valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5 which is reproduced
in full below:jgc:chanrobles.com.ph

"Plaintiff, by counsel, respectfully states that:chanrob1es virtual 1aw library

1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with
principal place of business of (sic) Dr. A. Santos Avenue, Parañaque, Metro Manila, while defendant Catalina L.
Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA,
represented in this action by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No. 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of attorney. Defendant David A.
Raymundo, is of legal age, single, with residence and postal address at 1918 Kamias Street, Dasmariñas Village,
Makati, Metro Manila, where they (sic) may be served with summons and other court processes. Xerox copy of the
general power of attorney is hereto attached as Annex ‘A’.

2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Parañaque, Metro Manila with
transfer certificate of title nos. S-19637, S-19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are
hereto attached as Annexes ‘B’ to ‘I’, respectively.

3. On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina L.
Santos, the said lease was registered in the Register of Deeds. Xerox copy of the lease is hereto attached as Annex
‘J’.

4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to
Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said assignment
was also registered. Xerox copy of the deed of assignment is hereto attached as Annex ‘K’.

5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque
Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos, the
same was duly registered, Xerox copy of the deed of assignment is hereto attached as Annex ‘L’.

6. Paragraph 9 of the assigned leased (sic) contract provides among others that:chanrob1es virtual 1aw library

‘9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a
condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this
lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale,
LESSEE shall have the first option or priority to buy the properties subject of the lease;’

7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David
Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the
contract of lease, for the first option or priority to buy was not offered by defendant Santos to the plaintiff. Xerox copy of
the deed of sale is hereto attached as Annex ‘M’.

8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties to
defendant Raymundo, the said letter was personally handed by the attorney-in-fact of defendant Santos, Xerox copy of
the letter is hereto attached as Annex ‘N’.

9. Upon learning of this fact plaintiff’s representative wrote a letter to defendant Santos, requesting her to rectify the
error and consequently realizing the error, she had it reconveyed to her for the same consideration of FIVE MILLION
(P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance are hereto attached as Annexes ‘O’
and ‘P’.

10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION
(P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore (sic) the said
period expired another letter came from the counsel of defendant Santos, containing the same tenor of (sic) the-former
letter. Xerox copies of the letters are hereto attached as Annexes ‘Q’ and ‘R’.

11. On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiff’s counsel
wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox
copy of the letter is hereto attached as Annex ‘S’.

12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant
Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy
of the second deed of sale is hereto attached as Annex ‘T’.
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to
defendant Raymundo.

14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiffs offer to buy or two days
after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a
privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex ‘U’

15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that plaintiff is the assignee
of all rights and interest of the former lessor. Xerox copy of the letter is hereto attached as Annex ‘V’.

16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant Raymundo.
Xerox copy of the letter is hereto attached as Annex ‘W’.

17. From the preceding facts it is clear that the sale was simulated and that there was a collusion between the
defendants in the sales of the leased properties, on the ground that when plaintiff wrote a letter to defendant Santos to
rectify the error, she immediately have (sic) the property reconveyed it (sic) to her in a matter of twelve (12) days.

18. Defendants have the same counsel who represented both of them in their exchange of communication with
plaintiffs counsel, a fact that led to the conclusion that a collusion exist (sic) between the defendants.

19. When the property was still registered in the name of defendant Santos, her collector of the rental of the leased
properties was her brother-in-law David Santos and when it was transferred to defendant Raymundo the collector was
still David Santos up to the month of June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes ‘X’ to
‘HH’, respectively.

20. The purpose of this unholy alliance between defendants Santos and Raymundo is to mislead the plaintiff and make
it appear that the price of the leased property is much higher than its actual value of FIVE MILLION (P5,000,000.00)
PESOS, so that plaintiff would purchase the properties at a higher price.

21. Plaintiff has made considerable investments in the said leased property by erecting a two (2) storey, six (6) doors
commercial building amounting to THREE MILLION (P3,000,000.00) PESOS. This considerable improvement was
made on the belief that eventually the said premises shall be sold to the plaintiff.

22. As a consequence of this unlawful act of the defendants, plaintiff will incur (sic) total loss of THREE MILLION
(P3,000,000.00) PESOS as the actual cost of the building and as such defendants should be charged of the same
amount for actual damages.

23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff in the process suffered
mental anguish, sleepless nights, besmirched (sic) reputation which entitles plaintiff to moral damages in the amount of
FIVE MILLION (P5,000,000.00) PESOS.

24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner and as a deterrent to the
commission of similar acts, they should be made to answer for exemplary damages, the amount left to the discretion of
the Court.

25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed, but defendants refused
and failed to comply with plaintiffs just and valid and (sic) demands. Xerox copies of the demand letters are hereto
attached as Annexes ‘KK’ to ‘LL’, respectively.

26. Despite repeated demands, defendants failed and refused without justifiable cause to satisfy plaintiff’s claim, and
was constrained to engaged (sic) the services of undersigned counsel to institute this action at a contract fee of
P200,000.00, as and for attorney’s fees, exclusive of cost and expenses of litigation.

PRAYER

WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and against defendants and
ordering that:chanrob1es virtual 1aw library

a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the leased properties be sold to the
plaintiff in the amount of P5,000,000.00;

b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;

c. Defendants pay the sum of P5,000,000.00 as moral damages;

d. Defendants pay exemplary damages left to the discretion of the Court;

e. Defendants pay the sum of not less than P200,000.00 as attorney’s fees.

Plaintiff further prays for other just and equitable reliefs plus cost of suit."cralaw virtua1aw library

Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of
cause of action, estoppel and laches.

On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action. It
ratiocinated thus:jgc:chanrobles.com.ph

"Upon the very face of the plaintiff’s Complaint itself, it therefore indubitably appears that the defendant Santos had
verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for P15
M. The said offers, however, were plainly rejected by the plaintiff which scorned the said offer as "RIDICULOUS."
There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos. For in
acquiring the said properties back to her name, and in so making the offers to sell both by herself (attorney-in-fact) and
through her counsel, defendant Santos was indeed conscientiously complying with her obligation under paragraph 9 of
the Lease Agreement. . . .

x       x       x

This is indeed one instance where a Complaint, after barely commencing to create a cause of action, neutralized itself
by its subsequent averments which erased or extinguished its earlier allegations of an impending wrong.
Consequently, absent any actionable wrong in the very face of the Complaint itself, the plaintiff’s subsequent
protestations of collusion is bereft or devoid of any meaning or purpose. . .

The inescapable result of the foregoing considerations point to no other conclusion than that the Complaint actually
does not contain any valid cause of action and should therefore be as it is hereby ordered DISMISSED. The Court
finds no further need to consider the other grounds of estoppel and laches inasmuch as this resolution is sufficient to
dispose the matter" 6

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further reasoned
that:chanrob1es virtual 1aw library

. . . Appellant’s protestations that the P15 million price quoted by appellee Santos was reduced to P9 million when she
later resold the leased properties to Raymundo has no valid legal moorings because appellant, as a prospective buyer,
cannot dictate its own price and forcibly ram it against appellee Santos, as owner, to buy off her leased properties
considering the total absence of any. stipulation or agreement as to the price or as to how the price should be
computed under paragraph 9 of the lease contract, . . ." 7

Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8

Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining order and/or Writ of
Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court." 9 The motion sought to
enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed before the barangay captain
of San Isidro, Parañaque, Metro Manila; to direct the dismissal of said ejectment complaint or of any similar action that
may have been filed; and to require respondent Raymundo to explain why he should not be held in contempt of court
for forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner arose from the expiration
of the lease contract covering the property subject of this case. The ejectment suit was decided in favor of Raymundo,
and the entry of final judgment in respect thereof renders the said motion moot and academic.chanrobles.com : vir

Issue

The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach of the
contractual right of "first option or priority to buy" states a valid cause of action.

Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because it in
fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of first refusal
founded in law, and (3) damages.

Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not
raising a question of law as the issue involved is purely factual — whether respondent Santos complied with paragraph
9 of the lease agreement — and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the
filing of twelve (12) copies of the petitioner’s brief. Both maintain that the complaint filed by petitioner before the
Regional Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate its claim that the
lower courts decided the same "in a way not in accord with law and applicable decisions of the Supreme Court" ; or
that the Court of Appeals has "sanctioned departure by a trial court from the accepted and usual course of judicial
proceedings" so as to merit the exercise by this Court of the power of review under Rule 45 of the Rules of Court.
Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that petitioner’s payment of rentals
of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment of the
latter’s status as new owner-lessor of said property, by virtue of which petitioner is deemed to have waived or
abandoned its first option to purchase.

Private respondents likewise contend that the deed of assignment of the lease agreement did not include the
assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract of
lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation thereof.

The Court’s Ruling

Preliminary Issue: Failure to File

Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly petitioner’s failure to file twelve (12) copies
of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did not result in
prejudice to the adverse party, dismissal of appeal on mere technicalities — in cases where appeal is a matter of right
— may be stayed, in the exercise of the court’s equity jurisdiction. 10 It does not appear that respondents were unduly
prejudiced by petitioner’s nonfeasance. Neither has it been shown that such failure was intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents’ contention that the issue involved is purely factual. The principal legal question, as
stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action. Since
such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is one of law,
and not of facts. There is a question of law in a given case when the doubt or difference arises as to what the law is on
a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts. 11

At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such ground
must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the facts alleged
in the complaint and no others should be considered; and that the test of sufficiency of the facts alleged in a petition or
complaint to constitute a cause of action is whether, admitting the facts alleged, the court could render a valid judgment
upon the same in accordance with the prayer of the petition or complaint.

A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to
violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff or
constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for
recovery of damages. 12

In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in mind
that the complaint does not have to establish or allege facts proving the existence of a cause of action at the outset;
this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of action,
the complaint must show that the claim for relief does not exist, rather than that a claim has been defectively stated, or
is ambiguous, indefinite or uncertain. 13

Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as
having hypothetically admitted all the averment’s thereof. 14

A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of
private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter
was granted the "first option or priority" to purchase the leased properties in case Santos decided to sell. If Santos
never decided to sell at all, there can never be a breach, much less an enforcement of such "right." But on September
21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed
realized her error, since she repurchased the properties after petitioner complained. Thereafter, she offered to sell the
properties to petitioner for P15 million, which petitioner, however, rejected because of the "ridiculous" price. But Santos
again appeared to have violated the same provision of the lease contract when she finally resold the properties to
respondent Raymundo for only P9 million without first offering them to petitioner at such price. Whether there was
actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better
be resolved after trial on the merits where each party can present evidence to prove their respective allegations and
defenses. 15

The trial and appellate courts based their decision to sustain respondents’ motion to dismiss on the allegations of
Parañaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final sale
in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had verily
complied with her obligation to grant the right of first refusal to petitioner.

We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to
purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to
respondent Raymundo, should have likewise been first offered to petitioner.

The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first
refusal in the case of Guzman, Bocaling & Co. v. Bonnevie. 16 In that case, under a contract of lease, the lessees
(Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the lessor
(Reynoso) decided to sell. The selling price quoted to the Bonnevies was P600,000.00 to be fully paid in cash, less a
mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman
was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the
property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted
(P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more favorable terms and
conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to
exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under
the same terms and conditions previously offered to the Bonnevies.

Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first priority,
"all things and conditions being equal." This Court interpreted this proviso to mean that there should be identity of
terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the
right of first priority. We hold that the same rule applies even without the same proviso if the right of first refusal (or the
first option to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal * must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. Only after the grantee fails to exercise its right of first priority under the same terms
and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the
same terms as offered to the grantee.

This principle was reiterated in the very recent case of Equatorial Realty v. Mayfair Theater, Inc. 17 which was decided
en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the
lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest over the subject property,
was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulated period" (Emphasis supplied).

In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell
the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo initially
offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the
property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter
sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly violating
the right of first refusal of Mayfair, and Equatorial for purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the
subject property at the same price of P11,300,000.00.

No cause of action

under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its right of
first refusal. It claims to be covered under said law, being the "rightful occupant of the land and its structures" since it is
the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would have occupied the property
for fourteen (14) years at the end of the contractual period.

Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this Court has
previously ruled that under Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the
lessee’s right of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land Management
Committee. Hence, . . . certain prerequisites must be complied with by anyone who wishes to avail himself of the
benefits of the decree." 19 There being no allegation in its complaint that the prerequisites were complied with, it is
clear that the complaint did fail to state a cause of action on this ground.

Deed of Assignment included

the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to petitioner
did not include the option to purchase. The provisions of the deeds of assignment with regard to matters assigned were
very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it was
expressly stated that:jgc:chanrobles.com.ph

". . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and
participation over said premises afore-described, . . ." 20 ( Emphasis supplied)

And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented
by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that:chanrob1es virtual 1aw
library

. . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased
premises, . . ." 21 (Emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee’s right of
first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned lease
contract. The deed of assignment need not be very specific as to which rights and obligations were passed on to the
assignee. It is understood in the general provision aforequoted that all specific rights and obligations contained in the
contract of lease are those referred to as being assigned. Needless to state, respondent Santos gave her unqualified
conformity to both assignments of rights.

Respondent Raymundo privy

to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor
nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party.
Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the
obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments.
Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both
pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its
right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party
to the case. 22 A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the
buyer of the property over which petitioner would like to assert its right of first option to buy.

Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first refusal
and that the trial court should thus not have dismissed the complaint, we find no more need to pass upon the question
of whether the complaint states a cause of action for damages or whether the complaint is barred by estoppel or
laches. As these matters require presentation and/or determination of facts, they can be best resolved after trial on the
merits.

While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their day in
court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are theoretically
admitted, such admission is merely hypothetical and only for the purpose of resolving the motion. In case of denial, the
movant is not to be deprived of the right to submit its own case and to submit evidence to rebut the allegations in the
complaint. Neither will the grant of the motion by a trial court and the ultimate reversal thereof by an appellate court
have the effect of stifling such right. 23 So too, the trial court should be given the opportunity to evaluate the evidence,
apply the law and decree the proper remedy. Hence, we remand the instant case to the trial court to allow private
respondents to have their day in court.chanroblesvirtuallawlibrary

WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby
REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further proceedings.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

 FIRST DIVISION

[G.R. No. 149627. September 18, 2003.]

KENNETH O. NADELA, Petitioner, v. THE CITY OF CEBU and METRO CEBU DEVELOPMENT

PROJECT, Respondents.

DECISION

AZCUNA, J.:

Before us is a petition for review on certiorari of the Decision of the Court of Appeals promulgated on April 30, 2001 in
CA-G.R. CV No. 61910, which affirmed the Order of the Regional Trial Court of Cebu City, Branch 12, dated March 12,
1998, 1 dismissing the action of petitioner Kenneth O. Nadela for recovery of ownership and possession of a parcel of
land with damages against respondents City of Cebu and Metro Cebu Development Project (MCDP).chanrob1es
virtua1 1aw 1ibrary

On March 4, 1997, herein petitioner, Kenneth O. Nadela, filed an action before the Regional Trial Court of Cebu City,
Branch 12, for recovery of ownership and possession of a parcel of land with damages and a prayer for the issuance of
a temporary restraining order and/or preliminary injunction against respondents.

In his Amended Complaint, 2 petitioner alleged, thus:chanrob1es virtual 1aw library

1. For more than thirty (30) years, he and his predecessors-in-interest have been in actual, adverse, peaceful and
continuous possession in the concept of owner of an unregistered parcel of land described as:chanrob1es virtual 1aw li

A parcel of agricultural land known as Lot No. Psu-07006450, situated at Barangay Inayawan, Cebu City, Philippines,
and bounded:chanrob1es virtual 1aw library

North — Public Land;

East — Public Land;

South — Psu-07-006451 (Heirs of Alipio Bacalso);

West — Public Land and Property of Felicisimo Rallon.

With an assessed value of SIX THOUSAND (P6,000) PESOS. 3

2. He merely tolerated respondents’ act of dumping garbage on his property believing that it will not be prejudicial to his
interest. However, sometime in the month of January 1997, Respondents, without his consent, dumped thereon not
just garbage but also other filling materials. Respondents likewise conducted some earthwork for the purpose of
forcibly wresting from him the ownership and possession of said property.

3. In utter disregard of his rights, respondent MCDP blocked the approval of the survey plan of the subject property.
Consequently, the Bureau of Lands (now the Lands Management Services), Department of Environment and Natural
Resources, Region VII, deferred action on the said plan.

4. Since the month of January 1997, respondent MCDP placed and stationed some security guards in the subject
property, thereby preventing him from entering and exercising his right of ownership and possession over the property.
5. Said unlawful acts of respondents will not only cause irreparable injury but will also work injustice to him, and
complicate, aggravate and multiply the issues in this case.

Petitioner prayed that pending hearing of the case on the merits, and after the parties shall have been heard, the court
issue a writ of preliminary injunction, directing the respondents to desist and refrain from conducting any earthwork,
introducing any improvement, or, placing any guard on the property. Thereafter, petitioner prayed that judgment be
rendered (1) declaring him as the true and lawful owner of the subject property; (2) ordering the respondents and all
persons acting in their behalf, control or direction, and/or who derived their right of possession from the respondents, to
vacate the subject property; (3) ordering the respondents to pay the sum of P500,000 as actual damages plus the sum
of P50,000 a month until petitioner’s possession of the subject property shall have been restored, P100,000 as
attorney’s fees and costs of suit.

Respondent City of Cebu filed a Motion to Dismiss 4 on the ground that petitioner has no cause of action since (1) the
suit is against the State and there is no allegation that it has given its consent; and (2) the Complaint itself shows that
the case is premature since petitioner admitted that he is in possession in the concept of owner of an unregistered
parcel of land.

Respondent MCDP, represented by the Solicitor General, also filed a Motion to Dismiss 5 on the following grounds: (1)
the Complaint states no cause of action as the land involved is a public land and thus belongs to the State, petitioner
being a mere claimant thereof; (2) petitioner failed to exhaust available administrative remedies; and (3) petitioner’s
suit is barred under the doctrine of state immunity from suit.

Petitioner filed an Opposition 6 to respondents’ respective motion to dismiss asserting that the property in litigation is a
private agricultural land and that neither the doctrine of state immunity from suit nor the general rule of exhaustion of
administrative remedies applies in this case. Petitioner brought to the attention of the trial court the following
facts:chanrob1es virtual 1aw library

(1) That pursuant to Land Classification Map No. 222, Project No. 5, Certified on November 20, 1912, the property in
litigation (Lot No. PSU-07-006450, situated at Barangay Inayawan, Pardo, Cebu City) had long been classified as
alienable and disposable land;

(2) That the said lot is a portion of a parcel of land originally owned by Alipio O. Bacalso, whose possession of the
same commenced way back in 1962, as evidenced by a tax declaration issued in his name;

(3) That on April 22, 1989, spouses Alipio Bacalso and Eleuteria Bacalso assigned their property situated at Barangay
Inayawan, Pardo, Cebu City, to Nadela Agro-Industrial Development Corporation;

(4) That in 1993, the same property was declared for taxation purposes in the name of Nadela Agro-Industrial
Development Corporation;

(5) That on May 4, 1995, Nadela Agro-Industrial Development Corporation assigned the property in litigation to the
plaintiff; and

(6) That for more than thirty (30) years, plaintiff and his predecessors-in-interest paid realty taxes for the property in
litigation. 7

Respondents filed their respective Reply 8 to petitioner’s Opposition.

On September 19, 1997, Acting Presiding Judge Victorino U. Montecillo issued an Order 9 granting petitioner’s
application for a writ of injunction.

Respondents City of Cebu and MCDP filed their respective Motion for Reconsideration 10 of said Order. Petitioner filed
a Comment and Opposition 11 to the motion for reconsideration of respondent MCDP, which in turn filed a Reply. 12
Petitioner filed a Rejoinder 13 to said Reply.

On January 23, 1998, Presiding Judge Aproniano B. Taypin issued an Order 14 setting aside the Order of the Court
dated September 19, 1997, which granted the application for a writ of injunction. The trial court ruled that the project
undertaken by respondent MCDP falls within the definition of "infrastructure project" and pursuant to Presidential
Decree No. 1818, courts are prohibited from issuing writs of injunction to stop any person, entity or government official
from proceeding with or continuing the implementation of any such infrastructure project. The trial court further ordered
that the case be tried on the merits.

Respondent City of Cebu filed a Motion for Reconsideration of the Order denying the Motion to Dismiss 15 reiterating
therein that the Complaint states no cause of action and is premature as the lot in question is admittedly an
unregistered parcel of land; hence, it is still a part of the public domain and owned by the State.chanrob1es virtua1 1aw
library

On March 12, 1998, the trial court issued an Order, 16 thus:chanrob1es virtual 1aw library

ORDER

This is a motion for reconsideration of an Order denying the motion to dismiss filed by the herein defendant, City of
Cebu. A copy of said motion was duly furnished to the herein plaintiff thru its counsels on record.

The instant case involved an unregistered parcel of land, henceforth, a part of the public domain and owned by the
state. The Tax Declarations presented by the plaintiff are not considered conclusive evidence of ownership, as has
been held in the case of Rivera v. Court of Appeals, 244 SCRA 218. Moreover, the subject property being unclassified,
whatever possession the applicant may have had and however long cannot ripen into private ownership. (Director of
Lands v. Intermediate Appellate Court, 219 SCRA 339).

Finally, under the Regalian Doctrine, all lands not otherwise appearing to be clearly within private ownership are
presumed to belong to the State (Director of Lands v. Intermediate Appellate Court, 219 SCRA 339).

Wherefore, in consideration of all the foregoing, the instant case is hereby dismissed.

SO ORDERED.

Petitioner failed a motion for reconsideration, which was denied by the trial court for being unmeritorious. 17

Petitioner thereafter appealed to the Court of Appeals alleging that (1) the trial court erred in dismissing Civil Case No.
Ceb-19990 without conducting a hearing of the case on the merits; and (2) the trial court acted with grave abuse of
discretion and denied him due process when it denied his motion for reconsideration of the order of dismissal. 18

On April 30, 2001, the Court of Appeals rendered a decision against petitioner; the dispositive portion of which
reads:chanrob1es virtual 1aw library

WHEREFORE, premises considered, the present appeal is hereby dismissed and the appealed Order dated March 12,
1998 in Civil Case No. CEB-19990 is hereby AFFIRMED. 19

The Courts of Appeals ruled that the trial court did not err in ordering the dismissal of the Complaint based on the
following:chanrob1es virtual 1aw library

(1) Petitioner’s allegations in the Amended Complaint that the disputed property is still an unregistered parcel of land
and that he has a pending application for a survey plan with the Lands Management Bureau of the Department of
Environment and Natural Resources, which the appellate court misstated as a pending application for a judicial
confirmation of title, are admissions of the State’s ownership of the property.

(2) Granting that petitioner has been in possession in the concept of owner of the subject property for more than 30
years, still petitioner cannot be deemed to have acquired a grant by operation of law because his possession thereof
did not commence since June 12, 1945 as required by Section 48 (b) of the Public Land Act as amended by
Presidential Decree No. 1073, considering that the earliest tax declaration he submitted during the hearing on the
application for a writ of preliminary injunction was only for the year 1962.
The Court of Appeals also held that in denying petitioner’s motion for reconsideration of the order of dismissal of the
case, the trial court was of the honest opinion, after evaluating the grounds of said motion, that the same was not
meritorious. 20 Hence, the appellate court ruled that the trial court did not act with grave abuse of discretion as there
was no capricious or whimsical exercise of judgment tantamount to lack of jurisdiction in the issuance of said order. 21

Petitioner filed a motion for reconsideration, which was denied by the Court of Appeals for lack of merit. 22

Hence, this, appeal.

Petitioner contends that the Court of Appeals erred, thus:chanrob1es virtual 1aw library

I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING THE REGIONAL TRIAL COURT
OF CEBU CITY (BRANCH 12) GRANTING THE MOTION TO DISMISS ON THE GROUND OF NO CAUSE OF
ACTION.

II. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN FAILING TO RECOGNIZE PETITIONER’S
CONSTITUTIONAL RIGHT TO PROPERTY WITHOUT DUE PROCESS AND JUST COMPENSATION.

III. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN FAILING TO RECOGNIZE PETITIONER’S
CONSTITUTIONAL RIGHT TO DUE PROCESS BY NOT ALLOWING THE LATTER TO PRESENT HIS EVIDENCE-
IN-CHIEF IN A TRIAL ON THE MERITS BY REMANDING THE INSTANT CASE TO THE REGIONAL TRIAL COURT
FOR FURTHER PROCEEDING. 23

The Court’s Ruling

Petitioner contends that the Court of Appeals erred in affirming the Order of the trial court which granted the motion to
dismiss of respondents on the ground that the Complaint states no cause of action. In essence, petitioner asserts in his
assigned errors that the allegations in his Amended Complaint are sufficient to establish his cause of action, and said
allegations were hypothetically admitted by respondents when they filed a motion to dismiss. Petitioner prays that he
be given an opportunity to prove ownership over the subject property in a trial on the merits.

The contention is untenable.

The test of the sufficiency of the facts to constitute a cause of action is whether admitting the facts alleged, the court
can render a valid judgment upon the same in accordance with the prayer of the complaint. 24 In answering the query,
only the facts asserted in the complaint must be taken into account without modification although with reasonable
inferences therefrom. 25 Nevertheless, in Tan v. Director of Forestry 26 and Santiago v. Pioneer Savings and Loan
Bank, 27 evidence submitted by parties during a hearing in an application for a writ of preliminary injunction was
considered by the court in resolving the motion to dismiss. In Llanto v. Ali Dimaporo, 28 this Court held that the trial
court can properly dismiss a complaint on a motion to dismiss due to lack of cause of action even without a hearing, by
taking into consideration the discussion in said motion and the opposition thereto. In Marcopper Mining Corporation v.
Garcia, 29 this Court ruled that the trial court did not err in considering other pleadings, aside from the complaint, in
deciding whether or not the complaint should be dismissed for lack of cause of action.chanrob1es virtua1 1aw 1ibrary

A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to
violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or
constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for
recovery of damages. 30

From the allegations in the Complaint, petitioner claims ownership of the subject property for having possessed it in the
concept of an owner openly, adversely, peacefully and exclusively for more than 30 years. Petitioner did not allege in
his Complaint the actual date when his ownership of the subject property accrued. However, in his Opposition 31 to
respondents’ motion to dismiss, petitioner brought to the attention of the trial court the fact that "the said lot is a portion
of a parcel of land originally owned by Alipio O. Bacalso, whose possession of the same commenced way back in
 1962, as evidenced by a tax declaration issued in his name." ( Emphasis supplied.)

Petitioner’s claim is an assertion that the subject property is private land, or that even assuming it was part of the public
domain, petitioner had already acquired imperfect title thereto under Section 48 (b) of Commonwealth Act No. 141,
otherwise known, as the Public Land Act, as amended by Republic Act No. 1942. 32 Said section provides:chanrob1es
virtual 1aw library

SEC. 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own
any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of
First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate
therefor, under the Land Registration Act, to wit:chanrob1es virtual 1aw library
x       x       x

(b) Those who by themselves or through their predecessors in interest have been in the open, continuous, exclusive,
and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of
acquisition of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of
title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the
conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this
chapter.

Said Section 48(b) was amended by Presidential Decree No. 1073, approved on January 25, 1977, thus:chanrob1es
virtual 1aw library

SEC. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII, of the Public Land Act are hereby amended in
the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have
been in open, continuous, exclusive and notorious possession and occupation by the applicant (himself or thru his
predecessor-in-interest, under a bona fide claim of acquisition of ownership, since June 12, 1945.

In Heirs of Marciano Nagano v. Court of Appeals, 33 we ruled that under Section 48, a subject lot is, for all intents and
purposes, segregated from the public domain, because the beneficiary is "conclusively presumed to have performed all
the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this
chapter."cralaw virtua1aw library

In Director of Lands v. Bengzon, 34 we also ruled:chanrob1es virtual 1aw library

We cannot subscribe to the view of petitioner that it is only after a possessor has been issued a certificate of title that
the land can be considered private land. In interpreting the provisions of Section 48 (b) of Commonwealth Act No.
[141], this Court said in Herico v. Dar,." . . when the conditions as specified in the foregoing provision are complied
with, the possessor is deemed to have acquired, by operation of law, a right to a grant, a government grant, without the
necessity of a certificate of title being issued. The land, therefore, ceases to be of the public domain, and beyond the
authority of the Director of Lands to dispose of. The application for confirmation is a mere formality, the lack of which
does not affect the legal sufficiency of the title as would be evidenced by the patent and the Torrens title to be issued
upon the strength of said patent.

In Suzi v. Razon and Director of Lands, 35 we ruled that "if, as above stated, the land, the possession of which is in
dispute, had already become, by operation of law private property of the plaintiff, there lacking only the judicial sanction
of his title, [plaintiff] has the right to bring an action to recover the possession thereof." One claiming "private rights"
must prove that he has complied with Commonwealth Act No. 141, as amended. 36

Notably, the Court of Appeals knew that petitioner was claiming ownership over the subject property under Section 48
(b) of the Public Land Act. However, it correctly affirmed the dismissal of the case as it properly considered the
evidence submitted by petitioner during the hearing of the application for a writ of preliminary injunction. 37 The Court
of Appeals held:chanrob1es virtual 1aw library

In view of the required length of possession, even if We hypothetically admit the truth of appellant’s allegation in his
complaint that he had been for more than thirty (30) years been in "open, continuous, exclusive and notorious
possession in concept of owner" of the subject land, still he cannot be deemed to have acquired a grant, or a right to a
grant, by operation of law, considering his possession thereof did not commence "since June 12, 1945 or earlier" as
required by Sec. 48 (b) and (c), as amended by P.D. No. 1073. Among the documentary evidence submitted by
appellant during the hearing on the application for a writ of preliminary injunction are tax declarations in his name and
that of his predecessor-in-interest Alipio Bacalso, the oldest being for the year 1962. Appellant, therefore, has not
acquired ownership and title under the law, over the property subject of litigation, which remained part of the public
domain, exclusively belonging to the State. The trial court thus did not err in ordering the dismissal of the complaint
upon the ground of failure to state a cause of action. 38

Petitioner, therefore, clearly relies on Tax Declaration No. 117609 39 for the year 1962, 40 the earliest tax declaration
presented during the hearing on the application for a writ of preliminary injunction, which appears to be the evidence
mentioned in petitioner’s Opposition 41 to respondents’ motion to dismiss wherein petitioner brought to the attention of
the trial court the fact that the subject property "is a portion of a parcel of land originally owned by Alipio O. Bacalso,
whose possession of the same commenced way back in 1962, as evidenced by a tax declaration issued in his name"
(Emphasis supplied).

Considering appellant’s allegation in his Opposition that his predecessor-in-interest, Alipio O. Bacalso, necessarily the
first and earliest, in view of the words "originally owned," commenced possession of the subject property only in 1962,
and his submission of tax declarations, the earliest of which was for the year 1962, 42 during the hearing on the
application for a writ of preliminary injunction, petitioner cannot be presumed to have performed all the conditions
essential to a Government grant inasmuch as his possession of the subject property did not commence since June 12,
1945 or earlier, as required by Section 48 (b) of Commonwealth Act No. 141, as amended by Presidential Decree No.
1073. Hence, the Court of Appeals did not err in affirming the Order of the trial court dismissing the Complaint on the
ground of failure to state a cause of action.

WHEREFORE, in view of the foregoing, the instant petition is DENIED for lack of merit. The questioned Decision of the
Court of Appeals in CA-G.R. CV No. 61910 is hereby AFFIRMED. Costs against the petitioner.chanrob1es virtua1 1aw
1ibrary

SO ORDERED.

Davide, Jr., C.J., Vitug, Ynares-Santiago and Carpio, JJ., concur.

 THIRD DIVISION

G.R. No. 126647. July 29, 1998

LEBERMAN REALTY CORPORATION. and ARAN REALTY and DEVELOPMENT

CORPORATION, Petitioners, v. JOSEPH TYPINGCO and THE COURT OF APPEALS, Respondents.

DECISION

KAPUNAN, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside 1)
the Decision dated 13 May 1996; and 2) the Resolution dated 3 October 1996, of the Court of Appeals.

Finding the narration of facts of the Court if Appeals to be concise and well-written, we quote the same hereunder, in
its entirety:

Appellees LEBERMAN REALTY CORPORATION and ARAN REALTY AND DEVELOPMENT CORPORATION
(LEBERMAN and ARAN, respectively, for brevity), are the registered co-owners of four (4) parcels of land at Binondo,
Manila, containing an aggregate area of 1,124.80 square meters and covered by four separate certificates of title.

Sometime in March 1989, herein appellant JOSEPH TYPINGCO learned that the above-mentioned properties were
being offered for sale. Interested on (sic) acquiring the realties, Typingco met with the officers of LEBERMAN and
ARAN, namely Doris Venezuela, General Manager of LEBERMAN, and Remedios D. Hollander, President of Aran, to
discuss the terms and conditions of the sale. On March 20, 1989, Venezuela and Hollander, in behalf of their
respective principals, accepted the offer of Typingco to buy the properties for a total consideration of P43,888,888.88
as evidenced by a handwritten agreement executed on the same date (Exhibit A). Also, on the same date, Typingco
made a down payment of P100,000.00 of which P50,000.00 was for LEBERMAN and the other P50,000.00 for ARAN
(Exhs. B and C).

Thereafter, on April 4, 1989, the Parties executed a document denominated as Contract To Sell (Exh. D), which
contains the following relevant stipulations:

1. CONSIDERATION. That the total consideration for the purchase of the above-mentioned properties shall be x x x
(P43,888,888.88) Philippine Currency payable as follows:

1.1 DOWNPAYMENT.

The BUYER shall pay the SELLERS upon the signing of this agreement the sum of One Hundred Thousand
(P100,000.00) Pesos, receipt of which is hereby acknowledged by the SELLERS from the BUYER. It is agreed by the
parties that the P100,000.00 consideration paid by the BUYER to the SELLERS on 20 th march, 1989 shall be credited
as part of the downpayment. Hence, there is a total downpayment of Two Hundred Thousand (P200,000.00) Pesos as
of this date.

1.2 BALANCE 70% of P43,688,888.88 shall be paid by the BUYER within seven (7) days from receipt of notice duly
signed by the SELLERS addressed to the BUYER that all the tenants or occupants or squatters in the above-
mentioned properties have vacated the same; or, in the event that BUYER shall opt to pay the aforestated balance and
demand the execution of the deed of absolute sale despite the fact that SELLERS have not yet cleared up the
premises of tenants or occupants or squatters, as hereinafter provided, the BUYER shall pay seventy (70%) percent
of P43,688,888.88 within seven (7) days from notice to SELLERS that the BUYER desires to exercise said option; that
in such cases above, the remaining thirty (30%) percent of P43,688,888.88. shall be paid by the BUYER to SELLERS
within one (1) day from receipt of notice duly signed by the SELLERS addressed to the BUYER that all their tax
obligations due on the sale of said properties have been fully paid x x x.

2. OBLIGATION OF SELLERS AND BUYER. The SELLERS and BUYER shall have the following obligations:

2.1 The SELLERS shall clear up the above-mentioned properties of all tenants or occupants or squatters if any, within
eighteen (18) months from date of this Contract to Sell. If at anytime within the said eighteen (18) months and the
SELLERS succeed in clearing up the premises of tenants, occupants or squatters, SELLERS shall send a written
notice of such fact to the BUYER who shall pay in accordance with x x x par. 1 (1.2), this contract is deemed
automatically, cancelled or rescinded.

xxx

3. OPTION OF BUYER. From the seventh month from date of this contract to the eighteenth month, the BUYER shall
have the option either to pay the balance of the purchase price notwithstanding that by that time SELLERS may have
not yet cleared up the premises of all tenants or occupants or squatters therein, and demand the execution of a deed
of absolute sale, or to cancel or rescind this contract. After the eighteenth month from date of this Contract, if the
BUYER fails to exercise the option to pay the balance of the purchase price and to demand execution of the deed of
absolute sale, this Contract shall be deemed automatically cancelled or rescinded. In all cases of rescission under this
Contract, which may take place within the seventh to eighteenth month from date of this contract and after the
eighteenth month as aforesaid, the downpayment of P200,000.00 as stated under par. 1(1.1) shall be returned to
BUYER without interest.

On the same date, April 4, 1989, Typingco paid LEBERMAN and ARAN the amount of P50,000.00 each, again as
downpayment (Exh. G and H). Thus, the total down payment made was P200,000.00.

Thereafter, Typingco started to generate funds to finance the construction of a building which he intended to put up on
the lots. To his surprise however, on September 18, 1989, he received two (2) separate but uniformly-worded letters,
both dated September 11, 1989, one from Jose M. Venezuela, Jr., Chairman of the Board of Directors of LEBERMAN
and the other from Florencia D. Reyes, Vice President/Director of ARAN, advising Typingco that the two companies
have respectively adopted and approved a resolution rejecting the contract to sell executed on April 4, 1989 on the
ground that the terms and conditions of said contract are grossly disadvantageous and highly prejudicial to the
interests of LEBERMAN and ARAN and that the officers who executed the contract acted beyond the scope of their
authorities (Exhs. J and K). The letters likewise informed Typingco of the companies decision to initiate a complaint for
annulment or cancellation of the contract to sell. Enclosed with the letters are two checks for P100,000.00 each (Exhs.
J-1 and K-1), an apparent effort to return the downpayment Typingco had already made.

Obviously taken aback, Typingco immediately wrote LEBERMAN and ARAN telling then that he is not amenable to
their decision to discontinue the sale. Accordingly, he returned to them the two checks aforementioned (Exhs. L and
M). Unfortunately, Typingcos protest proved futile because the sellers refused to receive his letters.

Distraught with this development, Typingco then filed on September 26, 1989, in the Regional Trial Court of Manila the
complaint in this case. In this complaint, docketed in the court a quo Civil Case No. 89-50512, Typingco alleged, inter
alia, as follows:

6. Plaintiff is definitely interested to proceed with the Contract to Sell and is, in fact, able, willing and prepared to
perform his obligations thereunder.

xxx

9. The unilateral decision of Defendants to rescind the Contract To Sell is unjustified, illegal and done in extreme bad
faith and malice.
 xxx

12. The malicious act of Defendant of reneging from their obligations under the Contract To Sell has caused plaintiff
mental anguish, fright, serious anxiety, wounded feelings, sleepless nights, besmirched reputation, moral shock and
social humiliation for which Defendants stand liable to pay moral damages in the amount of not less than Three Million
Pesos (P3,000,000.00).

The complaint thus prayed for a judgment ordering the Defendants to honor their commitment to plaintiff under the
Contract To Sell by performing their undertakings therein fully, as well as the payment of moral and exemplary
damages, attorneys fees and costs of suit (Records, pp. 1-8).

In their joint Answer with Counterclaim, defendants LEBERMAN and ARAN raised the following special and affirmative
defenses:

20. The complaint states no cause of action the same having been filed prematurely, or the action having been
commenced before the cause of action had accrued. The cause of action in this case accrued only in the seventh
month from April, 1989 or in October 1989. The filing of the complaint and the service of the summons in this case to
commence the action was done on September 26, 1989, and September 29, 1989, respectively, before the cause of
action accrued in October, 1989.

21. The contract to sell should be annulled because the consent of defendants representatives was given through
intimidation. They signed the contract under duress, hence they were compelled to act beyond the scope of their
authority.

22. The defendants acted in good faith and in self-protection in rejecting the contract to sell, the fact being that the
terms and conditions of said contract are grossly disadvantageous and highly prejudicial to their interests.

Simultaneously with the filing of their answer, defendants filed a motion praying that their affirmative defenses be
preliminary heard as if a motion to dismiss had been filed. Their prayer for preliminary hearing was granted, but
eventually, in an order dated December 15, 1989, the lower court denied defendants motion for dismissal because, at
this stage, the grounds to dismiss do not appear to be indubitable and accordingly deferred its action thereon without
prejudice to ruling on the same day stage of the trial when said ground to dismiss appears to be indubitable. The order
pertinently reads:

The alleged ground that the complaint should be dismissed is that the complaint was filed on September 26, 1989 and
summonses were served September 29, 1989 but the cause of action had not yet accrued because under the
agreement of the parties said action would accrue on November 1989. This is true. Defendant also cited jurisprudence
that even if the cause of action should have accrued thereafter, the defect in the complaint is not thereby cured.

On the other hand, plaintiffs filed their OPPOSITION/COMMENT thereto, of which the Court has also taken note,
particularly the argument that the plaintiffs cause of action already existed at the time of the filing of the complaint due
to defendants backing or rescinding the contract in question unilaterally and unjustifiably. Said act of rejecting the
contract to sell which signaled the refusal of the defendants to proceed with their commitments thereunder, is the very
basis of the plaintiff in coming to court for relief. Said rejection of the contract appears to be admitted by the defendants
in their Answer. It is to be further considered that by said actuations, the defendants have made it an exercise in futility
for plaintiff to wait for the seven (7) months provided for in Article 3 of the contract before taking action. By the very act
of the defendants in rescinding the contract of sale they have rendered it unnecessary for the plaintiff to wait for said
period coming to court for relief.

PREMISES CONSIDERED, at this stage, the grounds to dismiss do not appear to be indubitable and the court hereby
defers action on said ground for dismissal without prejudice to ruling on the same at any stage of the trial when said
ground to dismiss appears to be indubitable.
SO ORDERED. (Records, pp. 100-101.)

Defendants moved for a reconsideration of the above-quoted order but their motion was denied by the lower court in its
subsequent order of January 26, 1990 (Records, pp. 102 and 112).

Thereafter, trial ensued. After the plaintiff had rested his case, the defendants, instead of going forward with their
defensive evidence, filed a Motion to Dismiss, this time on the ground that [P]laintiffs claim had been extinguished
when he opted to automatically cancel or rescind the Contract To Sell. Elaborating on said ground, the defendants
state in their motion:

3. Considering that the Contract To Sell (Contract for short) was executed and notarized on April 5, 1989, the
eighteenth-month period within which plaintiff (buyer) should exercise his option either to pay the balance of the
purchase price or to cancel and rescind the Contract expired on October 5, 1990. By not paying the balance of the
purchase price within the eighteenth-month period (which expired on October 5, 1990) as stipulated in Contract,
plaintiff had indubitably opted for the automatic cancellation or rescission of the Contract, pursuant to the aforequoted
provision of paragraph 3 thereof. Consequently, the Contract isdeemed automatically cancelled or rescinded.

xxx

7. Defendants obligation to execute a deed of absolute sale had already been extinguished when the Contract was
automatically cancelled and rescinded at the option of plaintiff, who chose not pay the balance of the purchase price
within the period expressly for and agreed upon by the parties in the Contract. As defendants no longer have the
obligation to execute a deed of absolute sale in favor plaintiff, and as plaintiff had opted to cancel and rescind the
Contract, hence plaintiff has no more cause of action against the defendants. There being no more cause of action,
this case should then be dismissed (Records, pp. 186-189).

After an exchange of pleadings by the parties the lower court came out with an order on December 13, 1990, denying
defendants Motion to Dismiss for lack of merit. More specifically, said order pertinently reads:

(2) The defendants argued in their Motion To Dismiss that the plaintiffs claim had been extinguished when he opted to
automatically cancel or rescind the Contract To Sell. On the other hand, the plaintiff in his Opposition to Motion to
Dismiss cited the grounds, among others, that defendants in the instant case had unilaterally and without justification
rescinded and rejected the Contract to Sell;

(3) This Court, however, noted and as alleged by the plaintiff in his Opposition to the Motion to Dismiss, that at one
time the defendants claim that there was no Comment to Sell on the ground that their representatives were not duly
authorized to enter into contract with the herein plaintiff. In another instance, the defendants not only recognize the
same but would even want to apply strictly the provisions of the said contract;

(4) Well-settled is the rule that in the determination of the existence of a cause of action, the Court needs to rely only
on the facts alleged in the complaint and no other should be considered. In fact, an affirmative defense of lack of cause
of action implies that the defense hypothetically admits the allegations of the complaint;

(5) Likewise, it is the view of this Court that there is a need to find out through trial on the merits whether or not the
alleged non-compliance and rescission or rejection of the contract by either party subsists, in order to determine if
either of then is entitled to the relief sought before this Court.

WHEREFORE, in view of the foregoing premises, the Motion to Dismiss is hereby DENIED, for lack of merit.

SO ORDERED (Records, pp. 219-220; Underscoring supplied.)

Obviously discontented, the defendants filed a motion for reconsideration, to which an opposition was interposed by
the plaintiff.
On July 8, 1991, without the trial on the merits having been resumed or no new matter having been added into the
records of the case defendants had not even commenced to present their evidence, the lower court somersaulted by
issuing the herein assailed order granting the defendants motion for reconsideration, thereby vacating and setting
aside its earlier order of December 13, 1990, and accordingly dismissed the case. After reciting the factual
antecedents, the questioned order states:

A careful analysis of the ground of the Motion for Reconsideration of the Order of this Court denying the Motion To
Dismiss also with Opposition from the plaintiff, was made by this Court which hereby resolves the said motions based
on the aforecited premises and on the following grounds:

1. In the contract itself the buyer was given by the seller the option from the seventh month from date of the contract,
that is from April 4, 1989 to the 18th month:

a) either to pay the balance of the purchase price notwithstanding that by that time sellers may have not yet cleared the
premises of all tenants or occupants or squatters therein, and demand the execution of a deed of absolute sale.

b) or to cancel or rescind the contract, subject matter of this case.

2. After the eighteenth month from date of Contract if buyer to exercise the option to pay the balance of the purchase
price and to demand execution of the deed of absolute sale, the contract will be deemed automatically cancelled or
rescind.

The plaintiff, as noted by this Court and as admitted by him, did not exercise this option under the Contract. Plaintiff
could, of course, do this at the opportune time. But this is an option he alone can make. Even the defendants cannot
dictate to him when to exercise this option.

The focal point to be resolved in this case is whether or not plaintiff has a cause of action so that he can pray for
judgment ordering the defendants to honor their commitment to him or to fully perform their undertaking under the
Contract. In the order of this Court dated December 15, 1989, this ticklish issue was already resolved. It is to be noted
that plaintiff never manifested nor intimated his desire to exercise the option granted to him under Article 3 of the
Contract to Sell to pay the balance of the purchase price, notwithstanding that on September 18, 1989 defendants
returned the downpayment of P200,000.00 on the ground, that the terms and conditions of said contract are grossly
disadvantageous, highly prejudicial to their interest, and the officers who executed the contract acted beyond the scope
of their authority.

Finally, the very basis of plaintiff in coming to court for relief is allegedly the illegal, unjustified and unilateral decision of
defendants to rescind the contract. However, plaintiff was very much aware that when he filed the instant case he was
not yet entitled to any relief from this Court, considering that he failed to exercise his option pursuant to the stipulation
Number three (3) of the Contract to Sell.

WHEREFORE, PREMISES CONSIDERED, the motion for Reconsideration of the Order dated December 13, 1990 is
hereby GRANTED, and the Court Order dated December 13, 1990 is SET ASIDE. Accordingly, the instant case is
hereby DISMISSED.

SO ORDERED. (Records, pp. 257-261.)

This time, it was Typingco who moved for reconsideration. However, in its subsequent order of December 9, 1991, the
lower court denied the motion for lack of merit. (Records, p. 328). 1cräläwvirtualibräry

From the trial courts Order dated 8 July 1991, plaintiff Typingco, now herein respondent appealed to the Court of
Appeals, anchored on the following assigned errors:
[1] THE LOWER COURT ERRED IN FINDING THAT THE APPELLANT DID NOT HAVE A CAUSE OF ACTION AT
THE TIME HE FILED THE COMPLAINT.

[2] THE LOWER COURT ERRED IN FINDING THAT THE APPELLANT NEVER MANIFESTED HIS DESIRE TO
EXERCISE HIS OPTION UNDER THE CONTRACT TO SELL.

[3] THE LOWER COURT ERRED IN IGNORING APPELLANTS CLAIM FOR DAMAGES.2cräläwvirtualibräry

On May 1996, the appellate court rendered a decision, the dispositive portion of which reads as follows:

Wherefore, the order under appeal dated July 8, 1991 is hereby REVERSED and SET ASIDE and the order dated
December 13, 1990 is REINSTATED.

Accordingly, the instant case is ordered remanded to the court of origin for further proceedings.

Proportionate costs against both parties.

SO ORDERED.3cräläwvirtualibräry

Hence, this petition wherein petitioner make the following ASSIGNMENT OF ERRORS:

FIRST ASSIGNMENT OF ERROR THE COURT OF APPEALS, IN REVERSING THE RTC/COURT A

QUOS DECISION IN FAVOR OF HEREIN PETITIONER BY RENDERING THE QUESTIONED DECISION,
COMMITTED A SERIOUS ERROR OF LAW, AND, WORSE, ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION WHEN IT RULED THAT RESPONDENT HAS A CAUSE OF ACTION
AGAINST THE PETITIONER, THE LEGAL AND FACTUAL TRUTHS BEING THAT RESPONDENTS COMPLAINT A
QUO STATES NO CAUSE OF ACTION (SECTION I-G, RULE 16, RULES OF COURT) AND THAT RESPONDENT
HAD NO CAUSE OF ACTION AT THE TIME HE FILED HIS COMPLAINT, SAID PLEADING, AT BEST, HAVING
BEEN PREMATURELY FILED;

SECOND ASSIGNMENT OF ERROR ASSUMING ARGUENDO THAT RESPONDENT DID HAVE A CAUSE OF

ACTION AT THE TIME HE FILED HIS COMPLAINT AND THE COMPLAINT STATES A CAUSE OF ACTION, THE
COURT OF APPEALS NONETHELESS COMMITTED A SERIOUS ERROR OF LAW AND, WORSE, ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT RULED IN FAVOR OF
RESPONDENT, THE LEGAL AND FACTUAL TRUTHS BEING THAT WHATEVER CAUSE OF ACTION, IF ANY,
RESPONDENT HAD, WAS LOST WHEN HE AUTOMATICALLY CANCELLED OR RESCINDED THE CONTRACT TO
SELL, THE ACTIONABLE DOCUMENT, BY HIS FAILURE (EVEN TO DATE) TO EXERCISE HIS OPTION
THEREUNDER TO PAY THE BALANCE OF THE PURCHASE PRICE. AS A RESULT, RESPONDENTS CAUSE OF
ACTION/CLAIMS, IF ANY, HAD BEEN LOST/EXTINGUISHED (SECTION 1-H, RULE 16 AND SECTION 2, RULE 9,
RULES OF COURT). IN LAW AND EVIDENCE-WISE THE RESPONDENT HAS NONE AND HAD NO CAUSE OF
ACTION VERSUS THE PETITIONERS; AND

THIRD ASSIGNMENT OF ERROR THE QUESTIONED DECISIONS WERE RENDERED BY THE COURT OF
APPEALS IN TOTAL DISREGARD OF AND IN GROSS VIOLATION OF THE DOCTRINAL RULING OF THE
SUPREME COURT IN ANG TIBAY VS. CIR (69 PHIL. 635).4cräläwvirtualibräry

The petition is devoid of merit.

The pivotal issue in this case is whether or not the private respondent has a cause of action against the petitioners for
prematurity. Petitioners contend that the complaint was prematurely filed because at the time of the institution of the
complaint on September 26, 1989, respondent had yet to exercise his option under the Option of Buyer clause of the
contract. Accordingly to petitioners, the contract dated April 4, 1989 gave private respondent (the buyer) from the
seventh (7th) month following the date of the contract which was November 4, 1989 up to the eighteenth (18 th) month,
which was October 4, 1990, to exercise his option either to pay the balance of the purchase price and demand the
execution of the deed of absolute sale, or to cancel or rescind the contract. Thus, when private respondent filed his
complaint on September 26, 1989, compelling petitioners to execute in his favor a Deed of Absolute Sale without
having exercised his option under the contract, his cause of action had not yet accrued.

A cause of action is an act or omission of one party in violation of the legal right or rights of another. 5 It exists if the
following elements are present, namely: (1) a right in favor of the plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3)
an act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the
obligations of the defendant to the plaintiff for which the latter may maintain an action for recovery of
damages.6cräläwvirtualibräry

It is clear from the above-quoted portions of the complaint, as well as the contract to sell, which forms part of the
complaint, that all the elements constituting a cause of action are present in this case.

First. There is a legal right in favor of the private respondent, i.e., the right, by virtue of the contract to sell, to complete
the payment of the purchase price should he choose to do so.

Second. There is an obligation on the part of the petitioners to sell the subject property exclusively to the private
respondent upon full payment of the purchase price.

Third. There was a breach of petitioners; obligation to sell the property to respondent upon full payment of the
purchase price, when they rejected the contract to sell even before the private respondent could exercise his option to
buy, notwithstanding that the latter had already made a downpayment in the total amount of Two Hundred Thousand
Pesos (P200,000.00)

Petitioners contend that there is nothing on record to suggest that they committed any overt act of rescission, either by
a notarial act, court or by any act whatsoever.7cräläwvirtualibräry

Petitioner allegation is downright untrue. In uniformly-worded letters dated September 11, 1989, one from the
Chairman of the Board of Director of LEBERMAN and the other from the Vice-President/Director of ARAN, private
respondent was advised that the two companies had adopted and approved a resolution rejecting the contract to sell
on the ground that the terms and conditions of the contract are grossly disadvantageous and highly prejudicial to the
interest of LEBERMAN and ARAN and that the officers who executed the contract acted beyond the scope of their
authorities.

The fact that the rejection or cancellation of the contract by petitioners was not made judicially or by notarial acts is of
no moment. It is enough for purposes of determining the existence of a breach in obligation, and therefore, the
existence of a cause of action, that petitioners had declared in no uncertain terms their refusal to be bound by the
contract to sell. Such declaration, coupled with petitioners act of returning respondents downpayment of P200,000.00,
clearly indicates petitioners rejection of the contract to sell. The invocation by petitioners of Article 1592 8 of the Civil
Code is misplaced. The provision contemplates of a situation where the buyer who failed to pay the price at the time
agreed upon, may still pay, even after the expiration of the period, as long as no demand for rescission has been made
upon him either judicially or by a notarial act. In the case at bar, private respondent was never guilty of failure to pay
the price of the land within the period agreed upon. It was petitioners who cancelled the contract before the period to
pay arrived.

Thus, petitioners argument that respondent failed to exercise his option to buy within the period provided in the
contract, and which period expired/lapsed during the pendency of the case, is plainly absurd. For how could private
respondent have exercised the option granted him under the Option to Buyer clause when the contract itself was
rejected/cancelled by the petitioners even before the arrival of the period for the exercise of said option?

We quote with approval the Court of Appeals disquisition on the point thus:
It must be emphasized that it was appellees repudiation of their contract with the appellant that impelled the latter to
sue for specific performance. Having been notified by the appellees of their decision to reject the contract in question
even before the appellant could exercise his option thereunder, the latter certainly cannot be expected to merely ignore
the notice and simply wait for the arrival of the option period. Indeed, with appellees rejection of the very contract which
contains the option, it may even be said that there is no more option to speak of. We are thus at a loss to understand
how the appellees could shift the blame to the appellant when it was their very own conduct which preempted the
latters exercise of the option granted him under the contract. It is thus ironic that having already wronged the appellant,
appellees would still want to profit from their very own wrongful act. Worse, after having rejected the contract, the
appellees had still (sic) the nerve to invoke the option clause thereof to ward off the appellants suit.

Moreover, it would have been disastrous for the appellant had he simply ignored the appellees respective rejection
letters and just content himself (sic) with merely waiting for the arrival of the option period. Silence or inaction on the
part of the appellant could have meant an acquiescence on his part to the appellees unilateral; repudiation of the
agreement, which acquiescence could have well estopped him from subsequently invoking the option provision of the
contract. x x x

It is thus, to us, of no moment that the option period expired without the appellant having paid the balance of the
purchase price. The reason is obvious: the period expired while this suit was pending in the lower court, which suit was
precisely brought about by the appellees rejection of the contract. For the same reason, we find it hard to comprehend
how appellees could additionally argue that appellants failure to pay said balance during the option period amount to
appellants rescission of the same contract. x x x.9cräläwvirtualibräry

WHEREFORE, PREMISESCONSIDERED, the Decision dated 13 May 1996, of the Court of Appeals is

herebyAFFIRMED.

SO ORDERED.

Narvasa, C.J., (Chairman), Romero, and Purisima, JJ., concur.

 FIRST DIVISION

[G.R. NO. 153267 : June 23, 2005]

CHINA BANKING CORPORATION, Petitioner, v. HON. COURT OF APPEALS and ARMED FORCES AND POLICE
SAVINGS & LOAN ASSOCIATION, INC. (AFPSLAI), Respondents.

DECISION

QUISUMBING, J.:

For review is the DecisionN1 dated November 23, 2001 of the Court of Appeals in CA-G.R. SP No. 65740, affirming the
Orders2 dated August 25, 2000 and April 17, 2001, of the Regional Trial Court of Quezon City, Branch 216, which
denied petitioner's motion to dismiss the civil action for a sum of money filed by private respondent. Likewise impugned
is the Resolution3 dated April 24, 2002 of the Court of Appeals denying petitioner's motion for reconsideration of said
decision.

The antecedent facts, as summarized by the appellate court, are as follows:

On September 24, 1996, private respondent Armed Forces and Police Savings and Loan Association, Inc. (AFPSLAI)
filed a complaint for a sum of money against petitioner China Banking Corporation (CBC) with the Regional Trial Court
of Quezon City, Branch 216.

In its Answer,4 the petitioner admitted being the registered owner of the Home Notes, the subject matter of the
complaint. These are instruments of indebtedness issued in favor of a corporation named Fund Centrum Finance, Inc.
(FCFI) and were sold, transferred and assigned to private respondent. Thus, the petitioner filed a Motion to
Dismiss alleging that the real party in interest was FCFI, which was not joined in the complaint, and that petitioner was
a mere trustee of FCFI.

The trial court denied the motion to dismiss. Petitioner filed a motion for reconsideration, which the court a quo again
denied. Petitioner elevated the case to the Court of Appeals through a Petition for Certiorari and Prohibition. The
appellate court denied the petition for lack of merit. The petitioner then brought the matter to this Court via a Petition for
Certiorari, under Rule 65. We dismissed the petition for being an improper remedy.

Petitioner filed another Motion to Dismiss, this time invoking prescription. The lower court denied said motion to
dismiss for lack of merit. It held that it was not apparent in the complaint whether or not prescription had set in. Thus,
the trial judge directed petitioner to present its evidence. However, petitioner instead filed a motion for reconsideration,
which the trial court denied, ratiocinating thus:

This Court finds that there are conflicting claims on the issue of whether or not the action has already prescribed. A full
blown trial is in order to determine fully the rights of the contending parties. 5

Undeterred, petitioner impugned, through a petition under Rule 65, the two orders of the trial court claiming before the
appellate court that:

RESPONDENT COURT GROSSLY ERRED OR GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN DENYING THE MOTION TO DISMISS AND DECLARING THAT PRESCRIPTION HAS NOT SET
IN AGAINST PRIVATE RESPONDENT.6

In its assailed Decision, the Court of Appeals dismissed the petition, ruling that:

Since the defense of prescription under the facts obtaining did not rest on solid ground, the trial court took a more
judicious move to direct the defendant therein, herein petitioner, to present its evidence. It is self-evident that with the
evidence of both parties adduced, the trial court could proceed to decide on the merits of the case including
prescription, and thus avoid collateral proceedings such as the one at bar that unduly prolong the final determination of
the controversy. After all, prescription subsists as a valid issue in the decision process. The trial court wanted precisely
a definite and definitive-factual premise to determine whether or not the action has prescribed. Surely, such exercise of
judgment is not grave abuse of discretion correctible by writ of certiorari . If ever he erred, it was error in judgment.
Errors of judgment may be reviewed only by appeal.7

Undaunted, petitioner now comes to this Court raising a simple issue:

WHETHER [OR] NOT THE DATE OF MATURITY OF THE INSTRUMENTS IS THE DATE OF ACCRUAL OF CAUSE
OF ACTION.8

Petitioner insists that upon the face of the complaint, prescription has set in. It claims that the Home Notes annexed to
the pleading bearing a uniform maturity date of December 2, 1983 indicate the date of accrual of the cause of action.
Hence, argues petitioner, private respondent's filing of the complaint for sum of money on September 24, 1996, is way
beyond the prescriptive period of ten years under Article 1144 9 of the Civil Code. Citing Soriano v. Ubat,10 petitioner
maintains the prescription period starts from the time when the creditor may file an action, not from the time he wishes
to do so.

However, private respondent counters that prescription is not apparent in the complaint because the maturity date of
the Home Notes attached thereto is not the time of accrual of petitioner's action. Relying on Elido, Sr. v. Court of
Appeals,11 private respondent insists that the action accrued only on July 20, 1995, when demand to pay was made on
petitioner. Private respondent also points out that since both the trial court and the appellate court found that
prescription is not apparent on the face of the complaint, such factual finding should therefore be binding on this Court.

We find the petition without merit. The Court of Appeals validly dismissed the petition, there being no grave abuse of
discretion committed by the trial court in denying petitioner's motion to dismiss the complaint on the ground of
prescription.

Well-settled is the rule that since a cause of action requires, as essential elements, not only a legal right of the plaintiff
and a correlative duty of the defendant but also "an act or omission of the defendant in violation of said legal right," the
cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty. 12

Otherwise stated, a cause of action has three elements, to wit, (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to
violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the plaintiff. 13

It bears stressing that it is only when the last element occurs that a cause of action arises. Accordingly, a cause of
action on a written contract accrues only when an actual breach or violation thereof occurs. 14

Applying the foregoing principle to the instant case, we rule that private respondent's cause of action accrued only on
July 20, 1995, when its demand for payment of the Home Notes was refused by petitioner. It was only at that time, and
not before that, when the written contract was breached and private respondent could properly file an action in court.

The cause of action cannot be said to accrue on the uniform maturity date of the Home Notes as petitioner posits
because at that point, the third essential element of a cause of action, namely, an act or omission on the part of
petitioner violative of the right of private respondent or constituting a breach of the obligation of petitioner to private
respondent, had not yet occurred.

The subject Home Notes, in fact, specifically states that payment of the principal and interest due on the notes shall be
made only upon presentation for notation and/or surrender for cancellation of the notes, thus:
Payment of the principal amount and interest due on this Note shall be made by the Company at the principal office of
the Trustee herein referred to or at such other office or agency that the Company may designate for the purpose, in
such coin or currency of the Republic of the Philippines as at the time of payment shall be legal tender for payment of
public and private debts, upon presentation for notation and/or surrender for cancellation of this Note. . . .15 (Emphasis
supplied.)

Thus, the maturity date of the Home Notes is not controlling as far as accrual of cause of action is concerned. What
said date indicates is the time when the obligation matures, when payment on the Notes would commence, subject to
presentation, notation and/or cancellation of those Notes. The date for computing when prescription of the action for
collection begins to set in is properly a function related to the date of actual demand by the holder of the Notes for
payment by the obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil action for collection of a sum of money was filed on
September 24, 1996, within a period of not more than ten years, such action was not yet barred by prescription.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated November 23, 2001, and the
Resolution dated April 24, 2002, of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

THIRD DIVISION 

PILIPINAS SHELL PETROLEUM G.R. No. 159831

CORPORATION,
Petitioner, Present:
Panganiban, J.,
Chairman,
- versus - Sandoval-Gutierrez,

Corona,

Carpio Morales, and

Garcia, JJ

JOHN BORDMAN LTD. OF Promulgated:

ILOILO, INC.,

Respondent. October 14, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x 

DECISION 

PANGANIBAN, J.:

Deeply imbedded in our jurisprudence is the doctrine that the factual findings of the Court of Appeals (CA) affirming
those of the trial court are, subject to some exceptions, binding upon this Court. Otherwise stated, only questions of
law, not of facts, may be raised before this Court in petitions for review under Rule 45 of the Rules of Court.
Nonetheless, in the interest of substantial justice, the Court delved into both the factual and the legal issues raised in
the present case and found no reason to overturn the CA's main Decision. Furthermore, under the peculiar factual
circumstances of the instant appeal, this Court holds that the period for reckoning the prescription of the present cause
of action began only when respondent discovered with certainty the short deliveries made by petitioner.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the August 20, 2002 Decision and
August 29, 2003 Resolution of the Court of Appeals (CA) in CA-GR CV No. 46974. The challenged Decision disposed
as follows:

WHEREFORE, premises considered, the assailed decision dated August 30, 1991 of the RTC, Branch 26,
Manila in Civil Case No. 13419 is hereby AFFIRMED with the MODIFICATION that the award of exemplary
damages and attorney's fees be both reduced to P 100,000.00.

The order dated December 9, 1991 is likewise AFFIRMED.

The assailed Resolution denied reconsideration.

The Facts 

Petitioner Pilipinas Shell Petroleum Corporation (Pilipinas Shell') is a corporation engaged in the business of refining
and processing petroleum products. The invoicing of the products was made by Pilipinas Shell, but delivery was
effected through Arabay, Inc., its sole distributor at the time material to the present case. From 1955 to 1975,
Respondent John Bordman Ltd. of Iloilo, Inc. (John Bordman') purchased bunker oil in drums from Arabay. When
Arabay ceased its operations in 1975, Pilipinas Shell took over and directly marketed its products to John Bordman.

On August 20, 1980, John Bordman filed against Pilipinas Shell a civil case for specific performance. The former
demanded the latter's short deliveries of fuel oil since 1955; as well as the payment of exemplary damages, attorney's
fees and costs of suit. John Bordman alleged that Pilipinas Shell and Arabay had billed it at 210 liters per drum, while
other oil companies operating in Bacolod had
billed their customers at 200 liters per drum. On July 24, 1974, when representatives from John Bordman and Arabay
conducted a volumetric test to determine the quantity of fuel oil actually delivered, the drum used could only fill up to
190 liters, instead of 210 liters, or a short delivery rate of 9.5%. After this volumetric test, Arabay reduced its billing rate
to 200 (instead of 210) liters per drum, except for 4 deliveries between August 1 and September 9, 1974, when the
billing was at 190 liters per drum.

On January 23, 1975, another volumetric test allegedly showed that the drum could contain only 187.5 liters. On
February 1, 1975, John Bordman requested from Pilipinas Shell that 640,000 liters of fuel oil, representing the latter's
alleged deficient deliveries, be credited to the former's account. The volume demanded was adjusted to 780,000 liters,
upon a realization that the billing rate of 210 liters per drum had been effective since 1966.

On October 24, 1977 and November 9, 1977, representatives from John Bordman, the auditor of the Iloilo City
Commission on Audit, pump boat carriers, and truck drivers conducted actual measurements of fuel loaded on tanker
trucks as transferred to dented drums at mouth full. They found that the drums could contain 180 liters only. In its
Complaint, John Bordman prayed for the appointment of commissioners to ascertain the volume of short deliveries.

On October 21, 1980, Pilipinas Shell and Arabay filed their Answer with Counterclaim. They specifically denied that
fuel oil deliveries had been less than those billed.Moreover, the drums used in the volumetric tests were allegedly not
representative of the ones used in the actual deliveries.

By way of affirmative defense, Pilipinas Shell and Arabay countered that John Bordman had no cause of action against
them. If any existed, it had been waived or extinguished; or otherwise barred by prescription, laches, and estoppel.

During the pretrial, the parties agreed to limit the issues to the following: (1) whether the action had prescribed, and (2)
whether there had been short deliveries in the quantities of fuel oil.[21] John Bordman's Motion for Trial by
Commissioner was granted by the RTC, and the court-appointed commissioner submitted her Report on April 20,
1988.

On April 3, 1989, Pilipinas Shell and Arabay filed a Motion for Resolution of their affirmative defense of prescription.
[24] Because prescription had not been established with certainty, the RTC ordered them on November 6, 1989, to
present evidence in support of their defense. On August 30, 1991, the RTC issued a Decision in favor of
respondent. Pilipinas Shell and Arabay were required to deliver to John Bordman 916,487.62 liters of bunker fuel oil, to
pay actual damages of P 1,000,000; exemplary damages of P 500,000; attorney's fees of P 500,000; and the costs of
suit. The basis of the trial court's decision was predicated on the following pronouncement:

'Since [respondent] had fully paid their contract price at 210 liters per drum, then the [petitioner] should
deliver to the [respondent] the undelivered volume of fuel oil from 1955 to 1974, which is 20 liters per drum;
and 10 liters per drum from 1974 to 1977. Per the invoice receipts submitted, the total volume of fuel oil
which [petitioner] have failed to deliver to [respondent] is 916,487.62 liters.

Pilipinas Shell appealed to the CA, alleging that John Bordman had failed to prove the short deliveries; and that the suit
had been barred by estoppel, laches, and prescription.[29]
 Ruling of the Court of Appeals

Upholding the trial court, the CA overruled petitioner's objections to the evidence of respondent in relation to the
testimonies of the latter's witnesses and the results of the volumetric tests.[30] The CA noted that deliveries from 1955
to 1977 had been admitted by petitioner; and the fact of deficiency, established by respondent.

The appellate court also debunked petitioner's claims of estoppel and laches. It held that the stipulation in the product
invoices stating that respondent had received the products in good order was not controlling. On the issue of
prescription, the CA ruled that the action had been filed within the period required by law.

Hence, this Petition.

The Issues 

Petitioner states the issues in this wise:

I. 

Respondent's allegation that the Petition must be summarily dismissed for containing a false, defective and
unauthorized verification and certification against forum shopping is patently unmeritorious, as the requisites
for a valid verification and certification against forum shopping have been complied with.

II.

The Decisions of the court a quo  and of the Honorable Court of Appeals were clearly issued with grave
abuse of discretion, based as they are on an unmistakable misappreciation of facts clearly appearing in the
records of the case.

A.
 
The Honorable Court of Appeals erred giving full faith and credence to the
testimony of respondent's sole witness, who was neither an 'expert witness' nor
one with personal knowledge of the material facts.
 
B.
 
The Honorable Court of Appeals erred in ruling that the testimony of
respondent's sole witness was not controverted and that the results of his
volumetric tests were not disproved by petitioner as the records of the court a
quo indubitably show that petitioner disputed the testimony of said witness in
every material respect.
 
C.
 
The court a quo  and the Honorable Court of Appeals erred when it failed to
hold that the results of the volumetric tests conducted by respondent's sole
witness are not worthy of full faith and credence, considering that drums
subjected to said tests in 1974 and 1975 were not the same with, or otherwise
similar to those used by petitioner in the deliveries made to respondent since
1955.
 
D.
 
 The Honorable Court of Appeals erred in holding that petitioner's unilateral
reduction of billing rates constitutes an implied admission of the fact of short
deliveries. The reduction was made for no other purpose than as a business
accommodation of a valued client.

III.

The court a quo,  as well as the Honorable Court of Appeals, gravely erred in not ruling that respondent's
claims of alleged short deliveries for the period 1955 to 1976 were already barred by prescription. 

IV.

The Honorable Court of Appeals and the court a quo  erred in not ruling that respondent's claims are barred
by estoppel and laches considering that respondent failed to assert its claim for about twenty-five (25) years.

V.

The Honorable Court of Appeals erred in awarding to respondent compensatory damages, exemplary
damages, attorney's fees and cost of suit, when petitioner has not otherwise acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.

The Court's Ruling

In the main, the Petition has no merit, except in regard to the CA's grant of exemplary damages. 

First Issue:

Validity of Verification and Certification

Preliminarily, the Court shall tackle respondent's allegation that petitioner's verification and certification against forum shopping
had not complied with, and were in fact made in contravention of, Section 4 of Rule 45 of the Rules of Court.   Respondent
alleges that Romeo B. Garcia, vice-president of Pilipinas Shell, had no authority to execute them. 

The records, however, show that petitioner's president conferred upon its vice-president the power to institute actions.
As certified by the assistant board secretary, the delegation was authorized by petitioner's board of directors. The
power to institute actions necessarily included the power to execute the verification and certification against forum
shopping, as required in a petition for review before this Court.

In any event, the policy of liberal interpretation of procedural rules compels us to give due course to the Petition. There appears to
be no intention to circumvent the need for proper verification and certification, which are intended to assure the truthfulness and
correctness of the allegations in the Petition and to discourage forum shopping. 

Second Issue:

Appreciation of Facts

As a general rule, questions of fact may not be raised in a petition for review. The factual findings of the trial court,
especially when affirmed by the appellate court, are binding and conclusive on the Supreme Court. Nevertheless, this
rule has certain exceptions which petitioner asserts are present in this case. The Court reviewed the evidence
presented and revisited the applicable pertinent rules. Being intertwined, the issues raised by petitioner relating to the
evidence will be discussed together.
 

Objection to Respondent's Witness

Petitioner claims that the trial court erred in giving credence to the testimony of respondent's witness, Engineer Jose A.
Macarubbo. The testimony had allegedly consisted of his personal opinion. Under the Rules of Evidence, the opinion of
a witness is not admissible, unless it is given by an expert. Macarubbo was allegedly not an expert witness; neither did
he have personal knowledge of material facts.

We clarify. Macarubbo testified that sometime in May 1974, respondent had contacted him to review the reception of
fuel at its lime plant. He discovered that Arabay had been billing respondent at 210 liters per drum, while other oil
companies billed their customers at 200 liters per drum. On July 24, 1974, he and Jerome Juarez, branch manager of
Pilipinas Shell, conducted a volumetric test to determine the amount of fuel that was actually being delivered to
respondent. On January 25, 1975, the test was again conducted in the presence of Macarubbo, Juarez and Manuel
Ravina (Arabay's sales supervisor).

From the foregoing facts, it is evident that Macarubbo did not testify as an expert witness. The CA correctly noted that
he had testified based on his personal knowledge and involvement in discovering the short deliveries. His testimony as
an ordinary witness was aptly allowed by the appellate court under the following rule on admissibility:

Sec. 36. Testimony generally confined to personal knowledge; hearsay excluded. '  A witness can testify only
to those facts which he knows of his personal knowledge; that is, which are derived from his own perception,
except as otherwise provided in these rules.

Challenge to Volumetric Tests

Petitioner disputes the CA's finding that it had failed to disprove the results of the volumetric tests conducted by
respondent. The former claims that it was able to controvert the latter's evidence.

During the July 24, 1974 volumetric test, representatives of both petitioner and respondent allegedly agreed to conduct
two tests using drums independently chosen by each. Respondent allegedly chose the worst-dented drum that could
fill only up to 190 liters. The second drum, which was chosen by petitioner, was not tested in the presence of
Macarubbo because of heavy rain. It supposedly filled up to 210 liters, however.

The issue, therefore, relates not to the submission of evidence, but to its weight and credibility. While petitioner may
have submitted evidence, it failed to disprove the short deliveries. The lower courts obviously gave credence to the
volumetric tests witnessed by both parties as opposed to those done solely by petitioner.

Petitioner also challenges the reliability of the volumetric tests on the grounds of failure to simulate the position of the
drums during filling and the fact that those tested were not representative of the ones used from 1955 to 1974. These
contentions fail to overturn the short deliveries established by respondent.

The evidence of petitioner challenging the volumetric tests was wanting. It did not present any as regards the correct
position of the drums during loading. Notably, its representative had witnessed the two tests showing the short
deliveries. He therefore had the opportunity to correct the position of the drums, if indeed they had been incorrectly
positioned. Further, there was no proof that those used in previous years were all good drums with no defects. Neither
was there evidence that its deliveries from 1955 had been properly measured.

 From the foregoing observations, it is apparent that the evidence presented by both parties preponderates in favor of
respondent. The Court agrees with the following observations of the CA:

 
 [Petitioner] posits that its fuel deliveries were properly measured and/or calibrated. To the mind of
this Court, regardless of what method or manner the deliveries were made, whether pre-packed
drums, by the dip stick method or through ex-jetty, the fact remains that [petitioner] failed to
overcome the burden of proving that indeed the drums used during the deliveries contain 210 liters.
The [petitioner], to support its claim, adduced no evidence. Moreover, it failed to disprove the
results of the volumetric tests.

Having sustained the finding of short deliveries, the Court finds it no longer necessary to address the contention of
petitioner that its subsequent reduction of billings constituted merely a business accommodation.

Third Issue:

Prescription 

Action Based on Contract

Petitioner avers that respondent's action -- a claim for damages as a result of over-billing -- has already prescribed.
Respondent's claim supposedly constitutes a quasi-delict, which prescribes in four years.

We do not agree. It is elementary that a quasi-delict, as a source of an obligation, occurs only when there is no
preexisting contractual relation between the parties. The action of respondent
for specific performance was founded on short deliveries, which had arisen from its Contract of Sale with petitioner,
and from which resulted the former's obligation in the present case. Any action to enforce a breach of that Contract
prescribes in ten years.

Prescriptive Period Counted from the Accrual of the Cause of Action

Petitioner avers that the action of respondent, even if based on a Contract, has nevertheless already prescribed,
because more than ten years had lapsed since 1955 to August 20, 1970 -- the period of short deliveries that the latter
seeks to recover. Respondent's request for fuel adjustments on October 24, 1974, February 1, 1975, April 3, 1975, and
September 22, 1975, were not formal demands that would interrupt the prescriptive period, says petitioner.

The Court shall first address the contention that formal demands were not alleged in the Complaint. This argument was
not raised in the courts a quo; thus, it cannot be brought before this tribunal. Well settled is the rule that issues not
argued in the lower courts cannot be raised for the first time on appeal. At any rate, it appears from the records that
respondent's letters to petitioner dated October 24, 1974 and February 1, 1975 were formal and written extrajudicial
demands that interrupted the prescriptive period. Nevertheless, the interruption has no bearing on the prescriptive
period, as will be shown presently.

Cause of Action Defined

Actions based upon a written contract should be brought within ten years from the time the right of action accrues. This
accrual refers to the cause of action, which is defined as the act or the omission by which a party violates the right of
another.

Jurisprudence is replete with the elements of a cause of action: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to
violate the right; and (3) an act or omission on the part of the defendant violative of the right of the plaintiff or
constituting a breach of an obligation to the latter. It is only when the last element occurs that a cause of action arises.
Applying the foregoing elements, it can readily be determined that a cause of action in a contract arises upon its
breach or violation. Therefore, the period of prescription commences, not from the date of the execution of the contract,
but from the occurrence of the breach.

The cause of action resulting from a breach of contract is dependent on the facts of each particular case. The following
cases involving prescription illustrate this statement.

Nabus v. Court of Appeals  dealt with an action to rescind a Contract of Sale. The cause of action arose at the time
when the last installment was not paid. Since the case was filed ten years after that date, the action was deemed to
have prescribed.

In Elido v. Court of Appeals,    the overdraft Agreement stipulated that the obligation was payable on demand. Thus, the
breach started only when that judicial demand was made. This rule was applied recently to China Banking Corporation
v. Court of Appeals,  which held that the prescriptive period commenced on the date of the demand, not on the maturity
of the certificate of indebtedness. In that case, the certificate had stipulated that payment should be made upon
presentation.

Banco Filipino Savings & Mortgage Bank v. Court of Appeals    involved a Contract of Loan with real estate mortgages,
whereby the creditor could unilaterally increase the interest rate. When the debtor failed to pay the loan, the creditor
foreclosed on the mortgage. The Court ruled that the cause of action for the annulment of the foreclosure sale should
be counted from the date the debtor discovered the increased interest rate.

In Cole v. Gregorio, the agreement to buy and sell was conditioned upon the conduct of a preliminary survey of the
land to verify whether it contained the area stated in the Tax Declaration. Both the agreement and the survey were
made in 1963. The Court ruled that the right of action for specific performance arose only in 1966, when the plaintiff
discovered the completion of the survey.

Serrano v. Court of Appeals dealt with money claims arising from a Contract of Employment, which would prescribe in
three years from the time the cause of action accrued.[82] The Court noted that the cause of action had arisen when
the employer made a definite denial of the employee's claim. It was deemed that the issues had not yet been joined
prior to the definite denial of the claim, because the employee could have still been reinstated.[83]

Naga Telephone Co. v. Court of Appeals [84] involved the reformation of a Contract. Among others, the grounds for the
action filed by the plaintiff included allegations that the contract was too one-sided in favor of the defendant, and that
certain events had made the arrangement inequitable.[85] The Court ruled that the cause of action for a reformation
would arise only when the contract appeared disadvantageous.[86]

Cause of Action in

the Present Case

The Court of Appeals noted that, in the case before us, respondent had been negotiating with petitioner since 1974.
Accordingly, the CA ruled that the cause of action had arisen only in 1979, after a manifestation of petitioner's denial of
the claims.[87]

The nature of the product in the present factual milieu is a major factor in determining when the cause of action has
accrued. The delivery of fuel oil requires the buyer's dependence upon the seller
for the correctness of the volume. When fuel is delivered in drums, a buyer readily assumes that the agreed
volume can be, and actually is, contained in those drums.

Buyer dependence is common in many ordinary sale transactions, as when gasoline is loaded in the gas tanks of
motor vehicles, and when beverage is purchased in bottles and ice cream in bulk containers. In these cases, the
buyers rely, to a considerable degree, on the sellers' representation that the agreed volumes are being delivered. They
are no longer expected to make a meticulous measurement of each and every delivery.

To the mind of this Court, the cause of action in the present case arose on July 24, 1974, when
respondent discovered the short deliveries with certainty. Prior to the discovery, the latter had no indication that it was
not getting what it was paying for. There was yet no issue to speak of; thus, it could not have brought an action against
petitioner. It was only after the discovery of the short deliveries that respondent got into a position to bring an action for
specific performance. Evidently then, that action was brought within the prescriptive period when it was filed on August
20, 1980.

Fourth Issue:

Estoppel

Petitioner alleges, in addition to prescription, that respondent is estopped from claiming short deliveries.[88] It is argued
that, since the initial deliveries had been made way back in 1955, the latter belatedly asserted its right only in 1980, or
after twenty-five years. Moreover, respondent should allegedly be bound by the Certification in the delivery Receipts
and Invoices that state as follows: 

RECEIVED ABOVE PRODUCT(S) IN GOOD CONDITION. I HAVE INSPECTED THE

COMPARTMENTS OF THE BULK LORRY, WHEN FULL AND EMPTY, AND FOUND THEM IN
ORDER.[89]

Estoppel by Laches

Estoppel by laches is the failure or neglect for an unreasonable length of time to do that which, by the exercise of due
diligence, could or should have been done earlier.[90] Otherwise stated, negligence or omission to assert a right within
a reasonable time warrants a presumption that the party has abandoned or declined the right.[91] This principle is
based on grounds of public policy, which discourages stale claims for the peace of society.[92]

Respondent cannot be held guilty of delay in asserting its right during the time it did not yet know of the short
deliveries. The facts in the present case show that after the discovery of the short deliveries, it immediately sought to
recover the undelivered fuel from petitioner.[93] Laches refers, inter alia, to the length of time in asserting a claim. The
Court, therefore, agrees with the lower courts that respondent's claim was not lost by laches.

Alleged Certification Not a Bar

It is not disputed that the alleged Certification stating that respondent received the fuel oil in good condition is in the
nature of a contract of adhesion.[94] The statement was in fine print at the lower right of petitioner's invoices.[95] It was
made in the form and language prepared by petitioner. The latter's customers, including respondent, were required to
sign the statement upon every delivery. The primary purpose of an invoice, however, is merely to evidence delivery
and receipt of the goods stated in it.

While the Court has sustained the validity of similar stipulations in other contracts, it has also recognized that reliance
on them cannot be favored when the facts and circumstances warrant the contrary.[96] Noting the nature of the
product in the present factual milieu, as discussed earlier in the claim of prescription, the dependence of the buyer
upon the seller makes the stipulation inapplicable. 

Indeed, it would be too cumbersome and impractical for respondent to measure the fuel oil in each and every drum
delivered. Nonetheless, upon delivery by petitioner, the former was obliged to sign the Certification in the invoice. In
signing it, respondent could not have waived the right to a legitimate claim for hidden defects. Thus, it is not estopped
from recovering short deliveries.
Doubts in the interpretation of stipulations in contracts of adhesion should be resolved against the party that prepared
them. This principle especially holds true with regard to waivers, which are not presumed, but which must be clearly
and convincingly shown.[97]

Fourth Issue:

Exemplary Damages and Attorney's Fees

In the last error assigned, petitioner challenges the Order for specific performance and the awards of exemplary
damages and attorney's fees in favor of respondent.[98] The directive for the delivery of 916,487.62 liters of bunker oil
will no longer be taken up because, as discussed earlier, this fact is borne out by the evidence.

The CA sustained the award of exemplary damages because of petitioner's wanton refusal to deliver the shortages of
fuel oil after the demand was made.[99] Similarly, attorney's fees were imposed, because respondent had been
compelled to litigate to protect its interests. [100] Both awards, however, were each reduced from P500,000 to P100,000. [101] 

Exemplary Damages Not Proper

Exemplary damages are imposed as a corrective measure[102] when the guilty party has acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.[103] These damages are awarded in accordance with the
sound discretion of the court.[104]

Petitioner argues that its refusal to deliver the shortages of fuel was premised on good faith.[105] Indeed, records
reveal that it had reviewed respondent's requests for the delivery of shortages before declining them.[106] It likewise
readily granted respondent's requests to conduct volumetric tests. It simply had the mistaken belief that it was not liable
for any shortages. Unfortunately, the evidence showed the contrary.

Absent any showing of bad faith on the part of petitioner, exemplary damages cannot be imposed upon it.

Attorney's Fees Allowed

Petitioner claims that the award of attorney's fees was tied up with the award for exemplary damages.[107] Since those
damages were not recoverable, then the attorney's fees allegedly had no legal basis.

While attorney's fees are recoverable when exemplary damages are awarded, the former may also be granted when
the court deems it just and equitable.[108] The grant of attorney's fees depends on the circumstances of each case
and lies within the discretion of the court. They may be awarded when a party is compelled to litigate or to incur
expenses to protect its interest by reason of an unjustified act by the other.[109]

The Court agrees that the award of P100,000 as attorney's fees is very reasonable;[110] in fact, it is almost symbolic,
as it will not totally recompense respondent for the actual fees spent to prosecute its cause. The case has dragged on
unnecessarily despite petitioner's failure to present countervailing evidence during the trial. Moreover, respondent was
compelled to litigate, notwithstanding its attempt at an amicable settlement from the time it discovered the shortages in
1974 until the actual filing of the case in 1980.[111]

WHEREFORE, the Petition is hereby DENIED . The assailed Decision and Resolution are AFFIRMED  with the
slight MODIFICATION  that the award of exemplary damages is deleted. Costs against petitioner.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice

Chairman, Third Division 

W E C O N C U R : 

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice
   
   
   
CONCHITA CARPIO MORALES CANCIO C. GARCIA
Associate Justice Associate Justice
   

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.

ARTEMIO V. PANGANIBAN

Associate Justice

Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman's Attestation, it is hereby certified that
the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.

HILARIO G. DAVIDE, JR.

Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 116100             February 9, 1996

SPOUSES CRISTINO and BRIGIDA CUSTODIO and SPOUSES LITO and MARIA CRISTINA SANTOS, petitioners,
vs.
COURT OF APPEALS, HEIRS OF PACIFICO C. MABASA and REGIONAL TRIAL COURT OF PASIG, METRO
MANILA, BRANCH 181, respondents.

DECISION

REGALADO, J.:

This petition for review on certiorari assails the decision of respondent Court of Appeals in CA-G.R. CV No. 29115,
promulgated on November 10, 1993, which affirmed with modification the decision of the trial court, as well as its
resolution dated July 8, 1994 denying petitioner's motion for reconsideration. 1

On August 26, 1982, Civil Case No. 47466 for the grant of an easement of right of way was filed by Pacifico Mabasa
against Cristino Custodio, Brigida R. Custodio, Rosalina R. Morato, Lito Santos and Maria Cristina C. Santos before
the Regional Trial Court of Pasig and assigned to Branch 22 thereof. 2

The generative facts of the case, as synthesized by the trial court and adopted by the Court of Appeals, are as follows:

Perusing the record, this Court finds that the original plaintiff Pacifico Mabasa died during the pendency of
this case and was substituted by Ofelia Mabasa, his surviving spouse [and children].

The plaintiff owns a parcel of land with a two-door apartment erected thereon situated at Interior P. Burgos
St., Palingon, Tipas, Tagig, Metro Manila. The plaintiff was able to acquire said property through a contract of
sale with spouses Mamerto Rayos and Teodora Quintero as vendors last September 1981. Said property
may be described to be surrounded by other immovables pertaining to defendants herein. Taking P. Burgos
Street as the point of reference, on the left side, going to plaintiff's property, the row of houses will be as
follows: That of defendants Cristino and Brigido Custodio, then that of Lito and Maria Cristina Santos and
then that of Ofelia Mabasa. On the right side (is) that of defendant Rosalina Morato and then a Septic Tank
(Exhibit "D"). As an access to P. Burgos Street from plaintiff's property, there are two possible passageways.
The first passageway is approximately one meter wide and is about 20 meters distan(t) from Mabasa's
residence to P. Burgos Street. Such path is passing in between the previously mentioned row of houses. The
second passageway is about 3 meters in width and length from plaintiff Mabasa's residence to P. Burgos
Street; it is about 26 meters. In passing thru said passageway, a less than a meter wide path through the
septic tank and with 5-6 meters in length, has to be traversed.

When said property was purchased by Mabasa, there were tenants occupying the remises and who were
acknowledged by plaintiff Mabasa as tenants. However, sometime in February, 1982, one of said tenants
vacated the apartment and when plaintiff Mabasa went to see the premises, he saw that there had been built
an adobe fence in the first passageway making it narrower in width . Said adobe fence was first constructed
by defendants Santoses along their property which is also along the first passageway. Defendant Morato
constructed her adobe fence and even extended said fence in such a way that the entire passageway was
enclosed. (Exhibit "1-Santoses and Custodios, Exh. "D" for plaintiff, Exhs. "1-C", "1-D" and "1-E") And it was
then that the remaining tenants of said apartment vacated the area . Defendant Ma. Cristina Santos testified
that she constructed said fence because there was an incident when her daughter was dragged by a bicycle
 pedalled by a son of one of the tenants in said apartment along the first passageway. She also mentioned
some other inconveniences of having (at) the front of her house a pathway such as when some of the
tenants were drunk and would bang their doors and windows. Some of their footwear were even lost. . . .
3 
(Emphasis in original text; corrections in parentheses supplied)

On February 27, 1990, a decision was rendered by the trial court, with this dispositive part:

Accordingly, judgment is hereby rendered as follows:

1) Ordering defendants Custodios and Santoses to give plaintiff permanent access ingress and egress, to
the public street;

2) Ordering the plaintiff to pay defendants Custodios and Santoses the sum of Eight Thousand Pesos
(P8,000) as indemnity for the permanent use of the passageway.

The parties to shoulder their respective litigation expenses. 4

Not satisfied therewith, therein plaintiff represented by his heirs, herein private respondents, went to the Court of
Appeals raising the sole issue of whether or not the lower court erred in not awarding damages in their favor. On
November 10, 1993, as earlier stated, the Court of Appeals rendered its decision affirming the judgment of the trial
court with modification, the decretal portion of which disposes as follows:

WHEREFORE, the appealed decision of the lower court is hereby AFFIRMED WITH MODIFICATION only
insofar as the herein grant of damages to plaintiffs-appellants. The Court hereby orders defendants-
appellees to pay plaintiffs-appellants the sum of Sixty Five Thousand (P65,000) Pesos as Actual Damages,
Thirty Thousand (P30,000) Pesos as Moral Damages, and Ten Thousand (P10,000) Pesos as Exemplary
Damages. The rest of the appealed decision is affirmed to all respects. 5

On July 8, 1994, the Court of Appeals denied petitioner's motion for reconsideration. 6 Petitioners then took the present
recourse to us, raising two issues, namely, whether or not the grant of right of way to herein private respondents is
proper, and whether or not the award of damages is in order.

With respect to the first issue, herein petitioners are already barred from raising the same. Petitioners did not appeal
from the decision of the court a quo  granting private respondents the right of way, hence they are presumed to be
satisfied with the adjudication therein. With the finality of the judgment of the trial court as to petitioners, the issue of
propriety of the grant of right of way has already been laid to rest.

For failure to appeal the decision of the trial court to the Court of Appeals, petitioners cannot obtain any affirmative
relief other than those granted in the decision of the trial court. That decision of the court below has become final as
against them and can no longer be reviewed, much less reversed, by this Court. The rule in this jurisdiction is that
whenever an appeal is taken in a civil case, an appellee who has not himself appealed may not obtain from the
appellate court any affirmative relief other than what was granted in the decision of the lower court. The appellee can
only advance any argument that he may deem necessary to defeat the appellant's claim or to uphold the decision that
is being disputed, and he can assign errors in his brief if such is required to strengthen the views expressed by the
court a quo. These assigned errors, in turn, may be considered by the appellate court solely to maintain the appealed
decision on other grounds, but not for the purpose of reversing or modifying the judgment in the appellee's favor and
giving him other affirmative reliefs.7

However, with respect to the second issue, we agree with petitioners that the Court of Appeals erred in awarding
damages in favor of private respondents. The award of damages has no substantial legal basis. A reading of the
decision of the Court of Appeals will show that the award of damages was based solely on the fact that the original
plaintiff, Pacifico Mabasa, incurred losses in the form of unrealized rentals when the tenants vacated the leased
premises by reason of the closure of the passageway.
However, the mere fact that the plaintiff suffered losses does not give rise to a right to recover damages. To warrant
the recovery of damages, there must be both a right of action for a legal wrong inflicted by the defendant, and damage
resulting to the plaintiff therefrom. Wrong without damage, or damage without wrong, does not constitute a cause of
action, since damages are merely part of the remedy allowed for the injury caused by a breach or wrong. 8

There is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the
loss, hurt, or harm which results from the injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the
result of a violation of a legal duty. These situations are often called damnum absque injuria.9

In order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such
injuries resulted from a breach of duty which the defendant owed to the plaintiff a concurrence of injury to the plaintiff
and legal responsibility by the person causing it. 10 The underlying basis for the award of tort damages is the premise
that an individual was injured in contemplation of law. Thus, there must first be the breach of some duty and the
imposition of liability for that breach before damages may be awarded; it is not sufficient to state that there should be
tort liability merely because the plaintiff suffered some pain and suffering. 11

Many accidents occur and many injuries are inflicted by acts or omissions which cause damage or loss to another but
which violate no legal duty to such other person, and consequently create no cause of action in his favor. In such
cases, the consequences must be borne by the injured person alone. The law affords no remedy for damages resulting
from an act which does not amount to a legal injury or wrong. 12

In other words, in order that the law will give redress for an act causing damage, that act must be not only hurtful, but
wrongful. There must be damnum et injuria.13 If, as may happen in many cases, a person sustains actual damage, that
is, harm or loss to his person or property, without sustaining any legal injury, that is, an act or omission which the law
does not deem an injury, the damage is regarded as damnum absque injuria.14

In the case at bar, although there was damage, there was no legal injury. Contrary to the claim of private respondents,
petitioners could not be said to have violated the principle of abuse of right. In order that the principle of abuse of right
provided in Article 21 of the Civil Code can be applied, it is essential that the following requisites concur: (1) The
defendant should have acted in a manner that is contrary to morals, good customs or public policy; (2) The acts should
be willful; and (3) There was damage or injury to the plaintiff. 15

The act of petitioners in constructing a fence within their lot is a valid exercise of their right as owners, hence not
contrary to morals, good customs or public policy. The law recognizes in the owner the right to enjoy and dispose of a
thing, without other limitations than those established by law. 16 It is within the right of petitioners, as owners, to enclose
and fence their property. Article 430 of the Civil Code provides that "(e)very owner may enclose or fence his land or
tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes
constituted thereon."

At the time of the construction of the fence, the lot was not subject to any servitudes. There was no easement of way
existing in favor of private respondents, either by law or by contract. The fact that private respondents had no existing
right over the said passageway is confirmed by the very decision of the trial court granting a compulsory right of way in
their favor after payment of just compensation. It was only that decision which gave private respondents the right to
use the said passageway after payment of the compensation and imposed a corresponding duty on petitioners not to
interfere in the exercise of said right.

Hence, prior to said decision, petitioners had an absolute right over their property and their act of fencing and enclosing
the same was an act which they may lawfully perform in the employment and exercise of said right. To repeat,
whatever injury or damage may have been sustained by private respondents by reason of the rightful use of the said
land by petitioners is damnum absque injuria.17

A person has a right to the natural use and enjoyment of his own property, according to his pleasure, for all the
purposes to which such property is usually applied. As a general rule, therefore, there is no cause of action for acts
done by one person upon his own property in a lawful and proper manner, although such acts incidentally cause
damage or an unavoidable loss to another, as such damage or loss is damnum absque injuria. 18 When the owner of
property makes use thereof in the general and ordinary manner in which the property is used, such as fencing or
enclosing the same as in this case, nobody can complain of having been injured, because the incovenience arising
from said use can be considered as a mere consequence of community life. 19

The proper exercise of a lawful right cannot constitute a legal wrong for which an action will lie, 20 although the act may
result in damage to another, for no legal right has been invaded. 21 One may use any lawful means to accomplish a
lawful purpose and though the means adopted may cause damage to another, no cause of action arises in the latter's
favor. An injury or damage occasioned thereby is damnum absque injuria. The courts can give no redress for hardship
to an individual resulting from action reasonably calculated to achieve a lawful means. 22

WHEREFORE, under the compulsion of the foregoing premises, the appealed decision of respondent Court of Appeals
is hereby REVERSED and SET ASIDE and the judgment of the trial court is correspondingly REINSTATED.

Romero and Puno, JJ., concur.

Mendoza, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-28782 September 12, 1974

AUYONG HIAN (HONG WHUA HANG), petitioner,

vs.
COURT OF TAX APPEALS, COLLECTOR OF CUSTOMS, COMMISSIONER OF CUSTOMS, CONSOLIDATED
INDUSTRIES OF THE PHILIPPINES, INC. (CTIP), and LUZON STEVEDORING CORPORATIONS, respondents.

Pedro C. Geling for petitioner.

Francisco T. Koh for respondent Consolidated Industries of the Philippines.

Pelaez, Jalandoni & Jamir for respondent Luzon Stevedoring Corp.

Office of the Solicitor General for Collector of Customs, etc.

ZALDIVAR, J.:p

This is the fifth time that a case involving the 600 hogsheads of Virginia leaf tobacco is before this Court. The first case
was the case of "Cesar Climaco, et al., vs. Hon. Manuel Barcelona," G.R. No. L-19597, July 31, 1962 1 , hereinafter
referred to as the Barcelona case; the second, the case of Collector of Customs, et al., vs. Hon. Francisco Arca, et al.,"
G.R. No. L-21839, July 17, 19642 , hereinafter referred to as the Arca case; the third, the case of "Auyong Hian vs.
Judge Gaudencio Cloribel, et al.," G.R. No.
L-24704, July 10, 19673 hereinafter referred to as the Cloribel case; and the fourth, "Auyong Hian vs. Court of Tax
Appeals, et al.," G.R. No. L-25181, January 11, 1967 4 , which was an appeal from the resolution of the Court of Tax
Appeals in CTA Case No. 1560, dismissing Auyong Hian's petition for review of the decision of the Commissioner of
Customs that affirmed the decision of the Collector of Customs upon the ground of lack of jurisdiction, and which will
be hereinafter referred to as the "First CTA Case".

The instant case, the fifth, is a petition for review of the decision of the Court of Tax Appeals in its CTA Case No. 1560,
dated January 31, 1968, finding without merit petitioner's appeal from the decision of the Commissioner of Customs
that affirmed the decision of the Collector of Customs of Manila which ordered the seizure and forfeiture of the 600
hogsheads of Virginia Leaf tobacco imported by petitioner from the United States. The instant case may well be called
the "Second CTA Case".

The antecedent facts, and the proceedings that spawned the instant case, briefly stated, are as follows:

On June 29, 1953, the import Control Commission approved petitioner Auyong Hian's application for four no dollar
remittance licenses to import Virginia leaf tobacco with an aggregate value of two million dollars, of which approval
petitioner was advised on the following day, June 30, 1953-the day when the effectivity of the Import Control Law
(Republic Act No. 650) expired. In October, 1961, the Office of the President approved the use of the aforesaid
licenses, and petitioner paid the license fees on November 2, 1961. On December 30, 1961 600 hogsheads of Virginia
leaf tobacco arrived in the Port of Manila aboard the "SS Fernstate", consigned to petitioner.

Inasmuch as the Collector of Customs in Manila, apparently doubting the legality of the importation, refused to release
the shipment of said Virginia leaf tobacco, petitioner filed in the Court of First Instance of Manila an action for
mandamus (Civil Case No. 49639), to compel the Collector of Customs and the Commissioner of Customs to release
the tobacco to petitioner. On March 19, 1962 Judge Barcelona issued an order to release the tobacco shipment to
petitioner. The Collector of Customs and the Commissioner of Customs then filed with the Supreme Court a petition for
certiorari to annul the order of release. This was the Barcelona case. On July 31, 1962 this Court, in its decision, ruled
that the Court of First Instance of Manila had no jurisdiction to issue the (questioned) order releasing the tobacco
shipment; and this Court incidentally declared that the importation of the tobacco, notwithstanding the alleged approval
of the importation by the President of the Philippines, was illegal upon the ground that the importation was made long
after the expiration of the effectivity of the Import Control Law, and that the importation contravened the government
policy as declared in Republic Acts Nos. 698 and 1194.5

On November 8, 1962, the Collector of Customs instituted seizure proceedings against the 600 hogsheads of tobacco,
and issued a warrant of seizure and detention, in Seizure Identification Case No. 6669. On April 23, 1960 the Collector
of Customs rendered a decision declaring the tobacco forfeited to the government, and ordering the sale thereof at
public auction on June 10, 1963. Petitioner received copy of the decision on May 7, 1963. From this decision petitioner
filed, on May 21, 1963, his notice of appeal to the Commissioner of Customs. On December 7, 1964, the
Commissioner of Customs affirmed the decision of the. Collector of Customs.

On January 8, 1965 petitioner filed in the Court of Tax Appeals, in CTA Case No. 1560, a petition for review by way of
appeal from the decision of the Commissioner of Customs. On June 22, 1965 the Court of Tax Appeals dismissed the
petition upon the ground that it had no jurisdiction to entertain the appeal because the Supreme Court had already
decided in the Barcelona and Area cases that the importation in question was illegal. From this resolution Auyong Hian
appealed to the Supreme Court. This was the "First CTA Case" that We have earlier adverted to, This Court, on
January 11, 19676 remanded the case to the Court of Tax Appeals for further proceedings, and for decision, on matters
that this Court had refrained from deciding.

After the case has been remanded to the Court of Tax Appeals, petitioner filed in said court an amended petition for
review to include the Consolidated Tobacco Industries of the Philippines (hereinafter referred to as CTIP) and the
Luzon Stevedoring Corporation, as parties-respondents.

After hearing, respondent Court of Tax Appeals, in its decision dated January 31, 1968, found the appeal to be without
merit and dismissed the same, with costs against petitioner. This is the decision that is now sought to be reviewed in
the instant petition for review before this Court.

While this case was pending decision, the Solicitor General, on February 22, 1972, filed a "motion for leave", praying
that pending final determination of the case, respondents Collector of Customs and Commissioner of Customs be
authorized to refund to the CTIP the storage charges of the tobacco in question pursuant to Section 2605-c of the Tariff
and Customs Code. In a resolution dated February 28, 1972 this Court deferred action on the petition of the Solicitor
General until the case is considered on the merits.

In the present appeal, petitioner Auyong Hian assigns twelve (12) errors allegedly committed by the Court of Tax
Appeals in its decision of January 31, 1968 dismissing the appeal from the decision of the Commissioner of Customs.
The points raised in the assignment of errors boil down to the question of whether or not the Court of Tax Appeals had
correctly sustained the decision of the Commissioner of Customs which affirmed the decision of the Collector of
Customs in connection with the seizure, forfeiture and the sale of the 600 hogsheads of Virginia leaf tobacco that were
imported into the country at the instance of petitioner Auyong Hian. It must be recalled that in the Barcelona and Arca
cases, supra, this Court had categorically held that the importation of the 600 hogsheads of Virginia leaf tobacco was
illegal. It was for this reason that the Court of Tax Appeals, in its resolution of June 22, 1965, in CTA Case No. 1560
(First CTA Case), dismissed the appeal of Auyong Hian from the decision of the Commissioner of Customs. But this
Court, in the first CTA Case held that the Court of Tax Appeals, had jurisdiction to pass upon the appeal of Auyong
Hian from the decision of the Commissioner of Customs because the appeal involved matters related to the
administrative proceedings in connection with the seizure, forfeiture and sale of the tobacco in question. Here is what
this Court said:
 ... It appears to Us that the Court of Tax Appeals had overlooked the fact that the appeal of Auyong
Hian from the decision of the Commissioner of Customs had raised not only the question of the
legality of the importation but also other matters which called for a ruling by the Court of Tax
Appeals in the exercise of its appellate jurisdiction — especially the question of whether the
tobacco thus imported were goods the importation of which was relatively prohibited or absolutely
prohibited, and also the question regarding the disposal of the tobacco that was thus seized. The
declaration by this Court, in the Barcelona and Arca cases, supra, that the importation of the
tobacco in question was illegal was not intended to stop the course of the administrative
proceedings in relation to the importation of said tobacco. Let it be noted that when the Barcelona
case was decided on July 31, 1962 the seizure proceedings against the 600 hogsheads of tobacco
in question had not yet been instituted by the Collector of Customs. It was not until November 8,
1962 when Seizure Identification No. 6669 was instituted. ...

And so this Court, in the First CTA case, declared the Court of Tax Appeals as possessed of jurisdiction to pass upon
the questions raised by Auyong Hian in his appeal from the decision of the Commissioner of Customs regarding
administrative matters relating to the seizure proceedings of the 600 hogsheads of tobacco in question.

(1) Auyong Hian claims that he was not given a chance to be heard in the seizure proceedings. He claims that he filed
a motion for postponement of the hearing scheduled for November 26, 1962 based on some valid reasons, that said
motion for postponement was not acted upon by the hearing officer, or if it was acted upon at all the hearing officer did
not notify him of the action taken on said motion, and that he was not notified about the subsequent hearing because
he was declared in default by the hearing officer. Auyong Hian maintains that there can not be a declaration of default
in purely administrative proceedings. In short, it is the contention of Auyong Hian that in the seizure proceedings of the
600 hogsheads of tobacco in question he was not afforded the benefits of due process of law.

It is a settled doctrine that due process is applicable to administrative proceedings (Asprec vs. Itchon, et al., L-21685,
April 30, 1966, 16 SCRA 921, 925; Cornejo vs. Gabriel, 41 Phil. 188, 193); that the essence of due process is the
requirement of notice and hearing (Algabre vs. Court of Appeals, L-24458-64, July 31, 1969, 26 SCRA 1130, 1140);
that the presence of a party at a trial is not always of the essence of due process, and all that due process requires is
an opportunity to be heard (Asprec vs. Itchon, et al., supra).

In this connection, the Court of Tax Appeals made the following findings:

The records show that petitioner was given a notice of hearing in Seizure Identification No. 6669
(re the 600 hogsheads of Virginia leaf tobacco); that on the date of hearing petitioner filed a motion
for indefinite postponement, which was not acted upon or resolved by the proper Customs officials;
that upon failure of petitioner to appear on the date of hearing, the hearing officer declared
petitioner in default; and that the hearing was conducted thereafter in the absence of petitioner.
(Decision CTA Case No. 1560; Record, pp. 32-33).

Petitioner's having filed a motion for postponement, even if the motion is not entirely groundless, confers on him no
right either to assume that the motion for postponement would be granted or to be absent at, and shy away from, the
hearing. Petitioner was consequently guilty of carelessness and neglect when he failed to appear at the trial. He cannot
rightfully claim that the hearing officer was guilty of abuse of discretion in refusing to grant the postponement (Sarreal
vs. Hon. Tan, et al., 92 Phil. 689, 692). And after a party has been declared in default, he is not entitled to notice of the
order placing him in default; neither is he entitled to notice of proceedings subsequent to default (Lim Toco v. Go Fay,
80 Phil. 166, 168). Petitioner, therefore, has no cause to complain that he was not afforded a chance to be heard or
that he was denied his day in court.

The contention of petitioner that in administrative proceedings a party can not be declared in default is untenable. If a
respondent in an administrative proceeding cannot be declared in default when he fails to appear, as required, the
continuance of an administrative proceeding would be dependent on the will and caprice of said party to the
proceedings, and would render helpless the officer or board conducting an administrative proceeding. We hold that if
the party duly summoned, or duly notified, to appear at an administrative investigation, refuses to appear, he may be
declared in default, and the investigation may proceed without his presence.

Petitioner's first assignment of error is not only not sustained by the facts. It is furthermore negated by the
pronouncements of this Court which has already passed directly on the issue of whether or not petitioner Auyong Hian
was deprived of due process of law in the seizure proceedings. In the Arca case, respondent therein claimed that the
decision in the seizure proceedings was arbitrary because the hearing officer and the Collector of Customs declared
Auyong Hian in default without notifying him of the action taken on his motion to postpone the seizure proceedings.

This Court rejected the contention saying:

The record shows that Auyong Hian received on November 21, 1963 notice of hearing on the
seizure proceedings scheduled for November 26, 1962. It is true that he filed a motion to postpone
the hearing, but it was for an indefinite period of time and only in the morning of the date of
hearing. He did not bother to find out what action the Collector of Customs would take on his
motion. Continuation of the seizure proceedings was made on December 6, and December 10,
1962, yet Auyong Hian did not take the trouble to find out about its status. The facts, therefore,
show that Auyong Hian was not deprived of due process of law, but that he is guilty of
abandonment or gross negligence in the protection of his rights, for which he alone is to blame.

This pronouncement, though found only in the opinion, cannot be accurately called, as contended by petitioner, an
obiter dictum just because it was not incorporated in the dispositive portion of the decision. This Court has already
remarked that the dispositive part does not always constitute a judgment and that the judicial pronouncements in the
body of the decision must be considered. (Millare, et al. vs. Millare, et al., 106 Phil. 298-299.) An obiter dictum  has
been defined as an opinion expressed by a court upon some question of law which is not necessary to the decision of
the case before it (Bouvier's Law Dictionary, third revision, Vol. I, p. 863). Although the question of whether petitioner
Auyong Hian was deprived of due process in the seizure proceedings was not the precise issue in the Arca case, for
this Court itself said that the legal question posed in that case was:

Who has a better right to the tobacco in question, petitioner Collector of Customs who has ordered
the seizure and declared the forfeiture thereof as a result of Manila Seizure Identification No. 6669,
or respondent Tomas Cloma in whose favor a writ of attachment was issued by the Court of First
Instance of Manila covering said shipment in Civil Case No. 53874, brought by Cloma against
Auyong Hian for services rendered to the latter? (Collector of Customs v. Area, L-21389, July 17,
1964, 11 SCRA 529, 534-535).

Yet, the pronouncement made by this Court upon said question cannot be said to be totally extraneous, and was not
necessary, to the adjudication of the case before it, for to arrive at the conclusion that the Collector of Customs had a
better right, by virtue of the seizure proceedings, that had already been terminated before Cloma's action was brought,
the validity and legality of the seizure proceedings, and necessarily the issue of the deprivation of due process, had to
be passed upon. With respect to a court of last resort, all that is needed to render its decision authoritative is that there
was an application of the judicial mind to the precise question adjudged, and that the point was investigated with care
and considered in its fullest extent (Alexander v. Worthington, 5 Md. 488, cited in Bouvier's Law Dictionary, third
revision, Vol. 1, p. 864). A perusal of the decision in the Arca case shows that the precise question of deprivation of
due process was extensively and explicitly discussed with a view to settle it, and consequently the pronouncement on
said point cannot be considered a dictum.

2. Petitioner anchors the alleged invalidity of the seizure proceedings on his having been deprived
his day in court. This basis has been shown to be untenable.

Petitioner, however, tried to emasculate respondents' argument by asserting that the declaration of the illegality of the
tobacco importation was incidentally  made; hence it has no binding force.
An analysis of the Barcelona case shows that even if the pronouncement therein made regarding the illegality of the
importation was incidentally made, it did not and could not mean that the pronouncement was extraneous to the
subject matter and that it was, therefore, unauthoritative.

The Barcelona case was a petition for certiorari to set aside a writ of preliminary mandatory injunction. issued by the
Hon. Judge Manuel P. Bareelona in Civil Case No. 49639 of the Court of First Instance of Manila, ordering the
respondents therein, Cesar Climaco and Teotimo Roja, to allow entry of the 600 hogsheads of Virginia leaf tobacco
imported under authority of licenses Nos. 17166, 17169, 17196, and 17199 issued by the defunct Import Control
Commission on May 8, 1953 under the provisions of Republic Act No. 650. Respondents therein opposed the issuance
of the writ of preliminary injunction, alleging among other things that the Court of First Instance had no jurisdiction to
order the release of the importation on the ground that the importer Auyong Hian was not entitled as a matter of right
and equity to import the tobacco, for the licenses, under which the importation was made, were issued under a law that
ceased to exist eight years before the importation, and that the importation was a violation of Rep. Act No. 1194 at the
time of importation; and that the imported tobacco, being under customs custody, could not be ordered released by the
Court of First Instance which had no jurisdiction to review the actuations of customs authorities in any case involving
the seizure, detention or release of any property.

One of the reasons given by the respondent court therein for granting the writ of preliminary mandatory injunction was
that the importation was legal on the ground that the President had issued the licenses in accordance with the
supposed opinions of the Secretary of Justice Nos. 32 and 145, series of 1961.

Although the principal question therein was the court's jurisdiction and the primary relief prayed for by petitioners was
to set aside the preliminary mandatory injunction dated March 20, 1962, the resolution thereof hinged on another
question, which was, to quote the Court:

The question that is, therefore squarely presented for the decision of this Court is whether, under
the facts and circumstances above indicated, the petitioner has the clear legal right to make the
importation in question and the respondents the clear legal duty to allow entry and release of said
importation.

The above question in turn depended on whether the importation was legally made.

This Court in the dispositive portion of its decision in said case ruled for the reasons therein given that:

... We are constrained to declare, as we hereby declare, that the importation in question has been
illegally made ... And We, therefore, hereby grant the petition and set aside the order of the court
below on March 19, 1962 and the writ of preliminary injunction issued in accordance therewith ....

Said ruling regarding the illegality of the importation, contained in the dispositive portion cannot be said, as claimed by
petitioner, unauthoritative and not binding. Said declaration of illegality was reiterated in the Arca case thus:

There is no question that the importation of the tobacco leaf in question was illegal, having been
made in clear violation of the policy contained in Republic Acts Nos. 698 and 1194. (Collector of
Customs v. Arca, L-21389, July 17, 1964, 11 SCRA 529, 535.)

3. Petitioner's insistence that the tobacco importation was valid and legal together with the grounds
asserted to sustain the same is not tenable. This Court already had occasion to examine in the
Barcelona case the import licenses claimed to be valid by petitioner. To the petition in said case
were appended copies of the licenses and the receipt evidencing payment of the fees thereon in
November, 1961. The alleged reason that said licenses were valid because the President had
issued them in accordance with the supposed opinions of the Secretary of Justice No. 32 and 145,
series of 1961 was already passed upon. This Court said that:
 An examination of the licenses shows that the same were approved by the Import Control
Commission on June 29, 1953. The following statement is contained in each of the licenses:

This license is valid from date of issue until fully consummated, provided that this license must be
presented to an Authorized Agent (Negotiating Bank) of the Central Bank, and Bank Credit
established within thirty (30) days after date of release. It is not transferable/assignable without
authority from the Import Control Commission and is subject to revocation for cause. Commodities
covered by this license must be shipped from the country of origin before the expiry date of the
license, and are subject to Sec. 13 of Republic Act No. 650.

The following provision of Republic Act No. 650 is to be noted:

Sec. 8. Unless extended in accordance with the rules and regulations, import licenses issued under
this Act and which are not used within thirty days after the issue by the opening of a letter of credit
or a similar transaction shall be null and void. Import licenses are non-transferable.

The petitioner has not shown that steps were ever taken to open the corresponding letters of credit
amounting to $500,000 to cover the payment of the Virginia leaf tobacco to he imported, as
required by the above-quoted provision of the law. Neither is it shown that immediately, or within a
reasonable time after the approval of the licenses and their issuance, steps were taken to order the
tobacco to be shipped to the Philippines. Certainly this was not done because the licenses were
not fully completed until November 2, 1961, when the corresponding fees chargeable on the
licenses were paid to the Office of the President. (Climaco vs. Barcelona, L-19597, July 31, 1962, 5
SCRA 850-851.)

and after discussing why the decision in Commissioner of Customs v. Auyong Hian, G.R. No. L-11719, April 29, 1959
could not be applied to the said case, this Court concluded that:

The importation [of the tobacco] in question, therefore, is a gross violation of the policy contained in
Republic Acts Nos. 698 and 1194, limiting the Virginia leaf tobacco importation only to such
amounts as could not be met with by the local production of Virginia leaf tobacco, hence clearly
illegal.

The supposed approval of the licenses by the President has been alleged as a ground for the
validity of the importation. The President may not extend the life of licenses issued under Republic
Act No. 650; he cannot make the illegal importation valid; he has no legal authority to do so and his
act would be clearly violative of the express provisions of Republic Act 1194. (Climaco v.
Bareelona, L-19597, July 31, 1962, 5 SCRA 846, 848, 850, 853.)

In the Arca case, this Court again said:

There is no question that the importation was illegal having been made in clear violation of the
policy contained in Republic Acts Nos. 698 and 1194. To this effect is the decision of this Court in
Climaco vs. Judge Barcelona, et al., G.R. No. L-19597, July 31, 1962. (Collector of Customs vs.
Arca, No. L-21389, July 17, 1964, 11 SCRA 529, 535.)

Petitioner's claim that the Government is estopped to deny the validity of the license cannot be seriously defended.
Time and again, this Court has ruled that the doctrine of estoppel is not applicable against the Government suing in its
capacity as sovereign or asserting governmental rights; the Government is never estopped by mistake or errors on the
part of its agents. (Republic v. Go Bon Lee, L-11499, April 29, 1961, 1 SCRA 1166, 1170; Republic vs. Philippine
Rabbit Bus Lines, Inc., L-26862, March 30, 1970, 32 SCRA 211, 218; Luciano vs. Estrella, L-31622, August 31, 1970,
34 SCRA 769, 776.) Moreover, estoppel cannot give validity to an act that is prohibited by law or is against public
policy. (Republic v. Go Bon Lee, supra.)
The tobacco importation in question was, therefore, subject to seizure and forfeiture in accordance with Section 2530
of the Tariff and Customs Code and the Collector of Customs had the power to order the seizure in accordance with
the provisions of Section 2205 of the Tariff and Customs Code, as has already been ruled by this Court in the Arca
case.

But the Court of Tax Appeals, insists petitioner, should have decided whether the importation was absolutely prohibited
or merely prohibited, on the ground that in this Court's decision in the Court of Tax Appeals case, it was said that "the
question of whether the tobacco thus imported were goods the importation of which was relatively prohibited or
absolutely prohibited" "called for a ruling of the Court of Tax Appeals in the exercise of its appellate jurisdiction." (19
SCRA 10, 22). Petitioner also claims that the respondent Court of Tax Appeals erred when it did not hold that the
importation was at worst, only relatively prohibited. In the decision of the Court of Tax Appeals sought to be reviewed, it
appears that the Tax Court discussed the classification of articles subject to forfeiture under the Customs Law, and the
rights of the importer to the delivery of the imported article under Sections 2301 and 2307 of the same Code, and it
concluded that the failure to declare the tobacco imported as merely qualifiedly prohibited did not affect the substantive
rights of petitioner. Said the Tax Court:

There is no evidence of record to show that petitioner herein exercised or attempted to exercise
any of the rights afforded an importer under Sections 2301 and 2307 of the Tariff and Customs
Code. ... At any rate, even if he sought the release of said tobacco by filing a bond for its appraised
value or by paying the redemption price, it is evident that the same could not have been granted
because the delivery of said tobacco to him would be contrary to law. ... It is quite plain that the
failure of respondents to declare said tobacco as an article which merely qualifiedly prohibited has
not adversely affected the substantive right of petitioner. (Decision-CTA Case No. 1560, Record,
pp. 47-48.)

The Court of Tax Appeals did not commit a reversible error on this point. There is no question, as this Court has
declared, that the importation made in December, 1961, of tobacco leaf in question was illegal. The same was made in
clear violation of the policy enunciated in Republic Act No. 698, approved May 9, 1952 limiting the importation of
foreign leaf tobacco, and also of its amendatory Act, Republic Act No. 1194, approved August 25, 1954. These'
statutes not only limit the importation of Virginia leaf tobacco but also provide that the "Virginia-type leaf tobacco
authorized to be imported therein shall be allocated and distributed by the Monetary Board of the Central Bank among
legitimate manufacturers of Virginia-type cigarettes; that the licenses for such importation shall be issued ... by the
Central Bank ... that the leaf-tobacco imported without the necessary license issued under said Act shall be forfeited to
the Government" (Sec. 2). Said importation is also subject to forfeiture under Sec. 2530 of the Tariff and Customs
Code.

The substantive right of petitioner is not affected, as declared by the Tax Court, by the failure to declare whether the
importation was absolutely or qualifiedly prohibited.

Although the illegally imported subject tobacco may not be absolutely prohibited, but only qualifiedly prohibited under
Sec. 102 (K) of the Tariff and Customs Code, for it may be imported subject to certain conditions, it is nonetheless
prohibited and is a contraband (Comm. of Customs vs. CTA & Dichoco, L-33471, Jan. 31, 1972), and the legal effects
of the importation of qualifiedly prohibited articles are the same as those of absolutely prohibited articles (Geotina vs.
Court of Tax Appeals, No. L-33500, August 30, 1971, 40 SCRA 362, 379, 383; Comm. of Customs vs. CTA &
Dichoco, supra).

Under Sec. 2301 of the Tariff and Customs Code, upon making any seizure, the Collector of Customs shall issue a
warrant for the detention of property; and if the owner or importer desires to secure the release of the property for
legitimate use, the Collector may surrender it upon the filing of a sufficient bond, in an amount to be fixed by him,
conditioned for the payment of the appraised value of the article and/or any fine, expenses and costs which may be
adjudged in the case, provided, the articles the importation of which is prohibited by law shall not be released under
bond. Pursuant, thereto, the importer of the subject tobacco, the importation of which is prohibited by law, has no right
that the tobacco be released to him even if he puts up a bond to be determined by the Collector of Customs.
Sec. 2307 of the Tariff and Customs Code, which authorizes in a seizure case the settlement of the case by payment
of fine or the redemption of forfeited property, also provides that:

Redemption of forfeited property shall not be allowed in any case where the importation is
absolutely prohibited or where the surrender of the property to the persons offering to redeem the
same would be contrary to law. (Emphasis supplied.)

Petitioner Auyong Hian would, accordingly, not even be entitled to redeem, even if he wanted to, the forfeited tobacco,
for the surrender to him of said tobacco would be contrary to law, because petitioner could not really be legally entitled
to import it inasmuch as he was not a legitimate manufacturer of Virginia-type cigarettes, among whom alone shall be
allocated and distributed by the Monetary Board of the Central Bank the Virginia-type leaf tobacco authorized to be
imported. (Sec. 2, Rep. Act No. 1194.)

What has been said above would have applied even if petitioner had attempted to exercise the right of redemption
under Sec. 2307 of the Tariff and Customs Code. The fact, however, as found by the Court of Tax Appeals is —

There is no evidence or record to show that petitioner herein exercised or attempted to exercise
any of the rights afforded an importer under Section 2307 of the Tariff and Customs Code. All that
he sought was the release of tobacco in question upon payment of the duties and taxes due
thereon because of his insistence that the importation was made in accordance with law.

4. What has been said in the third assignment of error suffices to dispose of the fourth and fifth assignments. Therein it
was shown that pursuant to the provisions of Republic Acts Nos. 650 and 1194, petitioner was disqualified to import
the Virginia-leaf tobacco, he not being a legitimate manufacturer of this type of cigarette, and under the provisions of
Secs. 2301 and 2307 of the Tariff and Customs Code, the tobacco could not be delivered to him, even if he had made
attempts to put up a bond. Neither could the tobacco be legally delivered to him even if he had attempted to redeem it.
Hence, the alleged error committed by the Court of Tax Appeals in finding that petitioner did not attempt to exercise
any of the rights afforded an importer under Section 2307 of the Tariff and Customs Code, even if sustained, would not
affect the outcome of the instant petition.

5. Petitioner's contention that the sale to the CTIP was invalid cannot be upheld.

It has been shown in the previous discussion that the decision of the Collector of Customs in ordering the forfeiture and
sale of the subject tobacco was correct and legal. Seized property, other than contraband, pursuant to Sections 2601
and 2602 of the Tariff and Customs Code, shall be sold, or otherwise disposed of, upon the order of the Collector of
the port where the property in question is found. The property shall be sold at public auction after ten days notice
conspicuously posted at the port and such other advertisements as may appear to the Collector to be advisable in the
particular case (Sec. 2603). If the article seized, however, is perishable, the Collector may proceed to advertise and
sell the same at auction upon notice as he shall deem to be reasonable (Sec. 2607).

Implementing his decision dated May 9, 1963, to have the seized tobacco sold to buyers who could meet certain
qualifications and conditions, and after having created a Committee to implement the decision, the Collector of
Customs issued a notice of sale (Exhibit 6 — Customs), setting the public auction sale "at June 10, 1963 at 9:00 A.M.
and every morning thereafter until terminated." which notice of sale was given the requisite publication at least ten days
before the auction sale (before June 10, 1963) in accordance with Section 2603 of the Tariff and Customs Code. The
sale, therefore, could not have been invalid, for lack of public notice.

Two prospective bidders — the respondent CTIP and the Philippine Associated Resources — registered with the
Special Bidding Committee — but only the CTIP was found to be a qualified bidder.

On June 10, 1963, the date set for the public auction sale, the Collector of Customs was served the writ of preliminary
injunction issued by Judge Francisco Arca in Civil Case No. 53824 directing the former to desist from holding the
auction sale. This writ was served upon him at 8:55 A.M. (pp. 270-272, 329, 360 t.s.n., Brief for Respondent CTIP, p.
48), but before the writ was served, the CTIP had submitted its bid at around 8:00 A.M. ( Ibid., p. 48), and these facts
were not impugned by petitioner (See Petitioner's Reply Brief, pp. 26-27). At any rate, even if the bid were submitted
after the Collector had been served with the writ of preliminary injunction, his act would not constitute a violation of the
writ for the submission and reception of a bid could not constitute a consummated sale. But on June 17, 1963 the
Supreme Court issued a preliminary injunction in L-21389 (Arca case) prohibiting Judge Arca from executing or
enforcing the writ of preliminary injunction issued by him against the petitioner in Civil Case No. 53874 (11 SCRA 529,
532-533).

On June 26, 1963, the bid of the CTIP was finally approved and the tobacco was awarded to it. This took place before
5:00 p.m. However, at 5:38 p.m. of the same day another restraining order from the Supreme Court in the Arca case
directed the Collector to desist temporarily from continuing with the public auction of the tobacco until July 3, 1963.
Before the Collector received the restraining order, CTIP had already paid P500,000 on account of its approved and
accepted bid of P1,500,000.00 and had filed the required surety bond of P1,000,000 to guarantee the exportation of
the locally grown tobacco. It is clear, therefore, that at the time the bid of the CTIP was approved and at the time
payment was made, there was no restraining order either of the CFI or of the Supreme Court enjoining the sale.

But even assuming arguendo that at the time the sale was made there was already a restraining order enjoining it, the
sale would still not be null and void. A restraining order like injunction operates upon a person as it is granted in
exercise of equity jurisdiction, and an injunction has no in rem  effect to invalidate an act done in contempt of an order
of the court except where by statutory authorization the decree is so framed as to act in rem  on property. (Town of
Fond Du Lac v. City of Fond Du Lac, 22 Wis. 2d 525,126 NW 2d 206). In 42 Am. Jur. 2d, pp. 1144-1145, we read:

Where an injunction is granted and the decree operates in personam, an act done in violation of
injunction is not a nullity. On the contrary, the act is ordinarily valid and legally effective, except as
to the person who obtained the injunction and those claiming under him, and as to them, the act is
valid unless and until they attack it in a proper manner. If an injunction prohibits the defendant from
transferring property, but he transfers the property in violation of the injunction, and the transfer is
made to an innocent third person, the transferee obtains good title and the injunction. does not
affect his rights.

Neither may petitioner's contention that the continuation of the sale for more than three days, i.e. from June 10 to June
26, 1963 would render the sale void, because it is violative of Section 2607 of the Tariff and Customs Code, be
sustained. Said section in part provides:

Section 2607. Disposition of article liable to deterioration. — Perishable articles shall not be

deposited in a bonded warehouse; and, if not immediately entered for export or for transportation
from the vessel or aircraft in which imported or entered for consumption and the duties and taxes
paid thereon, such articles may be sold at auction, after such public notice, not exceeding three
days, as the necessities of the case permit.

The three days mentioned in said section refers to the period of public notice, not to continuation of the sale as
contended by petitioner.

Untenable also is petitioner's contention that the Collector had no right to have the tobacco sold because the Bureau of
Customs was not yet the owner of the tobacco at the time of the sale. This contention loses sight of the fact that the
Collector of Customs when sitting in forfeiture proceedings, constitutes a tribunal upon which the law confers
jurisdiction to determine all questions touching the forfeiture and further disposition of the illegally imported
merchandise. (Commissioner of Customs v. Cloribel, L-20266, Jan. 31, 1967, 19 SCRA 234; Auyong Hian vs. Court of
Tax Appeals, L-25181, January 11, 1967, 19 SCRA 10). The Tariff and Customs Code requires the Collector, upon
making any seizure to issue a warrant for the detention of the property (Section 2301); to make in writing, after hearing,
a declaration of forfeiture (Section 2312), and to sell or otherwise dispose of the property under customs custody (Sec.
2602). The forfeiture constitutes a statutory transfer of the right of property. Title is vested in the government by
administrative forfeiture, although such title may not be absolute, but resoluble subject to the right of redemption on the
part of the owner of the forfeited merchandise (Sec. 1388 Administrative Code). The consequence of this forfeiture was
already declared by this Court in the Arca case when it said:
 It is to be noted that the seizure proceedings had already been terminated and the tobacco
shipment declared forfeited to the Government, thereby ceasing to be the property of Auyong
Hian .... The seizure proceedings were taken by the Collector of Customs in the exercise of its
jurisdiction of the customs law (Secs. 2205 and 2530, Tariff and Customs Code) ... (11 SCRA 529,
537).

And this Court continued:

Auyong Hian, therefore, had lost all his rights to the shipment, not only because we declared the
licenses void and the shipment illegal in the case of Climaco vs. Barcelona, G.R. No. L-19597, but
also because the seizure proceedings have been found to be regular and had deprived Auyong
Hian of his rights to the shipment as importer; at least while the order of seizure has not been set
aside. (11 SCRA 529, 538.)

Petitioner, however, insists that the Collector could not sell the forfeited tobacco after he lost jurisdiction thereof upon
the perfection of the appeal on May 21, 1963 to the Commissioner of Customs. Petitioner seems to imply that the sale,
if any, should have been made by, or at least with, the approval of the Commissioner of Customs. This is what
happened. When the Collector of Customs approved, on June 26, 1963, the offer of the CTIP, his action was backed
by prior approval of the Commissioner of Customs. To this effect we read in the appealed decision, thus:

Apparently, to preclude any doubt as to the regularity of the sale, the Collector of Customs, on
June 11, 1963, sought the advice of the Secretary of Finance, and the latter referred the matter to
the Secretary of Justice, who, at that time, was the Chairman of the Cabinet Committee on Public
Bidding of Tobacco. In an indorsement (rated June 24, 1963, signed by the Secretary of Justice
and all the members of the said Cabinet Committee, the sale was approved. The indorsement of
the Cabinet Committee was transmitted to the Secretary of Finance and the Commissioner of
Customs, who informed the Collector of Customs of such approval (See Exhs. "E", "F" and "G",
CTIP, pp. 205-211, CTA Records), When, therefore, the Collector of Customs approved on June
26, 1963, the recommendation 'of the Special Bidding Committee to accept the offer of
Consolidated Tobacco Industries of the Philippines, his action had the prior approval of the
Commissioner of Customs, the Secretary of Finance and the Cabinet Committee. (Brief for
Petitioner, pp. 140-141.)

Neither can the inadequate consideration, even if true, invalidate the sale to the CTIP.

The other factor which, according to petitioner, militates against the validity of the sale is the measly sum of
P1,500,000 paid by the CTIP for the tobacco which had a value, according to petitioner, of P7,000,000. What is really
the value of the imported tobacco? According to the Tax Court, the records show that when the tobacco arrived in the
Philippines, petitioner filed and Affidavit and Pro Forma Invoice giving the invoice value of the tobacco as $103,453
and an appraised value, for tax purposes, of P227,675. Petitioner contends that this declaration was merely its invoice
value and does not include the other expenses incurred in the importation. Because of these different declarations, the
Tax Court confessed it was at a loss as to which of petitioner's declaration was to be believed. When it suits petitioner's
purpose he claims that the tobacco was worth P227,675.00. For other purposes the value was P7,000,000. If the claim
of petitioner that the tobacco was really worth P7,000,000.00, then there will be another cause for forfeiture which
would be petitioner's filing a false declaration under section 2530 (m) of the Tariff and Customs Code.

We cannot say that the appraisal of the value of the tobacco was incorrect. According to the Tax Court, the Collector of
Customs took precautionary measures to insure a correct appraisal of the tobacco. The appraisal was made by a
competent appraiser of the Bureau of Customs, and both the Commissioner of Customs and the Secretary of Finance,
who exercise supervisory authority over the Collector of Customs and who were consulted on the matter, approved the
sale, or at least, interposed no objection to the sale. Anent this matter it has been said that an appraisal made by the
Commissioner of Customs under Section 1377 of the Revised Administrative Code is presumed to be correct, unless
the contrary is proven by the importer. (Lazaro vs. Commissioner of Customs, L-22511 and L-22343, May 16, 1966, 17
SCRA 36, 41 and cases cited therein.)
But, assuming arguendo, that the consideration paid for the forfeited tobacco was inadequate, such inadequate
consideration is not a ground for the invalidity of a contract. Anent this matter Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.

Petitioner has not shown that the instant sale is a case exempted by law from the operation of Art. 1355; neither has
petitioner shown that there was fraud, mistake or undue influence in the sale. Hence, this Court cannot but conclude
with the Court of Tax Appeals that "In these circumstances, we find no reason to invalidate the sale of said tobacco to
Consolidated Tobacco Industries of the Philippines."

The Court of Tax Appeals is claimed to have erred also in holding that the subject tobacco was deteriorating. We note,
that the imported tobacco has a very unique nature. According to petitioner, it is highly perishable, but in spite of the
lapse of several years, it has not deteriorated. In Civil Case No. 49639 of the Court of First Instance of Manila,
petitioner herein averred that the Virginia leaf tobacco imported is highly perishable in nature so that delay in the
release thereof would cause him irreparable injury (Climaco v. Barcelona, L-19597, July 31, 1962, 5 SCRA 846, 848).
In his "petition to release tobacco under bond" dated March 14, 1967, filed with respondent court, he alleged that:

16. That considering the time that has elapsed since the arrival in Manila of the 600 hogsheads of
Virginia leaf tobacco same may be deteriorated unless sooner disposed of ...

Now he claims that the tobacco has not deteriorated.

But let us give petitioner the benefit of the doubt. We do not see, however, how the deterioration or not of the tobacco
will affect the outcome of this petition. Hence, it is unnecessary to deal on it further.

Petitioner's contention that the Court of Tax Appeals erred in holding that he had no legal personality to question the
legality of the sale, should be sustained. Even if petitioner had lost all his rights to the tobacco shipment after the same
has been seized and forfeited, such loss of right was still subject to a contingency — that is, "at least while the order of
seizure has not been set aside." It is unwarranted to conclude that the loss of his rights to the tobacco while the seizure
has not been set aside carried with it the loss of his legal personality to question the legality of the sale. The Tariff and
Customs Code itself expressly gives to any person aggrieved by the decision or action of the Collector of Customs in
any case of seizure, the right to have the decision reviewed by the Commissioner of Customs (Section 2313), and from
the decision of the latter, he has a right to appeal to the Court of Tax Appeals (Section 2402), and from the latter's
decision to the Supreme Court.

Neither can it be accurately said that petitioner has no right to have the contract of sale to the CTIP annulled, on the
ground that he was not a party bound either principally or subsidiarily by the contract. (Art. 1397 Civil Code.) Petitioner
seeks the declaration of the nullity of the sale not as a party to the sale, but because he had an interest that was
affected by the sale. This Court has held that a person who is not a party obliged principally or subsidiarily in a contract
may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting
parties, and can show the detriment which would positively result to him from the contract in which he had no
intervention. (Ibañez v. Hongkong and Shanghai Bank, 22 Phil. 572, 584-585; Teves vs. People's Homesite and
Housing Corporation, et al., L-21498, June 27, 1968, 23 SCRA 1141, 1147-1148). It would be stating the obvious that
in the instant case the petitioner will suffer detriment as a consequence of the sale, in case it is not set aside.

As a matter of fact, this Court has recognized the personality of petitioner to question the legality of the sale when in
the Court of Appeals case, L-25181, this Court remanded the case to the Court of Tax Appeals to decide the validity of
the administrative proceedings and the question regarding the disposal and sale of the tobacco that was seized. It was
therein implied that petitioner had personality to question the sale.

The error assigned regarding the amount of warehousing charges that had accumulated is immaterial to the decision of
the instant case, and whether the Court of Tax Appeals did commit the error or not, will not affect the result of the case.
This point, therefore, need not be commented on.
This Court recognizes that petitioner has the right to take all legal steps to enforce his legal and/or equitable rights to
the tobacco in question. One who makes use of his own legal right does no injury. Qui jure suo utitur mullum damnum
facit. If damage results from a person's exercising his legal rights, it is damnum absque injuria. The consequent delay
in the delivery of the tobacco is an incident to said exercise of his rights. But, again, whatever might be petitioner's
motive in this regard will hardly affect the outcome of this case.

6. The property, subject of litigation is not by that fact a line, in custodia legis. "When property is lawfully taken, by
virtue of legal process, it is in the custody of the law, and not otherwise." (Gilman v. Williams, Wis. 334, 76 Am. Dec.
219.)

In the case of Millare et all, vs. Millare et al., 106 Phil. 203, 299, a motion for contempt was filed in this Court by
appellant charging respondents with having committed contempt by selling or otherwise disposing the land in question
pending the appeal. This Court held that there being no attachment, injunction or receivership issued with respect to
the land, and in view of the conclusion reached on the merits of the case, there was no reason to declare the
respondents guilty of contempt. This ruling is in point in the instant case. At the time the CTIP took possession of the
tobacco and disposed it on September 12, 1967, there was no existing order of the Court of Tax Appeals restraining
such possession and disposition. By specific order of the Court of Tax Appeals, it declared that the restraining order
previously issued by it was of no further effect on September 12, 1967 due to appellants' failure to post the bond
required.

It has been shown above, furthermore, that petitioner herein was not entitled to the tobacco, consequently he had no
right to the proceeds of the sale, and to have the proceeds thereof deposited.

7. Regarding the "Motion for Leave" filed by the Solicitor General's Office praying authority to
refund the storage charges of the subject tobacco to the CTIP, this Court notes that the same is not
in issue in the instant case, and, therefore, abstains from making any resolution regarding the
matter. The claim of the CTIP for refund must be prosecuted administratively.

WHEREFORE, the instant petition for review is dismissed, and the decision of the Court of Tax Appeals, appealed
from is affirmed.

It is so ordered.

Fernando, Barredo, Antonio, Fernandez and Aquino, JJ., concur.

 FIRST DIVISION

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

DAVID REYES (Substituted by Victoria R. Fabella), Petitioner, v. JOSE LIM, CHUY CHENG KENG and HARRISON
LUMBER, INC., Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision 1 dated 12 May 1998 of the Court of Appeals in CA-G.R. SP
No. 46224. The Court of Appeals dismissed the petition for certiorari assailing the Orders dated 6 March 1997, 3 July
1997 and 3 October 1997 of the Regional Trial Court of Parañaque, Branch 260 2 ("trial court") in Civil Case No. 95-
032.chanrob1es virtua1 1aw 1ibrary

The Facts

On 23 March 1995, petitioner David Reyes ("Reyes") filed before the trial court a complaint for annulment of contract
and damages against respondents Jose Lim ("Lim"), Chuy Cheng Keng ("Keng") and Harrison Lumber, Inc. ("Harrison
Lumber").

The complaint 3 alleged that on 7 November 1994, Reyes as seller and Lim as buyer entered into a contract to sell
("Contract to Sell") a parcel of land ("Property") located along F.B. Harrison Street, Pasay City. Harrison Lumber
occupied the Property as lessee with a monthly rental of P35,000. The Contract to Sell provided for the following terms
and conditions:chanrob1es virtual 1aw library

1. The total consideration for the purchase of the aforedescribed parcel of land together with the perimeter walls found
therein is TWENTY EIGHT MILLION (P28,000,000.00) PESOS payable as follows:chanrob1es virtual 1aw library

(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to Sell;

(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be paid on or before March 8, 1995 at 9:30
A.M. at a bank to be designated by the Buyer but upon the complete vacation of all the tenants or occupants of the
property and execution of the Deed of Absolute Sale. However, if the tenants or occupants have vacated the premises
earlier than March 8, 1995, the VENDOR shall give the VENDEE at least one week advance notice for the payment of
the balance and execution of the Deed of Absolute Sale.

2. That in the event, the tenants or occupants of the premises subject of this sale shall not vacate the premises on
March 8, 1995 as stated above, the VENDEE shall withhold the payment of the balance of P18,000,000.00 and the
VENDOR agrees to pay a penalty of Four percent (4%) per month to the herein VENDEE based on the amount of the
downpayment of TEN MILLION (P10,000,000.00) PESOS until the complete vacation of the premises by the tenants
therein. 4

The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before the end of January
1995. Reyes also informed Keng 5 and Harrison Lumber that if they failed to vacate by 8 March 1995, he would hold
them liable for the penalty of P400,000 a month as provided in the Contract to Sell. The complaint further alleged that
Lim connived with Harrison Lumber not to vacate the Property until the P400,000 monthly penalty would have
accumulated and equaled the unpaid purchase price of P18,000,000.

On 3 May 1995, Keng and Harrison Lumber filed their Answer 6 denying they connived with Lim to defraud Reyes.
Keng and Harrison Lumber alleged that Reyes approved their request for an extension of time to vacate the Property
due to their difficulty in finding a new location for their business. Harrison Lumber claimed that as of March 1995, it had
already started transferring some of its merchandise to its new business location in Malabon. 7

On 31 May 1995, Lim filed his Answer 8 stating that he was ready and willing to pay the balance of the purchase price
on or before 8 March 1995. Lim requested a meeting with Reyes through the latter’s daughter on the signing of the
Deed of Absolute Sale and the payment of the balance but Reyes kept postponing their meeting. On 9 March 1995,
Reyes offered to return the P10 million down payment to Lim because Reyes was having problems in removing the
lessee from the Property. Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the Property.
Lim learned that Reyes had already sold the Property to Line One Foods Corporation ("Line One") on 1 March 1995 for
P16,782,840. After the registration of the Deed of Absolute Sale, the Register of Deeds issued to Line One TCT No.
134767 covering the Property. Lim denied conniving with Keng and Harrison Lumber to defraud Reyes.cralaw : red

On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to supervening facts. These
included the filing by Lim of a complaint for estafa against Reyes as well as an action for specific performance and
nullification of sale and title plus damages before another trial court. 9 The trial court granted the motion in an Order
dated 23 November 1995.

In his Amended Answer dated 18 January 1996, 10 Lim prayed for the cancellation of the Contract to Sell and for the
issuance of a writ of preliminary attachment against Reyes. The trial court denied the prayer for a writ of preliminary
attachment in an Order dated 7 October 1996.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10 million down payment with
the cashier of the Regional Trial Court of Parañaque. The trial court granted this motion.

On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on the ground the Order
practically granted the reliefs Lim prayed for in his Amended Answer. 11 The trial court denied Reyes’ motion in an
Order 12 dated 3 July 1997. Citing Article 1385 of the Civil Code, the trial court ruled that an action for rescission could
prosper only if the party demanding rescission can return whatever he may be obliged to restore should the court grant
the rescission.

The trial court denied Reyes’ Motion for Reconsideration in its Order 13 dated 3 October 1997. In the same order, the
trial court directed Reyes to deposit the P10 million down payment with the Clerk of Court on or before 30 October
1997.

On 8 December 1997, Reyes 14 filed a Petition for Certiorari 15 with the Court of Appeals. Reyes prayed that the
Orders of the trial court dated 6 March 1997, 3 July 1997 and 3 October 1997 be set aside for having been issued with
grave abuse of discretion amounting to lack of jurisdiction. On 12 May 1998, the Court of Appeals dismissed the
petition for lack of merit.

Hence, this petition for review.

The Ruling of the Court of Appeals

The Court of Appeals ruled the trial court could validly issue the assailed orders in the exercise of its equity jurisdiction.
The court may grant equitable reliefs to breathe life and force to substantive law such as Article 1385 16 of the Civil
Code since the provisional remedies under the Rules of Court do not apply to this case.

The Court of Appeals held the assailed orders merely directed Reyes to deposit the P10 million to the custody of the
trial court to protect the interest of Lim who paid the amount to Reyes as down payment. This did not mean the money
would be returned automatically to Lim.

The Issues

Reyes raises the following issues:chanrob1es virtual 1aw library

1. Whether the Court of Appeals erred in holding the trial court could issue the questioned Orders dated March 6,
1997, July 3, 1997 and October 3, 1997, requiring petitioner David Reyes to deposit the amount of Ten Million Pesos
(P10,000,000.00) during the pendency of the action, when deposit is not among the provisional remedies enumerated
in Rule 57 to 61 of the 1997 Rules on Civil Procedure.chanrob1es virtua1 1aw 1ibrary

2. Whether the Court of Appeals erred in finding the trial court could issue the questioned Orders on grounds of equity
when there is an applicable law on the matter, that is, Rules 57 to 61 of the 1997 Rules on Civil Procedure. 17

The Court’s Ruling

Reyes’ contentions are without merit.

Reyes points out that deposit is not among the provisional remedies enumerated in the 1997 Rules of Civil Procedure.
Reyes stresses the enumeration in the Rules is exclusive. Not one of the provisional remedies in Rules 57 to 61 18
applies to this case. Reyes argues that a court cannot apply equity and require deposit if the law already prescribes the
specific provisional remedies which do not include deposit. Reyes invokes the principle that equity is "applied only in
the absence of, and never against, statutory law or . . . judicial rules of procedure." 19 Reyes adds the fact that the
provisional remedies do not include deposit is a matter of dura lex sed lex. 20

The instant case, however, is precisely one where there is a hiatus in the law and in the Rules of Court. If left alone,
the hiatus will result in unjust enrichment to Reyes at the expense of Lim. The hiatus may also imperil restitution, which
is a precondition to the rescission of the Contract to Sell that Reyes himself seeks. This is not a case of equity
overruling a positive provision of law or judicial rule for there is none that governs this particular case. This is a case of
silence or insufficiency of the law and the Rules of Court. In this case, Article 9 of the Civil Code expressly mandates
the courts to make a ruling despite the "silence, obscurity or insufficiency of the laws." 21 This calls for the application
of equity, 22 which "fills the open spaces in the law." 23

Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit of the P10 million down
payment in court. The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to
ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its
judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction. 24
Equity is the principle by which substantial justice may be attained in cases where the prescribed or customary forms
of ordinary law are inadequate.25cralaw:red

Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is also seeking cancellation of the
Contract to Sell. The trial court then ordered Reyes to deposit in court the P10 million down payment that Lim made
under the Contract to Sell. Reyes admits receipt of the P10 million down payment but opposes the order to deposit the
amount in court. Reyes contends that prior to a judgment annulling the Contract to Sell, he has the "right to use,
possess and enjoy" 26 the P10 million as its "owner" 27 unless the court orders its preliminary attachment. 28

To subscribe to Reyes’ contention will unjustly enrich Reyes at the expense of Lim. Reyes sold to Line One the
Property even before the balance of P18 million under the Contract to Sell with Lim became due on 8 March 1995. On
1 March 1995, Reyes signed a Deed of Absolute Sale 29 in favor of Line One. On 3 March 1995, the Register of
Deeds issued TCT No. 134767 30 in the name of Line One. 31 Reyes cannot claim ownership of the P10 million down
payment because Reyes had already sold to another buyer the Property for which Lim made the down payment. In
fact, in his Comment 32 dated 20 March 1996, Reyes reiterated his offer to return to Lim the P10 million down
payment.chanrob1es virtua1 1aw 1ibrary

On balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10 million down payment. The
application of equity always involves a balancing of the equities in a particular case, a matter addressed to the sound
discretion of the court. Here, we find the equities weigh heavily in favor of Lim, who paid the P10 million down payment
in good faith only to discover later that Reyes had subsequently sold the Property to another buyer.

In Eternal Gardens Memorial Parks Corp. v. IAC, 33 this Court held the plaintiff could not continue to benefit from the
property or funds in litigation during the pendency of the suit at the expense of whomever the court might ultimately
adjudge as the lawful owner. The Court declared:chanrob1es virtual 1aw library

In the case at bar, a careful analysis of the records will show that petitioner admitted among others in its complaint in
Interpleader that it is still obligated to pay certain amounts to private respondent; that it claims no interest in such
amounts due and is willing to pay whoever is declared entitled to said amounts. . . .

Under the circumstances, there appears to be no plausible reason for petitioner’s objections to the deposit of the
amounts in litigation after having asked for the assistance of the lower court by filing a complaint for interpleader where
the deposit of aforesaid amounts is not only required by the nature of the action but is a contractual obligation of the
petitioner under the Land Development Program (Rollo, p. 252).

There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10 million down payment in
court. The Contract to Sell can no longer be enforced because Reyes himself subsequently sold the Property to Line
One. Both Reyes and Lim are now seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code,
rescission creates the obligation to return the things that are the object of the contract. Rescission is possible only
when the person demanding rescission can return whatever he may be obliged to restore. A court of equity will not
rescind a contract unless there is restitution, that is, the parties are restored to the status quo ante. 34

Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the P10 million down
payment in court. 35 Such deposit will ensure restitution of the P10 million to its rightful owner. Lim, on the other hand,
has nothing to refund, as he has not received anything under the Contract to Sell. 36

In Government of the Philippine Islands v. Wagner and Cleland Wagner, 37 the Court ruled the refund of amounts
received under a contract is a precondition to the rescission of the contract. The Court declared:chanrob1es virtual 1aw
library

The Government, having asked for rescission, must restore to the defendants whatever it has received under the
contract. It will only be just if, as a condition to rescission, the Government be required to refund to the defendants an
amount equal to the purchase price, plus the sums expended by them in improving the land. (Civil Code, art. 1295.)

The principle that no person may unjustly enrich himself at the expense of another is embodied in Article 22 38 of the
Civil Code. This principle applies not only to substantive rights but also to procedural remedies. One condition for
invoking this principle is that the aggrieved party has no other action based on contract, quasi-contract, crime, quasi-
delict or any other provision of law. 39 Courts can extend this condition to the hiatus in the Rules of Court where the
aggrieved party, during the pendency of the case, has no other recourse based on the provisional remedies of the
Rules of Court.chanrob1es virtua1 1aw 1ibrary

Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller himself seeks
rescission of the sale because he has subsequently sold the same property to another buyer. 40 By seeking
rescission, a seller necessarily offers to return what he has received from the buyer. Such a seller may not take back
his offer if the court deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial
deposit.
There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good conscience. 41 In this
case, it was just, equitable and proper for the trial court to order the deposit of the P10 million down payment to prevent
unjust enrichment by Reyes at the expense of Lim. 42

WHEREFORE, we AFFIRM the Decision of the Court of Appeals.

SO ORDERED.

Davide, Jr., C.J., Vitug, Ynares-Santiago and Azcuna, JJ., concur.

EN BANC

[G.R. No. 13602. April 6, 1918. ]

LEUNG BEN; plaintiff, v. P. J. O’BRIEN; JAMES A. OSTRAND and GEO. R. HARVEY, judges of First Instance of the
city of Manila, Defendants.

Thos. D. Aitken and W. A. Armstrong, for Plaintiff.

Kincaid & Perkins, for Defendants.

SYLLABUS

1. CERTIORARI; ISSUANCE OF ATTACHMENT WITHOUT STATUTORY AUTHORITY. — Where a Court of First

Instance issues an attachment for which there is no statutory authority, it is acting irregularly and in excess of its
jurisdiction in the sense necessary to justify the Supreme Court in entertaining an application for a writ of certiorari and
quashing the attachment.

2. ID.; ID.; INADEQUATE REMEDY. — In such case the remedy on the attachment bond or by appeal would not be
sufficiently speedy to meet the exigencies of the case. Attachment is an exceedingly violent measure and its
unauthorized issuance may result in the infliction of damage which could never be repaired by any pecuniary award at
the final hearing.

3. ID.; ID.; DISTINCTION BETWEEN JURISDICTION OVER PRINCIPAL CAUSE AND OVER ANCILLARY REMEDY.
— There is a clear distinction to be noted between the jurisdiction of a Court of First Instance with respect to the
principal cause of action and its jurisdiction to grant an auxiliary remedy, like attachment. A court, although it may have
unquestioned jurisdiction over the principal cause of action, may nevertheless act irregularly or in excess of its
jurisdiction in granting the auxiliary remedy. In such case the party aggrieved may prosecute a proceeding by writ
of certiorari in the Supreme Court. (Herrera v. Barretto and Joaquin, 25 Phil. Rep., 245, distinguished.)

4. CONTRACT; IMPLIED CONTRACT. — The obligation imposed by Act No. 1757 upon the winner in a prohibited
game to return to the loser the money or other thing of value won at play is an "implied contract," as this term is used in
subsection (1) of section 412 of the Code of Civil Procedure.

5. ATTACHMENT; CAUSE OF ACTION ARISING UPON CONTRACT, EXPRESS OR IMPLIED. — In an action

brought pursuant to the provisions of Act No. 1757 to recover a sum of money lost at play, an attachment was obtained
in the Court of First Instance under section 424 in connection with subsection 1 of section 412 of the Code of Civil
Procedure. These provisions authorize the issuance of an attachment in an action for the recovery of money on a
cause of action arising upon contract, express or implied, when the defendant is about to depart from the Philippine
Islands. Held: That the cause of action arose upon an implied contract and that the action of the court in issuing the
attachment would not be annulled by the Supreme Court in a proceeding by writ of certiorari.

DECISION

STREET, J.  :

This is an application for a writ of certiorari, the purpose of which is to quash an attachment issued from the Court of
First Instance of the City of Manila under circumstances hereinbelow stated.

Upon December 12, 1917, an action was instituted in the Court of First Instance of the city of Manila by P. J. O’Brien to
recover of Leung Ben the sum of P15,000, alleged to have been lost by the plaintiff to the defendant in a series of
gambling, banking, and percentage games conducted during the two or three months prior to the institution of the suit.
In his verified complaint the plaintiff asked for an attachment, under sections 424 and 412 (1) of the Code of Civil
Procedure, against the property of the defendant, on the ground that the latter was about to depart from the Philippine
Islands with intent to defraud his creditors. This attachment was issued; and acting under the authority thereof, the
sheriff attached the sum of P15,000 which had been deposited by the defendant with the International Banking
Corporation.

The defendant thereupon appeared by his attorney and moved the court to quash the attachment. Said motion having
been dismissed in the Court of First Instance, the petitioner, Leung Ben, the defendant in that action, presented to this
court, upon January 8, 1918, his petition for the writ of certiorari directed against P. J. O’Brien and the judges of the
Court of First Instance of the city of Manila whose names are mentioned in the caption hereof. The prayer is that the
Honorable James A. Ostrand, as the Judge having cognizance of the action in said court (P. J O’Brien v. Leung Ben)
be required to certify the record to this court for review and that the order of attachment which had been issued should
be revoked and discharged with costs. Upon the filing of said petition in this court the usual order was entered requiring
the defendants to show cause why the writ should not issue. The response of the defendants, in the nature of a
demurrer, was filed upon January 21, 1918; and the matter is now heard upon the pleadings thus presented.

The provision of law under which this attachment was issued requires that there should be a "cause of action arising
upon contract, express or implied." The contention of the petitioner is that the statutory action to recover money lost at
gaming is not such an action as is contemplated in this provision, and he therefore insists that the original complaint
shows on its face that the remedy of attachment is not available in aid thereof; that the Court of First Instance acted in
excess of its jurisdiction in granting the writ of attachment; that the petitioner has no plain, speedy, and adequate
remedy by appeal or otherwise; and that consequently the writ of certiorari supplies the appropriate remedy for his
relief.

The case presents the two following questions of law either of which, if decided unfavorably to the petitioner will be
fatal to his application:chanrob1es virtual 1aw library
(1) Supposing that the Court of First Instance has granted an attachment for which there is no statutory authority, can
this court entertain the present petition and grant the desired relief?

(2) Is the statutory obligation to restore money won at gaming an obligation arising from "contract, express or implied?"

We are of the opinion that the answer to the first question should be in the affirmative. Under section 514 of the Code
of Civil Procedure the Supreme Court has original jurisdiction by the writ of certiorari over the proceedings of Courts of
First Instance, "wherever said courts have exceeded their jurisdiction and there is no plain, speedy, and adequate
remedy." In the same section, it is further declared that the proceedings in the Supreme Court in such cases shall be
as prescribed for Courts of First Instance in sections 217-221, inclusive, of said Code. This has the effect of
incorporating into the practice of the Supreme Court, so far as applicable, the provisions contained in those sections to
the same extent as if they had been reproduced verbatim immediately after section 514. Turning to section 217, we
find that, in defining the conditions under which certiorari can be maintained in a Court of First Instance, substantially
the same language is used as is found in section 614 relative to the conditions under which the same remedy can be
maintained in the Supreme Court, namely, when the inferior tribunal has exceeded its jurisdiction and there is no
appeal, nor any plain, speedy, and adequate remedy. In using these expressions the author of the Code of Civil
Procedure merely adopted the language which, in American jurisdictions at least, had long ago reached the stage of a
stereotyped formula.

In section 220 of the same Code, we have a provision relative to the final proceedings in certiorari, and herein it is
stated that the court shall determine whether the inferior tribunal has regularly pursued its authority and that if it finds
that such inferior tribunal has not regularly pursued its authority, it shall give judgment, either affirming, annulling, or
modifying the proceedings below, as the law requires. The expression, "has not regularly pursued its authority," as
here used, is suggestive, and we think it should be construed in connection with the other expressions "have exceeded
their jurisdiction," as used in section 514, and "has exceeded the jurisdiction," as used in section 217. Taking the three
together, it results in our opinion that any irregular exercise of judicial power by a Court of First Instance, in excess of
its lawful jurisdiction, is remediable by the writ of certiorari, provided there is no other plain, speedy, and adequate
remedy; and in order to make out a case for the granting of the writ it is not necessary that the court should have acted
in the matter without any jurisdiction whatever. Indeed the repeated use of the expression "excess of jurisdiction"
shows that the lawmaker contemplated the situation where a court, having jurisdiction, should irregularly transcend its
authority as well as the situation where the court is totally devoid of lawful power.

It may be observed in this connection that the word "jurisdiction," as used in attachment cases, has reference not only
to the authority of the court to entertain the principal action but also to its authority to issue the attachment, as
dependent upon the existence of the statutory ground. (6 C. J., 89.) This distinction between jurisdiction over the main
cause and jurisdiction to issue the attachment as an ancillary remedy incident to the principal litigation is of importance;
as a court’s jurisdiction over the main action may be complete, and yet it may lack authority to grant an attachment as
ancillary to such action. This distinction between jurisdiction over the principal proceeding and jurisdiction over the
ancillary has been recognized by this court in connection with actions involving the appointment of a receiver. Thus, in
Rocha & Co. v. Crossfield and Figueras (6 Phil. Rep., 355), a receiver had been appointed without legal justification. It
was held that the order making the appointment was beyond the jurisdiction of the court; and though the court
admittedly had jurisdiction of the main cause, the order was vacated by this court upon application for a writ
of certiorari. (See Blanco v. Ambler, 3 Phil. Rep., 358, Blanco v. Ambler and McMicking 3 Phil. Rep., 735; Yangco v.
Rohde, 1 Phil. Rep., 404.)

By parity of reasoning it must follow that when a court issues a writ of attachment for which there is no statutory
authority, it is acting irregularly and in excess of its jurisdiction, in the sense necessary to justify the Supreme Court in
granting relief by the writ of certiorari. In applying this proposition it is of course necessary to take account of the
difference between a ground of attachment based on the nature of the action and a ground of attachment based on the
acts or the condition of the defendant. Every complaint must show a cause of action of some sort; and when the statute
declares that the attachment may issue in an action arising upon contract, express or implied, it announces a criterion
which may be determined from an inspection of the language of the complaint. The determination of this question is
purely a matter of law. On the other hand, when the statute declares that an attachment may be issued when the
defendant is about to depart from the Islands, a criterion is announced which is wholly foreign to the cause of action;
and the determination of it may involve a disputed question of fact which must be decided by the court. In making this
determination, the court obviously acts within its powers; and it would be idle to suppose that the writ of certiorari would
be available to reverse the action of a Court of First Instance in determining the sufficiency of the proof on such a
disputed point, and in granting or refusing the attachment accordingly.

We should not be understood, in anything that has been said, as intending to infringe the doctrine enunciated by this
court in Herrera v. Barretto and Joaquin (25 Phil. Rep., 245), when properly applied. It was there held that we would
not, upon an application for a writ of certiorari, dissolve an interlocutory mandatory injunction that had been issued in a
Court of First Instance as an incident in an action of mandamus. The issuance of an interlocutory injunction depends
upon conditions essentially different from those involved in the issuance of an attachment. The injunction is designed
primarily for the prevention of irreparable injury and the use of the remedy is in a great measure dependent upon the
exercise of discretion. Generally speaking, it may be said that the exercise of the injunctive power is inherent in judicial
authority; and ordinarily it would be impossible to distinguish between the jurisdiction of the court in the main litigation
and its jurisdiction to grant an interlocutory injunction, for the latter is involved in the former. That the writ
of certiorari can not be used to reverse an order denying a motion for a preliminary injunction is of course not open to
cavil. (Somes v. Crossfield and Molina, 8 Phil. Rep., 284.)

But it will be said that the writ of certiorari is not available in this case, because the petitioner is protected by the
attachment bond, and that he has a plain, speedy, and adequate remedy by appeal. This suggestion seems to be
sufficiently answered in the case of Rocha & Co. v. Crossfield and Figueras (6 Phil. Rep., 355), already referred to, and
the earlier case there cited. The remedy by appeal is not sufficiently speedy to meet the exigencies of the case. An
attachment is extremely violent, and its abuse may often result in the infliction of damage which could never be
repaired by any pecuniary award at the final hearing. To postpone the granting of the writ in such a case until the final
hearing and to compel the petitioner to bring the case here upon appeal merely in order to correct the action of the trial
court in the matter of allowing the attachment would seem both unjust and unnecessary.

Passing to the problem propounded in the second question it may be observed that, upon general principles,
recognized both in the civil and common law, money lost in gaming and voluntarily paid by the loser to the winner can
not, in the absence of statute, be recovered in a civil action. But Act No. 1757 of the Philippine Commission, which
defines and penalizes several forms of gambling, contains numerous provisions recognizing the right to recover money
lost in gambling or in the playing of certain games (secs. 6, 7, 8, 9, 11). The original complaint in the action in the Court
of First Instance is not clear as to the particular section of Act No. 1757 under which the action is brought, but it is
alleged that the money was lost at gambling, banking, and percentage game in which the defendant was banker. It
must therefore be assumed that the action is based upon the right of recovery given in section 7 of said Act, which
declares that an action may be brought against the banker by any person losing money at a banking or percentage
game.

Is this a cause of action arising upon contract, "express or implied," as this term is used in section 412 of the Code of
Civil Procedure? To begin the discussion, the English version of the Code of Civil Procedure is controlling (sec. 15,
Admin. Code, ed. of 1917). Furthermore, it is universally admitted to be proper in the interpretation of any statute, to
consider its historical antecedents and its jurisprudential sources. The Code of Civil Procedure, as is well known, is an
American contribution to Philippine legislation. It therefore speaks the language of the common-law and for the most
part reflects its ideas. When the draftsman of this Code used the expression "contract, express or implied," he used a
phrase that has been long current among writers on American and English law; and it is therefore appropriate to resort
to that system of law to discover the meaning which the legislator intended to convey by those terms. We remark in
passing that the expression "contrato tacito," used in the official translation of the Code of Civil Procedure as the
Spanish equivalent of "implied contract," does not appear to render the full sense of the English expression.

The English contract law, so far as relates to simple contracts (i. e. contracts not evidenced by a sealed instrument or a
judicial record), is planted upon two foundations, which are supplied by two very different conceptions of legal liability.
These two conceptions are revealed in the ideas respectively underlying (1) the common-law debt and (2) the
assumptual promise. In the early and formative stages of the common-law the only simple contract of which the courts
took account was the real contract or contract re, in which the contractual duty imposed by law-arises upon the delivery
of a chattel, as in the mutuum, commodatum, depositum, and the like; and the purely consensual agreements of the
Roman Law found no congenial place in the early common law system.

In course of time the idea underlying the contract re was extended so as to include all cases where there was
something of value passing from one person to another under such circumstance as to constitute a justa causa
debendi. The obligation thereby created was a debt. The constitutive element in this obligation is found in the fact that
the debtor has received something from the creditor, which he is bound by the obligation of law to return or pay for.
From an early day this element was denominated the quid pro quo, an ungainly phrase coined by Mediaeval Latinity.
The quid pro quo was primarily a material or physical object, and it constituted the recompense or equivalent acquired
by the debtor. Upon the passage of the quid pro quo from one party to the other, the law imposed that real contractual
duty peculiar to the debt. No one conversant with the early history of the English law would ever conceive of the debt
as an obligation created by promise. It is the legal duty to pay or deliver a sum certain of money or an ascertainable
quantity of ponderable or measurable chattels.

The ordinary debt, as already stated, originates in a contract in which a quid pro quo passes to the debtor at the time of
the creation of the debt, but the term is equally applicable to duties imposed by custom, or statute, or by judgment of a
court.

The existence of a debt supposes one person to have possession of a thing (res) which he owes and hence ought to
turn over the owner. This obligation is the oldest conception of contract with which the common law is familiar; and
notwithstanding the centuries that have rolled over Westminster Hall that conception remains as one of the
fundamental bases of the common-law contract.

Near the end of the fifteenth century there was evolved in England a new conception of contractual liability, which
embodied the idea of obligation resulting from promise and which found expression in the common law assumpsit, or
parol promise supported by a consideration. The application of this novel conception had the effect of greatly extending
the field of contractual liability and by this means rights of action came to be recognized which had been unknown
before. The action of assumpsit which was the instrument for giving effect to this obligation was found to be a useful
remedy; and presently this action came to be used for the enforcement of common-law debts. The result was to give to
our contract law the superficial appearance of being based more or less exclusively upon the notion of the obligation of
promise.

An idea is widely entertained to the effect that all simple contracts recognized in the common-law system are refer-
able to a single category. They all have their roots, so many of us imagine, in one general notion of obligation; and of
course the obligation of promise is supposed to supply this general notion, being considered a sort of menstruum in
which all other forms of contractual obligation have been dissolved. This is a mistake. The idea of contractual duty
embodied in the debt, which was the first conception of contract liability revealed in the common law, has remained,
although it was destined to be in a measure obscured by the more modern conception of obligation resulting from
promise.

What has been said is intended to exhibit the fact that the duty to pay or deliver a sum certain of money or an
ascertainable quantity of ponderable or measurable chattels — which is indicated by the term debt — has ever been
recognized, in the common-law system, as a true contract, regardless of the source of the duty or the manner in which
it is created — whether derived from custom, statute or some consensual transaction depending upon the voluntary
acts of the parties. The form of contract known as the "debt" is of most ancient lineage; and when reference is had to
historical antecedents, the right of the debt to be classed as a contract cannot be questioned. Indeed when the new
form of engagement consisting of the parol promise supported by a consideration first appeared, it was looked upon as
an upstart and its right to be considered a true contract was questioned. It was long customary to refer to it exclusively
as an assumpsit, agreement, undertaking, or parol promise, in fact anything but a contract. Only in time did the new
form of engagement attain the dignity of being classed among true contracts.

The term "implied contract" takes us into the shadowy domain of those obligations the theoretical classification of
which has engaged the attention of scholars from the time of Gaius until our own day and has been a source of as
much difficulty to the civilian as to the common-law jurist. Here we are concerned with those acts which make one
person debtor to another without there having intervened between them any true agreement tending to produce a legal
bond (vinculum juris). Of late years some American and English legal writers have adopted the term quasi-contract as
descriptive of these obligations or some of them; but the expression more commonly used is "implied contract."cralaw
virtua1aw library

Upon examination of these obligations, from the view point of the common-law jurisprudence, it will be found that they
fall readily into two divisions, according as they bear an analogy to the common-law debt or to the common-law
assumpsit. To exhibit the scope of these different classes of obligations is here impracticable. It is only necessary in
this connection to observe that the most conspicuous division is that which comprises duties in the nature of debt. The
characteristic feature of these obligations is that upon certain states of fact the law imposes an obligation to pay a sum
certain of money; and it is characteristic of this obligation that the money in respect to which the duty is raised is
conceived as being the equivalent of something taken or detained under circumstances giving rise to the duty to return
or compensate therefor. The proposition that no one shall be allowed to enrich himself unduly at the expense of
another embodies the general principle here lying at the basis of obligation. The right to recover money improperly paid
(repeticion de lo indebido) is also recognized as belonging to this class of duties.

It will be observed that according to the Civil Code (article 1089) obligations are supposed to be derived either from (1)
the law, (2) contracts and quasi-contracts, (3) illicit acts and omissions, or (4) acts in which some sort of blame or
negligence is present. This enumeration of the sources of obligations supposes that the quasi-contractual obligation
and the obligation imposed by law are of different types. The learned Italian jurist, Jorge Giorgi, criticizes this
assumption and says that the classification embodied in the code is theoretically erroneous. His conclusion is that one
or the other of these categories should have been suppressed and merged in the other. (Giorgi, Teoria de las
Obligaciones, Spanish ed., vol. 5 arts. 5, 7, 9.) The validity of this criticism is, we think, self-evident; and it is of interest
to note that the common law makes no distinction between the two sources of liability. The obligations which in the
Code are indicated as quasi-contracts, as well as those arising ex lege, are in the common law system merged into the
category of obligations imposed by law, and all are denominated implied contracts.

Many refinements, more or less illusory, have been attempted by various writers in distinguishing different sorts of
implied contracts, as, for example, the contract implied as of fact and the contract implied as of law (or constructive
contract). No explanation of these distinctions will be here attempted. Suffice it to say that the term "contract, express
or implied" is used by common-law jurists to include all purely personal obligations other than those which have their
source in delict, or tort. As to these it may be said that, generally speaking, the law does not impose a contractual duty
upon a wrongdoer to compensate for injury done. It is true that in certain situations where a wrongdoer unjustly
acquires something at the expense of another, the law imposes on him a duty to surrender his unjust acquisitions, and
the injured party may here elect to sue upon this contractual duty instead of suing upon the tort; but even here the
distinction between the two liabilities, in contract and in tort, is never lost to sight; and it is always recognized that the
liability arising out of the tort is delictual and not of a contractual or quasi-contractual nature.

In the case now under consideration the duty of the defendant to refund the money which he won from the plaintiff at
gaming is a duty imposed by statute. It therefore arises ex lege. Furthermore, it is a duty to return a certain sum which
had passed from the plaintiff to the defendant. By all the criteria which the common law supplies, this is a duty in the
nature of debt and is properly classified as an implied contract. It is well-settled by the English authorities that money
lost in gambling or by lottery, if recoverable at all, can be recovered by the loser in an action of indebitatus assumpsit
for money had and received. (Clarke v. Johnson, Lofft, 759; Mason v. Waite, 17 Mass., 560; Burnham v. Fisher, 25 Vt.,
514.) This means that in the common law the duty to return money won in this way is an implied contract, or quasi-
contract.

It is no argument to say in reply to this that the obligation here recognized is called an implied contract merely because
the remedy commonly used in suing upon ordinary contracts can be here used, or that the law adopted the fiction of a
promise in order to bring the obligation within the scope of the action of assumpsit. Such statements fail to express the
true import of the phenomenon. Before the remedy was the idea; and the use of the remedy could not have been
approved if it had not been for historical antecedents which made the recognition of this remedy at once logical and
proper. Furthermore, it should not be forgotten that the question is not how this duty came to be recognized in the
common law as a contractual duty but what sort of obligation did the author of the Code of Civil Procedure intend to
describe when he used the term implied contract in section 412.

In what has been said we have assumed that the obligation which is at the foundation of the original action in the court
below is not a quasi-contract, when judged by the principles of the civil law. A few observations will show that this
assumption is not by any means free from doubt. The obligation in question certainly does not fall under the definition
of either of the two quasi-contracts which are made the subject of special treatment in the Civil Code, for it does not
arise from a licit act as contemplated in article 1887 and the money was not paid under error as contemplated in article
1895. The obligation is clearly a creation of the positive law — a circumstance which brings it within the purview of
article 1090, in relation with article 1089; and it is also derived from an illicit act, namely, the playing of a prohibited
game. It is thus seen that the provisions of the Civil Code which might be consulted with a view to the correct
theoretical classification of this obligation are unsatisfactory and confusing.

The two obligations treated in the chapter devoted to quasi-contracts in the Civil Code are: (1) The obligation incident
to the officious management of the affairs of other persons (gestion de negocios ajenos) and (2) the recovery of what
has been improperly paid (cobro de lo indebido). That the authors of the Civil Code selected these two obligations for
special treatment does not signify an intention to deny the possibility of the existence of other quasi-contractual
obligations. As is well said by the commentator Manresa.

"The number of the quasi-contracts may be indefinite as may be the number of lawful facts, the generations of the said
obligations; but the Code, just as we shall see further on, in the impracticableness of enumerating or including them all
in a methodical and orderly classification, has concerned itself with two only — namely, the management of the affairs
of other persons and the recovery of things improperly paid — without attempting by this to exclude the others."
(Manresa, 2d ed., vol. 12, p. 549.)

It would indeed have been surprising if the authors of the Code, in the light of the jurisprudence of more than a
thousand years, should have arbitrarily assumed to limit the quasi-contracts to two obligations. The author from whom
we have just quoted further observes that the two obligations in question were selected for special treatment in the
Code not only because they were the most conspicuous of the quasi-contracts, but because they had not been the
subject of consideration in other parts of the Code. (Opus citat., p. 550.)

It is well recognized among civilian jurists that the quasi-contractual obligations cover a wide range. The Italian jurist,
Jorge Giorgi, to whom we have already referred, considers under this head, among other obligations, the following:
payments made upon a future consideration which is not realized, or upon an existing consideration which fails;
payments wrongfully made upon a consideration which is contrary to law, or opposed to public policy; and payments
made upon a vicious consideration or obtained by illicit means (Giorgi, Teoria de las Obligaciones, vol. 5, art. 130.)

In permitting the recovery of money lost at play, Act No. 1757 has introduced modifications in the application of articles
179g, 1801, and 1305 of the Civil Code. The first two of these articles relate to gambling contracts, while article 1305
treats of the nullity of contracts proceeding from a vicious or illicit consideration. Taking all these provisions together, it
must be apparent that the obligation to return money lost at play has a decided affinity to contractual obligations; and
we believe that it could, without violence to the doctrines of the civil law, be held that such obligations is an innominate
quasi-contract. It is, however, unnecessary to place the decision on this ground.

From what has been said it follows that in our opinion the cause of action stated in the complaint in the court below is
based on a contract, express or implied, and is therefore of such nature that the court had authority to issue the writ of
attachment. The application for the writ of certiorari must therefore be denied and the proceedings dismissed. So
ordered.

Arellano, C.J., Torres, Johnson and Carson, JJ., concur.

Separate Opinions

MALCOLM, J., concurring:chanrob1es virtual 1aw library

As I finished reading the learned and interesting decision of the majority, the impression which remained was that the
court was enticed by the nice and unusual points presented to make a hard case out of an easy one, and unfortunately
to do violence to the principles of certiorari. The simple questions are: Did the Court of First Instance of the city of
Manila exceed its jurisdiction in granting an attachment against the property of the defendant, now plaintiff? Has this
defendant, now become the plaintiff, any other plain, speedy, and adequate remedy? The answers are found in the
decision of this court, in Herrera v. Barretto and Joaquin ([1913], 25 Phil., 245), from which I quote the
following:jgc:chanrobles.com.ph

"It has been repeatedly held by this court that a writ of certiorari will not be issued unless it clearly appears that the
court to which it is to be directed acted without or in excess of jurisdiction. It will not be issued to cure errors in the
proceedings or to correct erroneous conclusions of law or of fact. If the court has jurisdiction of the subject matter and
of the person, decisions upon all questions pertaining to the cause are decisions within its jurisdiction and, however
irregular or erroneous they may be, cannot be corrected by certiorari. The Code of Civil Procedure giving Courts of
First Instance general jurisdiction in actions for mandamus, it goes without saying that the Court of First Instance had
jurisdiction in the present case to resolve every question arising in such an action and to decide every question
presented to it which pertained to the cause. It has already been held by this court that, while it is a power to be
exercised only in extreme cases, a Court of First Instance has power to issue a mandatory injunction to stand until the
final determination of the action in which it is issued. While the issuance of the mandatory injunction in this particular
case may have been irregular and erroneous, a question concerning which we express no opinion, nevertheless its
issuance was within the jurisdiction of the court and its action is not reviewable on certiorari. It is not sufficient to say
that it was issued wrongfully and without sufficient grounds and in the absence of the other party. The question is, Did
the court act with jurisdiction?

"It has been urged that the court exceeded its jurisdiction in requiring the municipal president to issue the license, for
the reason that he was not the proper person to issue it and that, if he was the proper person, he had the right to
exercise a discretion as to whom the license should be issued. We do not believe that either of these questions goes to
the jurisdiction of the court to act. One of the fundamental questions in a mandamus against a public officer is whether
or not that officer has the right to exercise discretion in the performance of the act which the plaintiff asks him to
perform. It is one of the essential determinations of the cause. To claim that the resolution of that question may deprive
the court of jurisdiction is to assert a novel proposition. It is equivalent to the contention that a court has jurisdiction if
he decides right but no jurisdiction if he decides wrong. It may be stated generally that it is never necessary to decide
the fundamental questions of a cause to determine whether the court has jurisdiction. The question of jurisdiction is
preliminary and never touches the merits of the case. The determination of the fundamental questions of a cause are
merely the exercise of a jurisdiction already conceded. In the case at bar no one denies the power, authority, or
jurisdiction of the Court of First Instance to take cognizance of an action for mandamus and to decide every question
which arises in that cause and pertains thereto. The contention that the decision of one of those questions, if wrong,
destroys jurisdiction involves an evident contradiction.

"Jurisdiction is the authority to hear and determine a cause — the right to act in a case. Since it is the power to hear
and determine, it does not depend either upon the regularity of the exercise of that power or upon the rightfulness of
the decisions made. Jurisdiction should therefore be distinguished from the exercise of jurisdiction. The authority to
decide a cause at all, and not the decision rendered therein, is what makes up jurisdiction. Where there is jurisdiction
of the person and subject matter, as we have said before, the decision of all other questions arising in the case is but
an exercise of that jurisdiction."cralaw virtua1aw library

Then follows an elaborate citation and discussion of American authorities, including a decision of the United States
Supreme Court and of the applicable Philippine cases. The decision continues:jgc:chanrobles.com.ph

"The reasons given in these cases last cited for the allowance of the writ of prohibition are applicable only to the class
of cases with which the decisions deal and do not in any way militate against the general proposition herein asserted.
Those which relate to election contests are based upon the principle that those proceedings are special in their nature
and must be strictly followed, a material departure from the statute resulting in a loss, or in an excess, of jurisdiction.
The cases relating to receivers are based, in a measure, upon the same principle, the appointment of a receiver being
governed by the statute; and in part upon the theory that the appointment of a receiver in an improper case is in
substance a bankruptcy proceeding, the taking of which is expressly prohibited by law. The case relative to the
allowance of alimony pendente lite when the answer denies the marriage is more difficult to distinguish. The reasons in
support of the doctrine laid down in that case are given in the opinion in full and they seem to place the particular case
to which they refer in a class by itself.

"It is not a light thing that the lawmakers have abolished writs of error and with them certiorari and prohibition, in so far
as they were methods by which the mere errors of an inferior court could be corrected. As instruments to that end they
no longer exist. Their place is now taken by the appeal. So long as the inferior court retains jurisdiction its errors can be
corrected only by that method. The office of the writ of certiorari has been reduced to the correction of defects of
jurisdiction solely and cannot legally be used for any other purpose. It is truly an extra-ordinary remedy and, in this
jurisdiction, its use is restricted to truly extraordinary cases — cases in which the action of the inferior court is wholly
void; where any further steps in the case would result in a waste of time and money and would produce no result
whatever; where the parties, or their privies, would be utterly deceived; where a final judgment or decree would be
nought but a snare and a delusion, deciding nothing, protecting nobody, a judicial pretension, a recorded falsehood, a
standing menace. It is only to avoid such results as these that a writ of certiorari is issuable; and even here an appeal
will lie if the aggrieved party prefers to prosecute it.

"A full and thorough examination of all the decided cases in this court touching the question of certiorari and prohibition
fully supports the proposition already stated that, where a Court of First Instance has jurisdiction of the subject matter
and of the person, its decision of any question pertaining to the cause, however erroneous, cannot be reviewed
by certiorari, but must be corrected by appeal."cralaw virtua1aw library

I see no reason to override the decision in Herrera v. Barretto and Joaquin (supra). Accordingly, I can do no better than
to make the language of Justice Moreland my own. Applying these principles, it is self-evident that this court should not
entertain the present petition and should not grant the desired relief.

FISHER, J., dissenting:chanrob1es virtual 1aw library

I am in full accord with the view that the remedy of certiorari may be invoked in such cases as this, but I am
constrained to dissent from the opinion of the majority as regards the meaning of the term "implied contract."cralaw
virtua1aw library

Section 412 of the Code of Civil Procedure, in connection with section 424, authorizes the preliminary attachment of
the property of the defendant:" (1) In an action for the recovery of money or damages on a cause of action arising upon
contract, express or implied, when the defendant is about to depart from the Philippine Islands, with intent to defraud
his creditors; (2) . . .; (3) . . .; (4) . . .; (5) When the defendant has removed or disposed of his property, or is about to do
so, with intent to defraud his creditors."cralaw virtua1aw library

It is evident that the terms of paragraph five of the article cited are much broader than those of the first paragraph. The
fifth paragraph is not limited to actions arising from contract, but is by its terms applicable to actions brought for the
purpose of enforcing extra-contractual rights as well as contractual rights. The limitation upon cases falling under
paragraph five is to be found, not in the character of the obligation for the enforcement for which the action is brought,
but in the terms of article 426, which requires that the affidavit show that "the amount due the plaintiff . . . is as much as
the sum for which the order is granted."cralaw virtua1aw library

That is to say, when an application is made for a preliminary attachment upon the ground that the plaintiff is about to
dispose of his property with intent to defraud his creditors — thus bringing the case within the terms of paragraph five
of the section — it is not necessary to show that the obligation in suit is contractual in its origin, but it is sufficient to
show that the breach of the obligation, as shown by the facts stated in the complaint and affidavit, imposes upon the
defendant the obligation to pay a specific and definite sum. For example, if it is alleged in the complaint that the
defendant by his negligence, has caused the destruction by fire of a building belonging to plaintiff, and that such
building was worth a certain sum of money, these facts would show a definite basis upon which to authorize the
granting of the writ. But if it were averred that the defendant has published a libel concerning the plaintiff, to the injury
of his feelings and reputation, there is no definite basis upon which to grant an attachment, because the amount of the
damage suffered, being necessarily uncertain and indeterminate, cannot be ascertained definitely until the trial has
been completed.

But it appears that the legislature, although it has seen fit to authorize a preliminary attachment in aid of actions of all
kinds when the defendant is concealing his property with intent to defraud his creditors, has provided that when the
ground of attachment is that the defendant is about to depart from the country with intent to defraud his creditors, the
writ will issue only when the action in aid of which it is sought arises from a contract "express or implied." If an
attachment were permitted upon facts bringing the application within the first paragraph of the section in support of
actions of any kind, whether the obligation sued upon is contractual or not, then paragraph five would by construction
be made absolutely identical with paragraph one, and this would be in effect equivalent to the complete elimination of
the last two lines of the first paragraph. It is a rule of statutory construction that effect should be given to all parts of the
statute, if possible. I can see no reason why the legislature should have limited cases falling within the first paragraph
to actions arising from contract and have refrained from imposing this limitation with respect to cases falling within the
terms of the fifth paragraph, but this should have no effect upon us in applying the law. Whether there be a good
reason for it or not the distinction exists.

Had the phrase "express or implied" not been used to qualify "contract," there would be no doubt whatever with regard
to the meaning of the word. In the Spanish civil law contracts are always consensual, and it would be impossible to
define as a contract the juridical relation existing between a person who has lost money at gaming and the winner of
such money, simply because the law imposes upon the winner the obligation of making restitution. An obligation of this
kind, far from being consensual in its origin, arises against the will of the debtor. To call such a relation a contract is,
from the standpoint of the civil law, a contradiction in terms.

But it is said that as the phrase "express or implied" has been used to qualify the word "contract," and these words are
found in a statute which "speaks the language of the common law," this implies the introduction into our law of the
concept of the "implied contract" of the English common law, a concept which embraces a certain class of obligations
originating ex lege, which have been arbitrarily classified- as contracts, so that they might be enforced by one of the
formal actions of the common law which legal tradition and practice has reserved for the enforcement of contract. I
cannot concur in this reasoning. I believe that when a technical juridical term of substantive law is used in the adjective
law of these Islands, we should seek its meaning in our own substantive law rather than in the law of America or of
England. The Code of Civil Procedure was not enacted to establish rules of substantive law, but upon the assumption
of the existence of these rules.

In the case of Cayce v. Curtis (Dallam’s Decisions, Texas Reports, 403), it appears that the legislature, at a time when
that State still retained to a large extent the Spanish substantive civil law, enacted a statute in which the word "bond" is
used. In litigation involving the construction of that statute, one of the parties contended that the word "bond" should be
given the technical meaning which it had in the English Common Law. The court rejected this contention, saying —

"On the first point it is urged by counsel for the appellant that the word ’bond,’ used in the statute, being a common law
term, we must refer to the common law for its legal signification; and that by that law no instrument is a bond which is
not under seal. The truth of the proposition that sealing is an absolute requisite to the validity of a bond at common law
is readily admitted; but the applicability of that rule to the case under consideration is not perceived. This bond was
taken at a time when the common law afforded no rule of decision or practice in this country, and consequently that law
cannot be legitimately resorted to, even for the purpose for which it is invoked by the counsel for the appellant, unless it
be shown that the civil law (which under certain modifications was at that time the law of the land) had no term of
similar import; for we regard it as a correct rule of construction, that where technical terms are used in a statute, they
are to be referred for their signification to terms of similar import in the system of laws which prevails in the country
where the statute is passed, and not to another system which is entirely foreign to the whole system of municipal
regulations by which that country is governed. (Martin’s Reports, vol. 3, 185; 7 Martin [N. S. ], 162.)"

Consequently, I believe that in the interpretation of the phrase "contract, express or implied," we should apply the rules
of our own substantive law. The phrase in itself offers no difficulty. The concept of the contract, under the Civil Code,
as a legal relation of exclusively consensual origin, offers no difficulty. Nor is any difficulty encountered in the
grammatical sense of the words "express" and "implied." "Express," according to the New International Dictionary is
"that which is directly and distinctly stated; expressed, not merely implied or left to inference." Therefore, a contract
entered into by means of letters, in which the offer and the acceptance have been manifested by appropriate words,
would be an "express contract." The word "imply," according to the same dictionary, is "to involve in substance or
essence, or by fair inference, or by construction of law, when not expressly stated in words or signs; to contain by
implication; to include virtually."cralaw virtua1aw library

Therefore, if I enter a tailor shop and order a suit of clothes, although nothing is said regarding payment, it is an
inference, both logical and legal, from my act that it is my intention to pay the reasonable value of the garments. The
contract is implied, but it is none the less purely consensual. An implied contract, therefore, is that in which the consent
of the parties is implied.

Manresa, commenting upon article 1262 of the Civil Code, says:jgc:chanrobles.com.ph

"The essence of consent is the agreement of the parties concerning that which is to constitute the contract . . . . The
forms of this agreement may vary according to whether it is expressed verbally or in writing, by words or by acts.
Leaving the other differences for consideration hereafter, we will only refer now to those which exist between express
consent and implied consent . . . . It is unquestionable that implied consent manifested by acts or conduct, produces a
contract . . . ."cralaw virtua1aw library

If it were necessary to have recourse to the English common law for the purpose of ascertaining the meaning of the
phrase under consideration, we could find many decisions which gave it the same meaning as that for which I contend.

"An implied contract is where one party receives benefits from another party, under such circumstances that the law
presumes a promise on the part of the party benefited to pay a reasonable price for the same." (Jones v. Tucker [Del. ],
84 Atlantic, 1012.)

It is true that English courts have extended the concept of the term "contract" to include certain obligations arising ex
lege without consent, express or implied. True contracts created by implied consent are designated in the English
common law as "contracts implied in fact," while the so-called "contracts" in which the consent is a fiction of law are
called "contracts implied by law." But it is evident that the latter are not real contracts. They have been called
"contracts" arbitrarily by the courts of England, and those of the United States in which the English common law is in
force, in order that certain actions arising ex lege may be enforced by the action of assumpsit. In the rigid formulism of
the English common law the substantive right had to be accommodated to the form of action. As is stated in the
monograph on the action of assumpsit in Ruling Case Law (volume 2, p. 743) —

"In theory it was an action to recover for the nonperformance of simple contracts, and the formula and proceedings
were constructed and carried on accordingly. . . . From the reign of Elizabeth this action has been extended to almost
every case where an obligation arises from natural reason, . . . and it is now maintained in many cases which its
principles do not comprehend and where fictions and intendments are resorted to, to fit the actual cause of action to
the theory of the remedy. It is thus sanctioned where there has been no . . . real contract, but where some duty is
deemed sufficient to justify the court in imputing a promise to perform it, and hence in bending the transaction to the
form of action."cralaw virtua1aw library

In the ancient English common law procedure the form of the action was regarded as being much more important than
the substantive right to be enforced. If no form of action was found into which the facts would fit, so much the worse for
the facts! To avoid the injustices to which this condition of affairs gave rise, the judges invented those fictions which
permitted them to preserve the appearance of conservatism and change the law without expressly admitting that they
were doing so. The indispensable averment, without which the action of assumpsit would not lie, was that the
defendant promised to pay plaintiff the amount demanded. (Sector v. Holmes, 17 Va., 566.) In true contracts, whether
express or implied, this promise in fact exists. In obligations arising ex lege there is no such promise, and therefore the
action of assumpsit could not be maintained, although by reason of its relative simplicity it was one of the most favored
forms of action. In order to permit the litigant to make use of this form of action for the enforcement of certain classes of
obligations arising ex lege, the judges invented the fiction of the promise of the defendant to pay the amount of the
obligation, and as this fictitious promise gives the appearance of consensuality to the legal relations of the parties, the
name of implied contract is given to that class of extra-contractual obligations enforcible by the action of assumpsit.

Now, it is not to be supposed that it was the intention of the Legislature in making use in the first paragraph of article
412 of the phrase "contract, express or implied" to corrupt the logical simplicity of our concept of obligations by
importing into our law the antiquated fictions of the mediaeval English common law. If one of the concepts of the term
"implied contract" in the English common law, namely, that in which consent is presumed from the conduct of the
debtor, harmonizes with the concept of the contract in our law, why should we reject that meaning and hold that the
Legislature intended to use this phrase in the foreign and illogical sense of a "contract" arising without consent? This is
a civil law country. Why should we be compelled to study the fictions of the ancient English common law, in order to be
informed as to the meaning of the word "contract" in the law of the Philippine Islands? Much more reasonable to my
mind was the conclusion of the Texas court, under similar circumstances, to the effect that "Where technical terms are
used in a statute they are to be referred for their signification to terms of similar import in the system of laws which
prevails in the country where the statute is passed." (Cayce v. Curtis, supra.)

My conclusion is that the phrase "contract, express or implied" should be interpreted in the grammatical sense of the
words and limited to true contracts, consensual obligations arising from consent, whether expressed in words, writing
or signs, or presumed from conduct. As it is evident that the defendant in the present case never promised, expressly
or by implication, to return the money won from him in the gambling game in question, his obligation to restore the
amount so won, imposed by the law, is not contractual, but purely extra-contractual, and therefore the action brought
not being one arising upon "contract, express or implied," the plaintiff! is not entitled to a preliminary attachment upon
the averment that the defendant is about to depart from the Philippine Islands with intent to defraud his creditors, no
averment being made in the complaint or in the affidavit that the defendant has removed or disposed of his property, or
is about to depart with intent to defraud his creditors, so as to bring the case within the terms of the fifth paragraph of
section 412.

I am unable to agree with the contention of the applicant (brief, p. 39) here that the phrase in question should be
interpreted in such a way as to include all obligations, whether arising from consent or ex lege, because that is
equivalent to eliminating all distinction between the first and the fifth paragraphs by practically striking out the first two
lines of paragraph one. The Legislature has deliberately established this distinction, and while we may be unable to
see any reason why it should have been made, it is our duty to apply and interpret the law, and we are not authorized
under the guise of interpretation to virtually repeal part of the statute.

Nor can it be said that the relations between the parties litigant constitute a quasi contract. In the first place, quasi
contracts are "lawful and purely voluntary acts by which the authors thereof become obligated in favor of a third person
. . . ." (Civil Code, article 1887.) The act which gave rise to the obligation ex lege relied upon by the plaintiff in the court
below is illicit — an unlawful gambling game. In the second place, the first paragraph of section 412 of the Code of Civil
Procedure does not authorize an attachment in actions arising out of quasi contracts, but only in actions arising out of
contracts, express or implied.

I am therefore of the opinion that the court below was without jurisdiction to issue the writ of attachment, and that the
writ should be declared null and void.

FIRST DIVISION

[G.R. No. L-3489. September 7, 1907. ]

VICENTE NAVALES, Plaintiff-Appellee, v. EULOGIA RIAS, ET AL., Defendants-Appellants.

Pantaleon E. del Rosario, for Appellants.

F. Sevilla y Macam, for Appellee.

SYLLABUS

1. CONTRACT; DAMAGES. — When there exists no proof that a contract was entered into between the plaintiff and
the defendants, or that the latter performed any illegal act or omission, or other acts or omissions in which any kind of
 fault or negligence occurred from any of which an obligation to indemnify the plaintiff could have arisen, a claim for
damages can not be sustained under any consideration, there being no right of action.

2. REALTY; JUDGMENT; EJECTMENT; DAMAGES. — When the illegality of the judgment rendered by a justice of
the peace, and of the writ of execution issued for the enforcement thereof, or of the acts performed by the sheriff in
compliance therewith, has not been proven, it is presumed that the official duty has been regularly performed, and that
from the details of the execution of the aforesaid judgment, which have not been disputed nor alleged to be null or
illegal, it is not possible to impute liability on the part of the plaintiff who obtained a final decision, and much less to
compel him to indemnify the person who was defeated in the action and who was sentenced to be ejected form the
land he improperly occupied.

DECISION

TORRES, J.  :

On the 18th of November, 1904, Vicente Navales filed a complaint with the Court of First Instance of Cebu against
Eulogia Rias and Maximo Requiroso, claiming that the latter should be sentenced to pay him the sum of 1,200 pesos,
Philippine currency, as damages, together with costs and such other expenses as the court might consider just and
equitable. To this end he alleged that the said defendants, without due cause, ordered the pulling down and destruction
of his house erected in Daanbuangan, town of Naga, Island of Cebu, which was 6 meters in height with an area of 8.70
square meters, built of wood with a nipa roof, and worth 1,000 pesos, which amount he expended in its construction.
He further alleged that the destruction took place in the month of April, 1904, and that, notwithstanding his efforts, he
had not obtained any reimbursement from the defendants, and that by reason of their refusal he had been prejudiced
to the extent of 200 pesos, Philippine currency.

The defendants, in answer to the foregoing complaint, denied all and each one of the allegations therein contained,
and asked that judgment be entered dismissing the complaint with costs against the plaintiff.

After considering the proofs submitted by both parties and the proceedings upon the trial, the judge, on the 17th of
January, 1906, rendered judgment declaring that the decision entered by the justice of the peace of Naga, and the
order given by virtue thereof were illegal, as well as the action of the deputy sheriff Luciano Bacayo, that the defendant
were thereby liable for the damages caused to the plaintiff, which amounted to 500 pesos, and that the defendants
were sentenced to pay the said sum to the plaintiff, with costs. The defendant upon being informed of this decision,
asked that it be set aside, and also moved for a new trial on the ground that the decision was not in accordance with
the weight of the evidence. The motion was denied, to which exception was taken, and at the request of the interested
party, the corresponding bill of exceptions was limited.

The aim of this litigation, therefore, is to obtain payment through a judicial decision, of the damages said to have been
caused by the execution of a judgment rendered by the justice of the peace, in an action for ejectment.

It is undeniable that, in order to remove from the land of Eulogia Rias, situated within the jurisdiction of the town of
Naga, the house which Vicente Navales had constructed thereon, by virtue of the decision of the justice in the action
instituted by the said Eulogia Rias against the owner of the house, Vicente Navales, the deputy sheriff who carried the
judgment into execution was obliged to destroy the said house and removed it from the land, according to the usual
procedure in the action for ejectment.

In the order of execution issued to the deputy sheriff, the directive portion of the judgment of the justice of the peace
was inserted, and it contained the essential statement that the said judgment, by reason of its not having been
appealed from, had become final, and from the contents of the same may be inferred that there had been an action for
ejectment between the above-named parties, and that there was no reason why it should not be enforced when it had
already become final and acquired the nature of res adjudicata.

Section 72 of the Code of Civil Procedure reads:jgc:chanrobles.com.ph

"Execution. — If no appeal from a judgment of a justice of the peace shall be perfected as herein provided, the justice
of the peace shall, at the request of the successful party, issue execution for the enforcement of the judgment, and the
expiration of the time limited by law for the perfection of an appeal."cralaw virtua1aw library

Assuming that the order for execution of final judgment was issued in accordance with the law, and in view of the fact
that it has not been alleged nor proven that the sheriff when complying with the same had committed trespass or
exceeded his functions, it must be presumed according to section 334 (14) of the said Code of Procedure, that the
official duty was regularly performed. Therefore, it is not possible to impute liability to the plaintiff who obtained the
judgment and the execution thereof, when the same was not disputed nor alleged to be null or illegal, and much less to
compel the payment of damages to the person who was defeated in the action and sentenced to be ejected from the
land which he improperly occupied with his house.

No proof has been submitted that a contract had been entered into between the plaintiff and the defendants, or that the
latter had committed illegal acts or omissions or incurred in any kind of fault or negligence, from any of which an
obligation might have arisen on the part of the defendants to indemnify the plaintiff. For this reason, the claim for
indemnity, on account of acts performed by the sheriff while enforcing a judgment, can not under any consideration be
sustained. (Art. 1089, Civil Code.)

The illegality of the judgment of the justice of the peace, that of the writ of execution thereunder, or of the acts
performed by the sheriff for the enforcement of the judgment, has not been shown. Therefore, for the reasons
hereinbefore set forth, the judgment appealed from is hereby reversed, and the complaint for damages filed by Vicente
Navales against Eulogia Rias and Maximo Requiroso is dismissed without special ruling as to costs. So ordered.

Arellano, C.J., Johnson, Willard, and Tracey, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.

Conrado Rubio for appellant.

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

MONTEMAYOR, J.:

The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern Theatrical
Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and among the persons
employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties were to guard the
main entrance of the cine, to maintain peace and order and to report the commission of disorders within the premises.
As such guard he carried a revolver. In the afternoon of July 4, 1941, one Benjamin Martin wanted to crash the gate or
entrance of the movie house. Infuriated by the refusal of plaintiff De la Cruz to let him in without first providing himself
with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at
which moment to save himself he shot the gate crasher, resulting in the latter's death.

For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First Instance of Ilocos
Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a motion to dismiss the complaint,
which was granted by the court in January 1943. On July 8, 1947, De la Cruz was again accused of the same crime of
homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally acquitted of the charge on January 31,
1948. In both criminal cases De la Cruz employed a lawyer to defend him. He demanded from his former employer
reimbursement of his expenses but was refused, after which he filed the present action against the movie corporation
and the three members of its board of directors, to recover not only the amounts he had paid his lawyers but also moral
damages said to have been suffered, due to his worry, his neglect of his interests and his family as well in the
supervision of the cultivation of his land, a total of P15,000. On the basis of the complaint and the answer filed by
defendants wherein they asked for the dismissal of the complaint, as well as the agreed statement of facts, the Court of
First Instance of Ilocos Norte after rejecting the theory of the plaintiff that he was an agent of the defendants and that
as such agent he was entitled to reimbursement of the expenses incurred by him in connection with the agency (Arts.
1709-1729 of the old Civil Code), found that plaintiff had no cause of action and dismissed the complaint without costs.
De la Cruz appealed directly to this Tribunal for the reason that only questions of law are involved in the appeal.

We agree with the trial court that the relationship between the movie corporation and the plaintiff was not that of
principal and agent because the principle of representation was in no way involved. Plaintiff was not employed to
represent the defendant corporation in its dealings with third parties. He was a mere employee hired to perform a
certain specific duty or task, that of acting as special guard and staying at the main entrance of the movie house to
stop gate crashers and to maintain peace and order within the premises. The question posed by this appeal is whether
an employee or servant who in line of duty and while in the performance of the task assigned to him, performs an act
which eventually results in his incurring in expenses, caused not directly by his master or employer or his fellow
servants or by reason of his performance of his duty, but rather by a third party or stranger not in the employ of his
employer, may recover said damages against his employer.

The learned trial court in the last paragraph of its decision dismissing the complaint said that "after studying many laws
or provisions of law to find out what law is applicable to the facts submitted and admitted by the parties, has found
none and it has no other alternative than to dismiss the complaint." The trial court is right. We confess that we are not
aware of any law or judicial authority that is directly applicable to the present case, and realizing the importance and
far-reaching effect of a ruling on the subject-matter we have searched, though vainly, for judicial authorities and
enlightenment. All the laws and principles of law we have found, as regards master and servants, or employer and
employee, refer to cases of physical injuries, light or serious, resulting in loss of a member of the body or of any one of
the senses, or permanent physical disability or even death, suffered in line of duty and in the course of the
performance of the duties assigned to the servant or employee, and these cases are mainly governed by the
Employer's Liability Act and the Workmen's Compensation Act. But a case involving damages caused to an employee
by a stranger or outsider while said employee was in the performance of his duties, presents a novel question which
under present legislation we are neither able nor prepared to decide in favor of the employee.

In a case like the present or a similar case of say a driver employed by a transportation company, who while in the
course of employment runs over and inflicts physical injuries on or causes the death of a pedestrian; and such driver is
later charged criminally in court, one can imagine that it would be to the interest of the employer to give legal help to
and defend its employee in order to show that the latter was not guilty of any crime either deliberately or through
negligence, because should the employee be finally held criminally liable and he is found to be insolvent, the employer
would be subsidiarily liable. That is why, we repeat, it is to the interest of the employer to render legal assistance to its
employee. But we are not prepared to say and to hold that the giving of said legal assistance to its employees is a legal
obligation. While it might yet and possibly be regarded as a normal obligation, it does not at present count with the
sanction of man-made laws.

If the employer is not legally obliged to give, legal assistance to its employee and provide him with a lawyer, naturally
said employee may not recover the amount he may have paid a lawyer hired by him.

Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the expenses incurred
by him in remunerating his lawyer, is not caused by his act of shooting to death the gate crasher but rather by the filing
of the charge of homicide which made it necessary for him to defend himself with the aid of counsel. Had no criminal
charge been filed against him, there would have been no expenses incurred or damage suffered. So the damage
suffered by plaintiff was caused rather by the improper filing of the criminal charge, possibly at the instance of the heirs
of the deceased gate crasher and by the State through the Fiscal. We say improper filing, judging by the results of the
court proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If despite his innocence
and despite the absence of any criminal responsibility on his part he was accused of homicide, then the responsibility
for the improper accusation may be laid at the door of the heirs of the deceased and the State, and so theoretically,
they are the parties that may be held responsible civilly for damages and if this is so, we fail to see now this
responsibility can be transferred to the employer who in no way intervened, much less initiated the criminal
proceedings and whose only connection or relation to the whole affairs was that he employed plaintiff to perform a
special duty or task, which task or duty was performed lawfully and without negligence.

Still another point of view is that the damages incurred here consisting of the payment of the lawyer's fee did not flow
directly from the performance of his duties but only indirectly because there was an efficient, intervening cause,
namely, the filing of the criminal charges. In other words, the shooting to death of the deceased by the plaintiff was not
the proximate cause of the damages suffered but may be regarded as only a remote cause, because from the shooting
to the damages suffered there was not that natural and continuous sequence required to fix civil responsibility.

In view of the foregoing, the judgment of the lower court is affirmed. No costs.

Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ.,  concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-4089             January 12, 1909

ARTURO PELAYO, plaintiff-appellant,
vs.
MARCELO LAURON, ET AL., defendants-appellees.

J.H. Junquera, for appellant.

Filemon Sotto, for appellee.

TORRES, J.:

On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed a complaint against Marcelo Lauron
and Juana Abella setting forth that on or about the 13th of October of said year, at night, the plaintiff was called to the
house of the defendants, situated in San Nicolas, and that upon arrival he was requested by them to render medical
assistance to their daughter-in-law who was about to give birth to a child; that therefore, and after consultation with the
attending physician, Dr. Escaño, it was found necessary, on account of the difficult birth, to remove the fetus by means
of forceps which operation was performed by the plaintiff, who also had to remove the afterbirth, in which services he
was occupied until the following morning, and that afterwards, on the same day, he visited the patient several times;
that the just and equitable value of the services rendered by him was P500, which the defendants refuse to pay without
alleging any good reason therefor; that for said reason he prayed that the judgment be entered in his favor as against
the defendants, or any of them, for the sum of P500 and costs, together with any other relief that might be deemed
proper.

In answer to the complaint counsel for the defendants denied all of the allegation therein contained and alleged as a
special defense, that their daughter-in-law had died in consequence of the said childbirth, and that when she was alive
she lived with her husband independently and in a separate house without any relation whatever with them, and that, if
on the day when she gave birth she was in the house of the defendants, her stay their was accidental and due to
fortuitous circumstances; therefore, he prayed that the defendants be absolved of the complaint with costs against the
plaintiff.

The plaintiff demurred to the above answer, and the court below sustained the demurrer, directing the defendants, on
the 23rd of January, 1907, to amend their answer. In compliance with this order the defendants presented, on the
same date, their amended answer, denying each and every one of the allegations contained in the complaint, and
requesting that the same be dismissed with costs.

As a result of the evidence adduced by both parties, judgment was entered by the court below on the 5th of April,
1907, whereby the defendants were absolved from the former complaint, on account of the lack of sufficient evidence
to establish a right of action against the defendants, with costs against the plaintiff, who excepted to the said judgment
and in addition moved for a new trial on the ground that the judgment was contrary to law; the motion was overruled
and the plaintiff excepted and in due course presented the corresponding bill of exceptions. The motion of the
defendants requesting that the declaration contained in the judgment that the defendants had demanded therefrom, for
the reason that, according to the evidence, no such request had been made, was also denied, and to the decision the
defendants excepted.

Assuming that it is a real fact of knowledge by the defendants that the plaintiff, by virtue of having been sent for by the
former, attended a physician and rendered professional services to a daughter-in-law of the said defendants during a
difficult and laborious childbirth, in order to decide the claim of the said physician regarding the recovery of his fees, it
becomes necessary to decide who is bound to pay the bill, whether the father and mother-in-law of the patient, or the
husband of the latter.

According to article 1089 of the Civil Code, obligations are created by law, by contracts, by quasi-contracts, and by
illicit acts and omissions or by those in which any kind of fault or negligence occurs.

Obligations arising from law are not presumed. Those expressly determined in the code or in special laws, etc., are the
only demandable ones. Obligations arising from contracts have legal force between the contracting parties and must
be fulfilled in accordance with their stipulations. (Arts. 1090 and 1091.)

The rendering of medical assistance in case of illness is comprised among the mutual obligations to which the spouses
are bound by way of mutual support. (Arts. 142 and 143.)

If every obligation consists in giving, doing or not doing something (art. 1088), and spouses are mutually bound to
support each other, there can be no question but that, when either of them by reason of illness should be in need of
medical assistance, the other is under the unavoidable obligation to furnish the necessary services of a physician in
order that health may be restored, and he or she may be freed from the sickness by which life is jeopardized; the party
bound to furnish such support is therefore liable for all expenses, including the fees of the medical expert for his
professional services. This liability originates from the above-cited mutual obligation which the law has expressly
established between the married couple.

In the face of the above legal precepts it is unquestionable that the person bound to pay the fees due to the plaintiff for
the professional services that he rendered to the daughter-in-law of the defendants during her childbirth, is the
husband of the patient and not her father and mother- in-law, the defendants herein. The fact that it was not the
husband who called the plaintiff and requested his assistance for his wife is no bar to the fulfillment of the said
obligation, as the defendants, in view of the imminent danger, to which the life of the patient was at that moment
exposed, considered that medical assistance was urgently needed, and the obligation of the husband to furnish his
wife in the indispensable services of a physician at such critical moments is specially established by the law, as has
been seen, and compliance therewith is unavoidable; therefore, the plaintiff, who believes that he is entitled to recover
his fees, must direct his action against the husband who is under obligation to furnish medical assistance to his lawful
wife in such an emergency.

From the foregoing it may readily be understood that it was improper to have brought an action against the defendants
simply because they were the parties who called the plaintiff and requested him to assist the patient during her difficult
confinement, and also, possibly, because they were her father and mother-in-law and the sickness occurred in their
house. The defendants were not, nor are they now, under any obligation by virtue of any legal provision, to pay the
fees claimed, nor in consequence of any contract entered into between them and the plaintiff from which such
obligation might have arisen.

In applying the provisions of the Civil Code in an action for support, the supreme court of Spain, while recognizing the
validity and efficiency of a contract to furnish support wherein a person bound himself to support another who was not
his relative, established the rule that the law does impose the obligation to pay for the support of a stranger, but as the
liability arose out of a contract, the stipulations of the agreement must be held. (Decision of May 11, 1897.)

Within the meaning of the law, the father and mother-in-law are strangers with respect to the obligation that devolves
upon the husband to provide support, among which is the furnishing of medical assistance to his wife at the time of her
confinement; and, on the other hand, it does not appear that a contract existed between the defendants and the
plaintiff physician, for which reason it is obvious that the former can not be compelled to pay fees which they are under
no liability to pay because it does not appear that they consented to bind themselves.

The foregoing suffices to demonstrate that the first and second errors assigned to the judgment below are unfounded,
because, if the plaintiff has no right of action against the defendants, it is needless to declare whether or not the use of
forceps is a surgical operation.

Therefore, in view of the consideration hereinbefore set forth, it is our opinion that the judgment appealed from should
be affirmed with the costs against the appellant. So ordered.

Mapa and Tracey, JJ., concur.

Arellano, C.J., and Carson, J., concurs in the result.
Willard, J., dissents.
 FIRST DIVISION

[G.R. No. 858. January 23, 1903. ]

FRANCISCO MARTINES, Plaintiff-Appellee, v. PEDRO MARTINEZ, Defendant-Appellant.

Carlos Ledesma, for Appellant.

Felipe G. Calderon, for Appellee.

SYLLABUS

1. OWNERSHIP OF VESSELS; REGISTRY. — The person in whose name a vessel is registered is presumed to have
the legal title thereto.

2. ID; ID. — The fact that a vessel registered in the name of one party was purchased with funds of another does not
give the latter either a legal or an equitable title to the vessel, nor does it raise a resulting trust in his favor.

3. CIVIL PROCEDURE; FINDING OF FACT. — Where the facts recited in the decision, together with those admitted in
the pleadings, do not support the judgment it will be reversed.

4. ID.; ID. — The statement that a person is the owner of a vessel is a conclusion of law and not a finding of fact.

5. OWNERSHIP OF VESSELS; REGISTRY. — The exercise of acts of ownership over a vessel registered in another’s
name, by one with whose funds the vessel was purchased, does not overcome the presumption that the registered
owner is the legal owner.

Per COOPER, J., dissenting:chanrob1es virtual 1aw library

6. CIVIL PROCEDURE; FINDINGS OF FACT. — The finding that a person is the owner of a vessel is the finding of an
ultimate fact and not of a conclusion of law

DECISION

WILLARD, J.  :

In the decision in this case it is found as a fact that the titles to the steamer Balayan and the coasting vessel Ogoño are
registered in the name of the defendant. It must be assumed from this that the defendant has the legal title to the
vessels, as without it they could not be so registered.

These facts standing alone show that the defendant is the owner of the property.
Two other facts, however, appear in the decision which the appellee claims warranted the court below in deciding that
the defendant was not the owner.

1. The court found that the money with which the vessels were purchased was furnished by the plaintiff, the father of
the defendant. Does this fact make him the owner of them, the title having been taken and registered in the son’s
name?

The various ways in which the title to property may be acquired are stated in article 609 of the Civil Code.

The plaintiff never acquired the title to these vessels in any one of the ways therein described. He did not acquire it by
donation or succession. He did not acquire it by means of any contract.

The court does not find that the father and son had between themselves any contract of any kind by virtue of the son
agreed to transfer the title to the father or to hold it for his benefit.

There is an allegation in the complaint that the defendant acted as the agent of the plaintiff in the purchase. This is
denied in the answer and there is no finding in the decision which supports this allegation of the complaint.

There is only the bare fact that the price of property which was conveyed to the defendant by a third person was paid
by the plaintiff. It can not be said that the law by reason of this fact transfers any title or interest in the thing itself to the
plaintiff.

Article 1090 of the Civil Code provides that "obligations derived from the law are not to be presumed. Only those
expressly provided for in this Code or in special laws are enforceable."cralaw virtua1aw library

It is provided in Article 161 of the same Code, relating to minors, that "the ownership or enjoyment of property acquired
by a minor child with funds of his parents, pertain to the latter." This article does not apply to the present case, for the
son was of age.

This is the only provision which we have found anywhere in the laws now in force that declares the property to belong
to the person who paid the money.

Nor can such general doctrine be found in the former law. Law 49, title 5, partida 5, the effect of which is incorrectly
stated in the brief of the appellee, expressly provided that property bought with another’s money should not belong to
the owner of the money except in certain enumerated cases of which this is not one.

Law 48, title 5, partida 5, also expressly provided that where one bought with his own money property the title to which
he procured to be transferred to a third person, such third person had the right to keep it by reimbursing the other for
his outlay.

It may be true that the laws in some of the United States would in this case raise a resulting trust in favor of the plaintiff.
But such laws are not in force here; and whatever other right the plaintiff may have against the defendant, either for the
recovery of the money paid or for damages, it is clear that such payment gave him no title either legal or equitable to
these vessels.

If there were evidence in the case which would have justified the court below in finding that the defendant acted as the
agent of the plaintiff or that there was some other contract between them, he should have incorporated such findings in
his decision.

Article 133 of the Code of Civil Procedure requires the court to file a written decision. If the facts stated in that decision
together with those admitted in the pleadings are not sufficient as a matter of law to support the judgment, it must be
reversed, if excepted to.

The record, however, contains all the evidence and an examination of it shows that no such findings would have been
warranted. As to the Balayan, it appears that the son had nothing whatever to do with its purchase. It was bought by
the father with the money of the conjugal partnership, and the title by his direction placed in the son’s name.
As to the Ogoño, the father’s intervention in the purchase nowhere appears. He simply testified that it was bought with
his money.

It is said that the court below found as a fact that the father was the owner of the vessels and that we can not disturb
this finding because there was no motion for a new trial. This contention can not be sustained. The ultimate question in
the whose case was: Who owned this property? The resolution of that question depended upon the application of legal
principles to the facts connected with its acquisition and subsequent management. Those facts were that the father
bought and paid for it, and that the titles to it were taken and registered in the son’s name. A statement that by reason
of these facts the father is the owner is a statement of law and not a finding of fact.

2. It was found as a fact the father had exercised acts of ownership over the vessel. That finding is entirely consistent
with the legal ownership by the son. The exercise of such acts could not transfer such ownership from the son.

3. There is in the record a letter written by the defendant to the plaintiff in which the latter is asked if he desires to sell
the Balayan. This letter is not incorporated into the findings and we have no right to consider it. But, if we had, it would
not in our opinion change the result. Such a letter might well have been written by a son to a father, both of them
recognizing the fact that the son was the owner of the property as to which the inquiry was made.

4. In conclusion we may say that even on the supposition that a written and recorded title to vessels may be overcome
by parol evidence, that offered in this case was insufficient to accomplish such a result. As to the Balayan, there is
nothing whatever to show why the father placed the title in his son’s name. It may have been either as a gift or a loan.
As to the Ogoño, there is the simple declaration of the father that he paid for it. This may have been either a gift or a
loan.

The judgment is reversed and a new trial is granted with costs against the appellee.

Torres, Mapa and Ladd, JJ., concur.

Arellano, C.J., did not sit in this case.

Separate Opinions

COOPER, J., dissenting:chanrob1es virtual 1aw library

This action was brought by Don Francisco Martinez against Don Pedro Martinez, the appellant, for the recovery as
owner of two certain vessels, the steamship Balayan and the schooner Ogoño.

The plaintiff brings the suit for himself and in representation of his deceased wife, alleging that the ships were bought
with funds belonging to the community estate.

The defendant in his answer claims that he is the exclusive owner of the ships, basing his right to such ownership upon
their registration in his name in the office of the Captain of the Port, and further, that the ships were purchased with his
individual money.

The first assignment of error is that "the court erred in adjudging the ownership of the property of the ships Balayan
and Ogoño to Don Francisco Martinez, the latter not having presented written documents of the acquisition of said
ships nor certificates of incsription in the registry."cralaw virtua1aw library

1. This assignment of error raises the question of the sufficiency of the proof to sustain the judgment of the court below
and requires an examination of the evidence taken in the court below and a trial of the questions of fact as to the
ownership of the property.

Section 497 of the Code of Civil Procedure provides that in the hearings upon bills of exceptions in civil actions and
special proceedings, the Supreme Court shall not review the evidence taken in the court below nor retry the questions
of fact except as in that section provided, which are in the following cases:chanrob1es virtual 1aw library

(1) Where assessors have sat with the judge and both assessors are of the opinion that the findings of fact and
judgment are wrong and have certified their dissent.

(2) Upon the ground of the discovery of new and material evidence.

(3) Where the excepting party files a motion in the Court of First Instance for a new trial upon the grounds that the
findings of fact are plainly and manifestly against the weight of evidence and the judge overrules the motion and die
exception was taken to his overruling the same.

There was no motion for a new trial in the Court of First Instance, not is it contended that this case falls within either of
the other exceptions.

It is insisted that while this court will not review or retry questions of fact, yet if it appears from the findings of fact as
contained in the decision of the lower court that the facts do not justify the judgment or conclusions of law the case will
be reversed for a new trial.

There was no exception taken to the judgment, the exception being only such as is inferred from the presentation and
allowance of the bill of exceptions.

This is not sufficient to justify this court in entertaining such objection; the rule is that were a judgment is entered not
warranted by the findings the proper remedy is by application to the court in which it is entered to correct or vacate the
judgment, and unless the action of the court has been thus invoked the petition will not be considered on appeal. (Scott
v. Minneapolis R. R. Co., 42 Minn., 179).

But had the exception been properly taken an examination of the findings clearly shows that the judgment is sustained
by them. The following findings of fact were made by the lower court and are contained in the judgment, to wit: "I am of
the opinion that Don Francisco Martinez, for himself and in representation of his wife, is the actual and true owner of
said steamship and schooner and has exercised over them acts of ownership and dominion, and that these ships were
bought with the funds by him furnished. With respect to the fact that the steamship and schooner may have been
registered in the name of the defendant, Pedro Martinez, it is my opinion that this fact can not be considered as
prejudicial to the true right of the plaintiff."cralaw virtua1aw library

An analysis of this finding will show that it consists of the finding of, first, an ultimate fact, that is, that the plaintiff D.
Francisco Martinez is the actual and true owner of the steamship and schooner, the property in controversy; second,
the probative fact that he has exercised over them acts of ownership and dominion and that these ships were bought
with funds furnished by him, and, third, the probative fact that the ships were registered in the name of the defendant,
Pedro Martinez.

The majority of the court regard the first finding — that is, that the plaintiff is the actual and true owner of the property in
controversy — as a statement of law and not a finding of fact, and have rejected it as a finding of fact. In reversing the
case for a new trial the decision is based upon the finding that the vessels are registered in the name of the defendant,
and it is said that it must be assumed that the defendant has a title to the vessels as without it they could not be so
registered.

The conclusion I reach is the reverse of that reached by the court. The finding of the plaintiff’s ownership of the vessel
and schooner is not a conclusion of law, but is the finding of an ultimate fact in the case, and was the proper and the
only finding that could have been made. As stated in the opinion, the ultimate question in the whole case was, Who
owned this property?

The supreme court of Minnesota has passed upon the precise question in the case of Common v. Grace (36 Minn.,
276). The finding of the lower court in that case was that "John Grace was, at the time of his death, the owner in fee
simple of the real estate." The appellant made a request in the court below for additional findings. Upon the refusal of
the lower court to make such additional findings it was assigned as error on appeal. Mitchell, J., says: "The facts
required to be found are the ultimate facts forming the issued presented by the pleadings and which constitute the
foundation of a judgment and not those which are simply evidentiary of them. The court is not required to find merely
evidentiary facts or to set forth and explain the means or processes by which it arrived at such findings. Neither
evidence, argument, nor comment has any legitimate place in the findings of fact. The test of the sufficiency of the
findings of fact by a court, we apprehend, is, Would they answer if presented by a jury in the form of a special verdict,
which is required to present the conclusions of fact as established by the evidence, and not the evidence to prove
them, and to present those conclusions of fact so that nothing remains to the court but to draw from them conclusion of
law? In the case at bar the finding of fact that John Grace was, at the time of his death, the owner in fee simple of the
real estate in question was the ultimate fact upon which the decision of the case depended. It covered the only issue in
the case, and was a sufficient foundation for a judgment in favor of defendants. It could only be arrived at upon the
hypothesis that the deeds in dispute were duly executed, and the finding necessarily implied and included this."cralaw
virtua1aw library

In the case of Daly v. Socorro (80 Cal., 367) it is said: "The appellant further contends that the cause should be
reversed because the court failed to find upon certain other issues presented. His right to maintain the action was
based wholly upon his ownership and right of possession, and these being found against him it is immaterial to him
whether the court found as to other facts or not, as the judgment must have been against him whatever the other
finding might have been."cralaw virtua1aw library

The finding of the court that the ships were registered in the name of the defendant is the finding only of a probative or
evidentiary fact, that is, it is the finding simply of evidence tending to prove the ultimate fact, to wit, the fact of
ownership. The various means of proving this ultimate fact is the evidence. Thus, a bill of sale is evidence of
ownership. The possession of property is prima facie evidence of ownership, and so perhaps is the registry of ship
evidence of the ownership of the person in whose name it is made; but while it is evidence tending to prove ownership,
there may be other evidence in the case totally destroying its value, such as a sale and conveyance of the ship by the
owner or person in whose name it is registered made subsequent to the date of the registration; title by prescription as
against the party in whose name the ship is registered; by proof that the party in whose name the ship is registered
held the title simply as agent of the party claiming ownership. For this reason the finding that the vessels are registered
in the name of the defendant is inconclusive and is entirely insufficient as a finding of fact.

The finding of fact must be such as includes the entire issue or the ultimate fact to be proven, and in this case, as is
stated in the opinion, the ultimate question in the whole case was who owned this property. The lower court has
responded to this issue by saying that "while the ships are registered in the name of the defendant that this fact can not
be considered as prejudicial to the direct ownership of the plaintiff. That D. Francisco Martinez, the plaintiff, for himself
and in representation of his wife, is the actual and true owner of said ships and has exercised over them acts of
ownership and dominion."cralaw virtua1aw library

There is not conflict in the findings, for, as stated by the lower court, the ship may be registered in the name of the
defendant and still be owned by the plaintiff. But, if any such conflict exists, then the finding of the ultimate fact that the
ownership is with the plaintiff.

When the ultimate fact is found no finding of probative facts which may tend to establish that the ultimate fact was
found against the evidence can overcome the finding of the ultimate fact. (Smith v. Acker, 52 Cal., 217; Perry v.
Quackenbush, 105 Cal., 299; Smith v. Jones, 131 Ind.)

Not only is the ultimate fact of ownership which is the paramount finding in the case allowed to be overthrown by the
less important and subsidiary finding of the evidentiary fact of registration of the ship, but the opinion wholly ignores the
other finding of the probative fact, that is, that the plaintiff has exercised acts of ownership and dominion over the
property and that the ships were purchased with funds furnished by him.

II. It is said in the opinion in referring to a letter written by the defendant to the plaintiff that this letter is not incorporated
in the findings and we have no right to consider it, yet the court in its decision has gone into an examination of the
evidence thus improperly brought here.

This ambiguity in the opinion makes it necessary to refer briefly to the evidence. Such review will show that the
evidence before the lower court was entirely sufficient to support the finding of ownership in the plaintiff. It consists of
letters written to the plaintiff by his agents, Armstrong & Sloan, who acted for him in the purchase of the ship Balayan;
the testimony of the plaintiff as to his purchase an payment of the price of the ship; proof of witnesses of the acts of
ownership on the part of the plaintiff after the purchase of the ships by him; that the defendant resided with the plaintiff,
who was his father, and that the defendant had no means with which to make such purchase; various acts of the
defendant recognizing the plaintiff’s ownership in the vessel; evidence introduced on the part of the plaintiff tending to
show his ownership and tending to show that the defendant acted simply as plaintiff’s agent in the control which he
exercised over the ship.

In one of the letters written by Armstrong & Sloan to the plaintiff dated August 22, 1892, they
say:jgc:chanrobles.com.ph

"We have credited to your account $18,843.65 which you left before your departure for the cost of the ship bought for
you in Hongkong." Also the book entries in the mercantile office of Armstrong & Sloan, in which appear the
following:chanrob1es virtual 1aw library

Cash, August, 1892.

Aug. 24. Francisco Martinez, received from him account

of cost of one launch in Hongkong $18,843.65

Cash, September, 1892.

Sept. 13. Francisco Martinez to Chartered Bank, remittance to

Hongkong accounts of steam launch, $18,300 at 3/4 per

cent discount 16,881.75

Cost of message 3.23

_______

TOTAL $16,884.98

Another letter is evidence from the same parties to the plaintiff dated October 13, 1892, in which they say that they had
telegraphed the day before to Hongkong for the ship to sail "and we have written that the name Balayan be given
it."cralaw virtua1aw library

Several other letters were introduced written by the same parties to the plaintiff concerning the ship Balayan, in which
they say the deal was closed and by which they make arrangements for incidental expenses in the equipment of ship,
insurance upon it, and its sailing from Hongkong to Manila.

A letter is also contained in the record written by the defendant to the plaintiff on the 27th of October, 1899, which is as
follows:jgc:chanrobles.com.ph

"Manila, October 27, 1899. — Esteemed Father: With my kindest regards (beso a V. la mano). With respect to the
steamship Balayan, Señor Sloan sends word to you that there is an American who wishes to purchase it for 24,000
pesos, and asks whether you desire to sell it or not that you reply because he awaits your answer . . ."cralaw virtua1aw
library

It also appears in evidence that the ship Balayan had the initials of the plaintiff "F. M." on the smokestack, and that at
some recent date the defendant had caused these initials to be erased and those of his own substituted.

The defendant for a number of years managed the plaintiff’s business under a general power of attorney, and was a
member of his family, and such acts of ownership as he exercised over these ships may be properly referred to this
authority.
When the relationship of the parties — that is, that of son and father — is considered in connection with other proof in
the case, the conclusion is irresistible that the ships are owned by the plaintiff and that there has been a most flagrant
abuse on the part of the defendant of a father’s confidence.

For the reason above stated I dissent from the decision.

 SECOND DIVISION

G.R. No. 142830             March 24, 2006

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, Petitioner,

vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK*, Respondent

DECISION

CORONA, J.:

The facts of this case are straightforward.1

William Golangco Construction Corporation (WGCC) and the Philippine Commercial International Bank (PCIB) entered
into a contract for the construction of the extension of PCIB Tower II (denominated as PCIB Tower II, Extension Project
[project])2 on October 20, 1989. The project included, among others, the application of a granitite wash-out finish 3 on
the exterior walls of the building.

PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the turnover of the completed work by
WGCC in a letter dated June 1, 1992. To answer for any defect arising within a period of one year, WGCC submitted a
guarantee bond dated July 1, 1992 issued by Malayan Insurance Company, Inc. in compliance with the construction
contract.4

The controversy arose when portions of the granitite wash-out finish of the exterior of the building began peeling off and falling from the walls in 1993 . WGCC made minor repairs after PCIB requested it to
rectify the construction defects. In 1994, PCIB entered into another contract with Brains and Brawn Construction and Development Corporation to re-do the entire granitite wash-out finish after WGCC
manifested that it was "not in a position to do the new finishing work," though it was willing to share part of the cost. PCIB incurred expenses amounting to P11,665,000 for the repair work.

PCIB filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC) for the reimbursement of its expenses for the repairs made by another contractor. It complained of WGCC’s
alleged non-compliance with their contractual terms on materials and workmanship. WGCC interposed a counterclaim for P5,777,157.84 for material cost adjustment.

The CIAC declared WGCC liable for the construction defects in the project.5 WGCC filed a petition for review with the Court of Appeals (CA) which dismissed it for lack of merit.6 Its motion for
reconsideration was similarly denied.7

In this petition for review on certiorari, WGCC raises this main question of law: whether or not petitioner WGCC is liable for defects in the granitite wash-out finish that occurred after the lapse of the one-year
defects liability period provided in Art. XI of the construction contract.8

We rule in favor of WGCC.

The controversy pivots on a provision in the construction contract referred to as the defects liability period:

ARTICLE XI – GUARANTEE

Unless otherwise specified for specific works, and without prejudice to the rights and causes of action of the OWNER under Article 1723 of the Civil Code, the CONTRACTOR hereby guarantees the work
stipulated in this Contract, and shall make good any defect in materials and workmanship which [becomes] evident within one (1) year after the final acceptance of the work. The CONTRACTOR shall leave
the work in perfect order upon completion and present the final certificate to the ENGINEER promptly.

If in the opinion of the OWNER and ENGINEER, the CONTRACTOR has failed to act promptly in rectifying any defect in the work which appears within the period mentioned above, the OWNER and the
ENGINEER may, at their own discretion, using the Guarantee Bond amount for corrections, have the work done by another contractor at the expense of the CONTRACTOR or his bondsmen.
However, nothing in this section shall in any way affect or relieve the CONTRACTOR’S responsibility to the OWNER. On the completion of the [w]orks, the CONTRACTOR shall clear away and remove from
the site all constructional plant, surplus materials, rubbish and temporary works of every kind, and leave the whole of the [s]ite and [w]orks clean and in a workmanlike condition to the satisfaction of the
ENGINEER and OWNER.9 (emphasis ours)

Although both parties based their arguments on the same stipulations, they reached conflicting conclusions. A careful reading of the stipulations, however, leads us to the conclusion that WGCC’s
arguments are more tenable.

Autonomy of contracts

The autonomous nature of contracts is enunciated in Article 1306 of the Civil Code.

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.

Obligations arising from contracts have the force of law between the parties and should be complied with in good faith.10 In characterizing the contract as having the force of law between the parties, the law
stresses the obligatory nature of a binding and valid agreement.

The provision in the construction contract providing for a defects liability period was not shown as contrary to law, morals, good customs, pubic order or public policy. By the nature of the obligation in such
contract, the provision limiting liability for defects and fixing specific guaranty periods was not only fair and equitable; it was also necessary. Without such limitation, the contractor would be expected to make
a perpetual guarantee on all materials and workmanship.

The adoption of a one-year guarantee, as done by WGCC and PCIB, is established usage in the Philippines for private and government construction contracts.11 The contract did not specify a different
period for defects in the granitite wash-out finish; hence, any defect therein should have been brought to WGCC’s attention within the one-year defects liability period in the contract.

We cannot countenance an interpretation that undermines a contractual stipulation freely and validly agreed upon. The courts will not relieve a party from the effects of an unwise or unfavorable contract
freely entered into.12

[T]he inclusion in a written contract for a piece of work [,] such as the one in question, of a provision defining a warranty period against defects, is not uncommon. This kind of a stipulation is of particular
importance to the contractor, for as a general rule, after the lapse of the period agreed upon therein, he may no longer be held accountable for whatever defects, deficiencies or imperfections that may be
discovered in the work executed by him.13

Interpretation of contracts

To challenge the guarantee period provided in Article XI of the contract, PCIB calls our attention to Article 62.2 which provides:

62.2 Unfulfilled Obligations

Notwithstanding the issue of the Defects Liability Certificate[,] the Contractor and the Owner shall remain liable for the fulfillment of any obligation[,] incurred under the provisions of the Contract prior to the
issue of the Defects Liability Certificate[,] which remains unperformed at the time such Defects Liability Certificate is issued[. And] for the purpose of determining the nature and extent of any such obligation,
the Contract shall be deemed to remain in force between the parties of the Contract. (emphasis ours)

The defects in the granitite wash-out finish were not the "obligation" contemplated in Article 62.2. It was not an obligation that remained unperformed or unfulfilled at the time the defects liability certificate
was issued. The alleged defects occurred more than a year from the final acceptance by PCIB.

An examination of Article 1719 of the Civil Code is enlightening:

Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any defect in the work, unless:

(1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; or

(2) The employer expressly reserves his rights against the contractor by reason of the defect.
The lower courts conjectured that the peeling off of the granitite wash-out finish was probably due to "defective materials and workmanship." This they characterized as hidden or latent defects. We,
however, do not agree with the conclusion that the alleged defects were hidden.

First, PCIB’s team of experts14 (who were specifically employed to detect such defects early on) supervised WGCC’s workmanship. Second, WGCC regularly submitted progress reports and photographs.
Third, WGCC worked under fair and transparent circumstances. PCIB had access to the site and it exercised reasonable supervision over WGCC’s work. Fourth, PCIB issued several "punch lists" for
WGCC’s compliance before the issuance of PCIB’s final certificate of acceptance. Fifth, PCIB supplied the materials for the granitite wash-out finish. And finally, PCIB’s team of experts gave their
concurrence to the turnover of the project.

The purpose of the defects liability period was precisely to give PCIB additional, albeit limited, opportunity to oblige WGCC to make good any defect, hidden or otherwise, discovered within one year.

Contrary to the CA’s conclusion, the first sentence of the third paragraph of Article XI on guarantee previously quoted did not operate as a blanket exception to the one-year guarantee period under the first
paragraph. Neither did it modify, extend, nullify or supersede the categorical terms of the defects liability period.

Under the circumstances, there were no hidden defects for which WGCC could be held liable. Neither was there any other defect for which PCIB made any express reservation of its rights against WGCC.
Indeed, the contract should not be interpreted to favor the one who caused the confusion, if any. The contract was prepared by TCGI for PCIB.15

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 41152 is ANNULED and SET ASIDE.

SO ORDERED.

RENATO C. CORONA
Associate Justice

WE CONCUR:

REYNATO S. PUNO

Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA

Associate Justice Asscociate Justice

CANCIO C. GARCIA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice
 FIRST DIVISION

[G.R. No. 141910. August 6, 2002.]

FGU INSURANCE CORPORATION, Petitioner, v. G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M.

EROLES, Respondents.

DECISION

VITUG, J.:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units of Condura S.D.
white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries,
Inc., along South Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the
truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided
with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes.chanrob1es virtua1
1aw 1ibrary

FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the
covered cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights and interests of Concepcion
Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company
failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its
driver Lambert Eroles with the a Regional Trial Court, Branch 66, of Makati City. In its answer, respondents asserted
that GPS was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in
business as a common carrier. Respondents further claimed that the cause of damage was purely accidental.

The issues having thus been joined, FGU presented its evidence, establishing the extent of damage to the cargoes
and the amount it had paid to the assured. GPS, instead of submitting its evidence, filed with leave of court a motion to
dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed to prove that it was a
common carrier.chanrob1es virtua1 1aw 1ibrary

The trial court, in its order of 30 April 1996, 1 granted the motion to dismiss, explaining thusly:jgc:chanrobles.com.ph

"Under Section 1 of Rule 131 of the Rules of Court, it is provided that ‘Each party must prove his own affirmative
allegation, . . .’

"In the instant case, plaintiff did not present any single evidence that would prove that defendant is a common carrier.

"x       x       x

"Accordingly, the application of the law on common carriers is not warranted and the presumption of fault or negligence
on the part of a common carrier in case of loss, damage or deterioration of goods during transport under 1735 of the
Civil Code is not availing.

"Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was subrogated and the
owner of the vehicle which transports the cargo are the laws on obligation and contract of the Civil Code as well as the
law on quasi delicts.

"Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi delict provides for
some presumption of negligence but only upon the attendance of some circumstances. Thus, Article 2185
provides:chanrob1es virtual 1aw library

‘Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent
if at the time of the mishap, he was violating any traffic regulation.’

"Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation. Hence, the presumption of
negligence is not obtaining.

"Considering that plaintiff failed to adduce evidence that defendant is a common carrier and defendant’s driver was the
one negligent, defendant cannot be made liable for the damages of the subject cargoes." 2

The subsequent motion for reconsideration having been denied, 3 plaintiff interposed an appeal to the Court of
Appeals, contending that the trial court had erred (a) in holding that the appellee corporation was not a common carrier
defined under the law and existing jurisprudence; and (b) in dismissing the complaint on a demurrer to
evidence.chanrob1es virtua1 1aw 1ibrary

The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate court, in its decision of
10 June 1999, 4 discoursed, among other things, that —

". . . in order for the presumption of negligence provided for under the law governing common carrier (Article 1735, Civil
Code) to arise, the appellant must first prove that the appellee is a common carrier. Should the appellant fail to prove
that the appellee is a common carrier, the presumption would not arise; consequently, the appellant would have to
prove that the carrier was negligent.

"x       x       x
"Because it is the appellant who insists that the appellees can still be considered as a common carrier, despite its
limited clientele, (assuming it was really a common carrier), it follows that it (appellant) has the burden of proving the
same. It (plaintiff-appellant) ‘must establish his case by a preponderance of evidence, which means that the evidence
as a whole adduced by one side is superior to that of the other.’ (Summa Insurance Corporation v. Court of Appeals,
243 SCRA 175). This, unfortunately, the appellant failed to do — hence, the dismissal of the plaintiffs complaint by the
trial court is justified.

"x       x       x

"Based on the foregoing disquisitions and considering the circumstances that the appellee trucking corporation has
been ‘its exclusive contractor, hauler since 1970, defendant has no choice but to comply with the directive of its
principal,’ the inevitable conclusion is that the appellee is a private carrier.chanrob1es virtua1 1aw 1ibrary

"x       x       x

". . . the lower court correctly ruled that ‘the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of good[s]
during transport under [article] 1735 of the Civil Code is not availing.’ . . .

"Finally, We advert to the long established rule that conclusions and findings of fact of a trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and valid reasons." 5

Petitioner’s motion for reconsideration was likewise denied; 6 hence, the instant petition, 7 raising the following
issues:chanrob1es virtual 1aw library

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED UNDER THE
LAW AND EXISTING JURISPRUDENCE.

II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER, MAY BE

PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE
SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION.

III

WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be amply justified. GPS,
being an exclusive contractor and hauler of Concepcion Industries, Inc., rendering or offering its services to no other
individual or entity, cannot be considered a common carrier. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
hire or compensation, offering their services to the public, 8 whether to the public in general or to a limited clientele in
particular, but never on an exclusive basis. 9 The true test of a common carrier is the carriage of passengers or goods,
providing space for those who opt to avail themselves of its transportation service for a fee. 10 Given accepted
standards, GPS scarcely falls within the term "common carrier."cralaw virtua1aw library

The above conclusion notwithstanding, GPS cannot escape from liability.

In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the
mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of
relief. 11 The law, recognizing the obligatory force of contracts, 12 will not permit a party to be set free from liability for
any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. 13 A breach upon
the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promisee that may include his "expectation interest," which is his
interest in having the benefit of his bargain by being put in as good a position as he would have been in had the
contract been performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have been in had the contract not been made; or his
"restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party.
14 Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for
action. 15 The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been
injured by the failure of another to observe his contractual obligation 16 unless he can show extenuating
circumstances, like proof of his exercise of due diligence (normally that of the diligence of a good father of a family or,
exceptionally by stipulation or by law such as in the case of common carriers, that of extraordinary diligence) or of the
attendance of fortuitous event, to excuse him from his ensuing liability.cralaw : red

Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioner’s assured,
and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation — in this case, the delivery of the goods in its
custody to the place of destination — gives rise to a presumption of lack of care and corresponding liability on the part
of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so.

Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not himself be ordered to
pay petitioner. The driver, not being a party to the contract of carriage between petitioner’s principal and defendant,
may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their
successors who have assumed their personality or their juridical position. 17 Consonantly with the axiom res inter alios
acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioner’s civil action
against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for
damages to prove negligence or fault on the part of the defendant. 18

A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant liable where the thing
which caused the injury complained of is shown to be under the latter’s management and the accident is such that, in
the ordinary course of things, cannot be expected to happen if those who have its management or control use proper
care. It affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want
of care. 19 It is not a rule of substantive law and, as such, it does not create an independent ground of liability. Instead,
it is regarded as a mode of proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the
plaintiff of, the burden of producing specific proof of negligence. The maxim simply places on the defendant the burden
of going forward with the proof. 20 Resort to the doctrine, however, may be allowed only when (a) the event is of a kind
which does not ordinarily occur in the absence of negligence; (b) other responsible causes, including the conduct of the
plaintiff and third persons, are sufficiently eliminated by the evidence; and (c) the indicated negligence is within the
scope of the defendant’s duty to the plaintiff. 21 Thus, it is not applicable when an unexplained accident may be
attributable to one of several causes, for some of which the defendant could not be responsible. 22chanrob1es virtua1
1aw 1ibrary

Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists between the plaintiff and the
defendant, for the inference of negligence arises from the circumstances and nature of the occurrence and not from the
nature of the relation of the parties. 23 Nevertheless, the requirement that responsible causes other than those due to
defendant’s conduct must first be eliminated, for the doctrine to apply, should be understood as being confined only to
cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa contractual, as previously
so pointed out, immediately attaches by a failure of the covenant or its tenor. In the case of the truck driver, whose
liability in a civil action is predicated on culpa acquiliana, while he admittedly can be said to have been in control and
management of the vehicle which figured in the accident, it is not equally shown, however, that the accident could have
been exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur work against him.

If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant shall be deemed to
have waived the right to present evidence. 24 Thus, respondent corporation may no longer offer proof to establish that
it has exercised due care in transporting the cargoes of the assured so as to still warrant a remand of the case to the
trial court.chanrob1es virtua1 1aw library

WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati City, and the decision,
dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is
concerned, but said assailed order of the trial court and decision of the appellate court are REVERSED as regards
G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation the value of
the damaged and lost cargoes in the amount of P204,450.00. No costs.

SO ORDERED.

Davide, Jr., C.J., Kapunan, Ynares-Santiago and Austria-Martinez, JJ., concur.

 FIRST DIVISION

G.R. No. 149434             June 3, 2004

PHILIPPINE APPLIANCE CORPORATION (PHILACOR), petitioner,

vs.
THE COURT OF APPEALS, THE HONORABLE SECRETARY OF LABOR BIENVENIDO E. LAGUESMA and UNITED
PHILACOR WORKERS UNION-NAFLU, respondents.

DECISION

YNARES-SANTIAGO, J.:

Before us is an appeal by certiorari under Rule 45 of the Rules of Court which seeks to set aside the decision 1 of the
Court of Appeals in CA-G.R. SP No. 59011, denying due course to petitioner Philippine Appliance Corporation’s partial
appeal, as well as the Resolution2 of the same court, dated August 10, 2001, denying the motion for reconsideration.

Petitioner is a domestic corporation engaged in the business of manufacturing refrigerators, freezers and washing
machines. Respondent United Philacor Workers Union-NAFLU is the duly elected collective bargaining representative
of the rank-and-file employees of petitioner. During the collective bargaining negotiations between petitioner and
respondent union in 1997 (for the last two years of the collective bargaining agreement covering the period of July 1,
1997 to August 31, 1999), petitioner offered the amount of four thousand pesos (P4,000.00) to each employee as an
"early conclusion bonus". Petitioner claims that this bonus was promised as a unilateral incentive for the speeding up
of negotiations between the parties and to encourage respondent union to exert their best efforts to conclude a CBA.
Upon conclusion of the CBA negotiations, petitioner accordingly gave this early signing bonus. 3

In view of the expiration of this CBA, respondent union sent notice to petitioner of its desire to negotiate a new CBA.
Petitioner and respondent union began their negotiations. On October 22, 1999, after eleven meetings, respondent
union expressed dissatisfaction at the outcome of the negotiations and declared a deadlock. A few days later, on
October 26, 1999, respondent union filed a Notice of Strike with the National Conciliation and Mediation Board
(NCMB), Region IV in Calamba, Laguna, due to the bargaining deadlock. 4

A conciliation and mediation conference was held on October 30, 1999 at the NCMB in Imus, Cavite, before Conciliator
Jose L. Velasco. The conciliation meetings started with eighteen unresolved items between petitioner and respondent
union. At the meeting on November 20, 1999, respondent union accepted petitioner’s proposals on fourteen
items,5 leaving the following items unresolved: wages, rice subsidy, signing, and retroactive bonus. 6

Petitioner and respondent union failed to arrive at an agreement concerning these four remaining items. On January
18, 2000, respondent union went on strike at the petitioner’s plant at Barangay Maunong, Calamba, Laguna and at its
washing plant at Parañaque, Metro Manila. The strike lasted for eleven days and resulted in the stoppage of
manufacturing operations as well as losses for petitioner, which constrained it to file a petition before the Department of
Labor and Employment (DOLE). Labor Secretary Bienvenido Laguesma assumed jurisdiction over the dispute and, on
January 28, 2000, ordered the striking workers to return to work within twenty-four hours from notice and directed
petitioner to accept back the said employees.7

On April 14, 2000, Secretary Laguesma issued the following Order: 8

 In view of the foregoing, we fix the wage increases at P30 per day for the first year and P25 for the second
year.

The rice subsidy and retroactive pay base are maintained at their existing levels and rates.

Finally, this Office rules in favor of Company’s proposal on signing bonus. We believe that a P3,000 bonus is
fair and reasonable under the circumstances.

WHEREFORE, premises considered, Philippine Appliance Corporation and United Philacor Workers Union-
NAFLU are hereby directed to conclude a Collective Bargaining Agreement for the period July 1, 1999 to
June 30, 2001. The agreement is to incorporate the disposition set forth above and includes other items
already agreed upon in the course of negotiation and conciliation.

SO ORDERED. (Emphasis supplied)

On April 27, 2000, petitioner filed a Partial Motion for Reconsideration 9 stating that while it accepted the decision of
Secretary Laguesma, it took exception to the award of the signing bonus. Petitioner argued that the award of the
signing bonus was patently erroneous since it was not part of the employees’ salaries or benefits or of the collective
bargaining agreement. It is not demandable or enforceable since it is in the nature of an incentive. As no CBA was
concluded through the mutual efforts of the parties, the purpose for the signing bonus was not served. On May 22,
2000, Secretary Laguesma issued an Order10 denying petitioner’s motion. He ruled that while the bargaining
negotiations might have failed and the signing of the agreement was delayed, this cannot be attributed solely to
respondent union. Moreover, the Secretary noted that the signing bonus was granted in the previous CBA.

On June 2, 2000, petitioner filed a Petition for Certiorari with the Court of Appeals docketed as CA-G.R. SP No. 59011
which was dismissed. The Labor Secretary’s award of the signing bonus was affirmed since petitioner itself offered the
same as an incentive to expedite the CBA negotiations. This offer was not withdrawn and was still outstanding when
the dispute reached the DOLE. As such, petitioner can no longer adopt a contrary stand and dispute its own offer.

Petitioner filed a Motion for Reconsideration but the same was denied. Hence this petition for review raising a lone
issue, to wit:

THE HONORABLE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

WHEN IT RENDERED A DECISION NOT IN ACCORD WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT, SPECIFICALLY THE CALTEX DOCTRINE OF 1997.

The petition is meritorious.

Petitioner invokes the doctrine laid down in the case of Caltex v. Brillantes,11  where it was held that the award of the
signing bonus by the Secretary of Labor was erroneous. The said case involved similar facts concerning the CBA
negotiations between Caltex (Philippines), Inc. and the Caltex Refinery Employees Association (CREA). Upon referral
of the dispute to the DOLE, then Labor Secretary Brillantes ruled, inter alia:

Fifth, specifically on the issue of whether the signing bonus is covered under the " maintenance of existing
benefits" clause, we find that a clarification is indeed imperative. Despite the expressed provision for a
signing bonus in the previous CBA, we uphold the principle that the award for a signing bonus should partake
the nature of an incentive and premium for peaceful negotiations and amicable resolution of disputes which
apparently are not present in the instant case. Thus, we are constrained to rule that the award of signing
bonus is not covered by the "maintenance of existing benefits" clause.

On appeal to this Court, it was held:

 Although proposed by [CREA], the signing bonus was not accepted by [Caltex Philippines, Inc.]. Besides, a
signing bonus is not a benefit which may be demanded under the law. Rather, it is now claimed by petitioner
under the principle of "maintenance of existing benefits" of the old CBA. However, as clearly explained by
[Caltex], a signing bonus may not be demanded as a matter of right. If it is not agreed upon by the parties or
unilaterally offered as an additional incentive by [Caltex], the condition for awarding it must be duly satisfied.
In the present case, the condition sine qua non for its grant—a non-strike— was not complied with.

In the case at bar, two things militate against the grant of the signing bonus: first, the non-fulfillment of the condition for
which it was offered, i.e., the speedy and amicable conclusion of the CBA negotiations; and second, the failure of
respondent union to prove that the grant of the said bonus is a long established tradition or a "regular practice" on the
part of petitioner. Petitioner admits, and respondent union does not dispute, that it offered an "early conclusion bonus"
or an incentive for a swift finish to the CBA negotiations. The offer was first made during the 1997 CBA negotiations
and then again at the start of the 1999 negotiations. The bonus offered is consistent with the very concept of a signing
bonus.

In the case of MERALCO v. The Honorable Secretary of Labor ,12 we stated that the signing bonus is a grant motivated
by the goodwill generated when a CBA is successfully negotiated and signed between the employer and the union. In
that case, we sustained the argument of the Solicitor General, viz:

When negotiations for the last two years of the 1992-1997 CBA broke down and the parties sought the
assistance of the NCMB, but which failed to reconcile their differences, and when petitioner MERALCO
bluntly invoked the jurisdiction of the Secretary of Labor in the resolution of the labor dispute, whatever
goodwill existed between petitioner MERALCO and respondent union disappeared. . . .

Verily, a signing bonus is justified by and is the consideration paid for the goodwill that existed in the
negotiations that culminated in the signing of a CBA. 13

In the case at bar, the CBA negotiation between petitioner and respondent union failed notwithstanding the intervention
of the NCMB. Respondent union went on strike for eleven days and blocked the ingress to and egress from petitioner’s
two work plants. The labor dispute had to be referred to the Secretary of Labor and Employment because neither of the
parties was willing to compromise their respective positions regarding the four remaining items which stood
unresolved. While we do not fault any one party for the failure of the negotiations, it is apparent that there was no more
goodwill between the parties and that the CBA was clearly not signed through their mutual efforts alone. Hence, the
payment of the signing bonus is no longer justified and to order such payment would be unfair and unreasonable for
petitioner.

Furthermore, we have consistently ruled that a bonus is not a demandable and enforceable obligation. 14 True, it may
nevertheless be granted on equitable considerations as when the giving of such bonus has been the company’s long
and regular practice.15 To be considered a "regular practice," however, the giving of the bonus should have been done
over a long period of time, and must be shown to have been consistent and deliberate. 16 The test or rationale of this
rule on long practice requires an indubitable showing that the employer agreed to continue giving the benefits knowing
fully well that said employees are not covered by the law requiring payment thereof. 17 Respondent does not contest the
fact that petitioner initially offered a signing bonus only during the previous CBA negotiation. Previous to that, there is
no evidence on record that petitioner ever offered the same or that the parties included a signing bonus among the
items to be resolved in the CBA negotiation. Hence, the giving of such bonus cannot be deemed as an established
practice considering that the same was given only once, that is, during the 1997 CBA negotiation.

WHEREFORE, premises considered, the instant petition is GRANTED. The decision of the Court of Appeals in CA-
G.R. SP No. 59011 affirming the Order of the Secretary of Labor and Employment, directing petitioner Philippine
Appliance Corporation to pay each of its employees a signing bonus in the amount of Three Thousand Pesos
(P3,000.00), is hereby REVERSED and SET ASIDE. No pronouncement as to costs.

SO ORDERED.
Davide, Jr., Panganiban, Carpio, and Azcuna, JJ., concur.

FIRST DIVISION

[G.R. NO. 169578 : November 30, 2006]

TERESITA DIO, Petitioner, v. ST. FERDINAND MEMORIAL PARK, INC. and MILDRED F. TANTOCO, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
52311 which affirmed the decision of the Regional Trial Court (RTC), Branch 57 of Lucena City, in Civil Case No. 86-
152. Likewise sought to be reversed and set aside is the resolution of the appellate court denying reconsideration of
the assailed decision.

On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a memorial lot from the St. Ferdinand
Memorial Park, Inc. (SFMPI) in Lucena City. The 36-square-meter memorial lot is particularly described as Block 2,
Section F, Lot 15. The purchase was evidenced by a Pre-Need Purchase Agreement 2 dated December 11, 1973 and
denominated as Contract No. 384. She obliged herself to abide by all such rules and regulations governing the SFMPI
dated May 25, 1972.

SFMPI issued a Deed of Sale and Certificate of Perpetual Care 3 dated April 1, 1974 denominated as Contract No. 284.
The ownership of Dio over the property was made subject to the rules and regulations of SFMPI, as well as the
government, including all amendments, additions and modifications that may later be adopted. Rule 69 of the Rules
reads:
Rule 69. Mausoleum building and memorials should be constructed by the Park Personnel. Lot Owners cannot
contract other contractors for the construction of the said buildings and memorial, however, the lot owner is free to give
their own design for the mausoleum to be constructed, as long as it is in accordance with the park standards. The
construction shall be under the close supervision of the Park Superintendent.

Meanwhile, the mortal remains of Dio's husband and father were interred in the lot at her own expense, without the
knowledge and intervention of SFMPI. She engaged the services of a private contractor for the fabrication of niches
and improvements on her lot. In August 1974, the remains of Dio's daughter were likewise interred in the niche
constructed on the lot, again without the knowledge and intervention of SFMPI.

In 1986, Dio decided to build a mausoleum on the lot. In September that year, she caused the preparation of a design-
plan for the construction of a mausoleum and the bidding out of the project.

In the early part of October 1986, Dio informed SFMPI, through its president and controlling stockholder, Mildred F.
Tantoco, that she was planning to build a mausoleum on her lot and sought the approval thereof. Dio even showed to
Tantoco the plans and project specifications accomplished by her private contractor at an estimated cost
of P60,000.00. The plans and specifications were approved, but Tantoco insisted that the mausoleum be built by it or
its agents at a minimum cost of P100,000.00 as provided in Rule 69 of the Rules and Regulations the SFMPI issued on
May 25, 1972. The total amount excluded certain specific designs in the approved plan which if included would cost
Dio much more. In a letter4 dated October 13, 1986, Dio, through counsel, demanded that she be allowed to construct
the mausoleum within 10 days, otherwise, she would be impelled to file the necessary action/s against SFMPI and
Tantoco.

On October 17, 1986, SFMPI wrote Dio informing her that under Rule 69 of SFMPI Rules and Regulations, she was
prohibited from engaging an outside contractor for the construction of buildings, improvements and memorials. A lot
owner was only allowed to submit a preferred design as long as it is in accordance with park standards.

On December 23, 1986, Dio filed a Complaint for Injunction with Damages 5 against SFMPI and Tantoco before the
RTC of Lucena City. She averred that she was not aware of Rule 69 of the SFMPI Rules and Regulations; the amount
of P100,000.00 as construction cost of the mausoleum was unconscionable and oppressive. She prayed that, after
trial, judgment be rendered in her favor, granting a final injunction perpetually restraining defendants from enforcing the
invalid Rule 69 of SFMPI's "Rules for Memorial Work in the Mausoleum of the Park" or from refusing or preventing the
construction of any improvement upon her property in the park. 6 The court issued a cease and desist order against
defendants.

In their answer with counterclaim, defendants averred that the construction of a mausoleum on plaintiff's lot at a
minimum cost of P100,000.00 was not oppressive and unconscionable. They averred that the estimated amount was
commensurate to the plan and specified expensive materials to be used in the construction from which defendants did
not expect any unreasonable gain. They stressed that Rule 69 was made in good faith and was adopted prior to
plaintiff's purchase of the lot in question. They insisted that plaintiff was aware of the existence of Rule 69 when the
Pre-Need Purchase Agreement and Deed of Sale was executed, that plaintiff made no protest thereto, and was
therefore estopped from questioning its application and enforcement.

Plaintiff testified that when she bought the memorial lot from defendant, she transferred the remains of her father and
husband on the said property. In August 1974, her daughter Serconsicion died and was likewise buried in the memorial
lot.7 She narrated that she wanted a mausoleum to be constructed over the niches of her loved ones to protect the
remains of her dead relatives. She requested Engr. Alex Tan to prepare a plan for a mausoleum. The blueprint for the
mausoleum was estimated at P60,000.00. Thereafter, plaintiff informed defendant Tantoco of her intention to build a
mausoleum on her lot. Tantoco retorted that plaintiff could not hire an outside contractor to build a
mausoleum.8 Plaintiff was initially surprised by Tantoco's statement because she knew that their contract did not
provide for such stipulation. Tantoco then offered to construct the mausoleum but at the lowest cost of P100,000.00,
excluding the stainless name and the Coloroof.9 She also testified that when she bought the lot on December 11, 1973,
the agreement was that she would cause the construction of the niche and all improvements necessary for the tombs.
When asked by the court if the witness had read the rules and regulations stated in the Pre-Need Purchase Agreement
and the Deed of Sale and Certificate of Perpetual Care, she answered in the negative. 10

Plaintiff presented National Bureau of Investigation (NBI) Document Examiner Bienvenido Albacea to prove that the
rules and regulations of SFMPI were not yet in existence on May 25, 1972. The witness declared that, as a document
examiner since 1976, he examines documents being questioned to determine their authenticity and source. Papers are
likewise examined to check if there is any forgery, and photographed to compare the original from the photocopy. He
declared that he conducted a laboratory examination and analysis of the original of the rules and regulations of
defendant and subjected the same under stereoscopic microscope. He used measuring test plates to calibrate the size
of the typewriter, the horizontal and vertical pitch and slots of the typewriter used in the document. He concluded that
the date "May 25, 1972" was an intercalation on page one of defendant's rules and regulations and were not typed in
one and the same occasion as the other provisions on the document. 11

On cross-examination, Albacea admitted that it was possible that the date "May 25, 1972" was typed on the same day
when the other entries in the rules and regulations were typed. He also admitted that the date could have been typed
after the whole page one was removed from the typewriter. 12 He produced test plates, a photograph enlargement, and
the laboratory analysis result of the original specimens, as well as the carbon duplicate of SFMPI Rules and
Regulations.

On August 3, 1995, the trial court rendered judgment in favor of defendants. 13 The dispositive portion of the decision
reads:

WHEREFORE, premises considered, this Court hereby renders Judgment against the plaintiff and in favor of the
defendants. Consequently, [the] instant Complaint is hereby DISMISSED.

No pronouncement on award of damages could be made as the same has not been sufficiently proven.

SO ORDERED.14

The trial court rejected the claim of plaintiff that defendants failed to inform her of the rules and regulations of SFMPI.
The court declared that she even informed them of her intention to construct a mausoleum. According to the court a
quo, this was proof that plaintiff was fully aware of the rules and regulations of the memorial park; otherwise, she would
not have sought the permission of defendants of her intention to build a mausoleum. Plaintiff was obliged to abide by
the terms and conditions of the Pre-Need Purchase Agreement and the Deed of Sale and the rules and regulations
issued by defendant SFMPI.

On appeal, the CA affirmed the decision of the trial court. 15 The appellate court ratiocinated that when the parties
executed the Pre-Need Purchase Agreement, Dio agreed to be bound not only by the existing rules and regulations for
the use and governance of the cemetery, but also future ones.

Aggrieved, Dio, now petitioner, filed the present Petition for Review on Certiorari, alleging that:

I. THE APPELLATE COURT ERRED IN RULING THAT THE DATE "MAY 25, 1972" COULD NOT HAVE BEEN A
BELATED ATTEMPT TO SHOW THAT RULE 69 WAS ADOPTED PRIOR TO PETITIONER'S PURCHASE OF THE
MEMORIAL LOT BECAUSE IT WAS POSSIBLE THAT SAID DATE COULD HAVE BEEN TYPED RIGHT AFTER THE
DOCUMENT CONTAINING RULE 69 WAS PREPARED.

II. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS BOUND NOT ONLY BY RULES
EXISTING AT THE TIME OF THE PURCHASE OF THE MEMORIAL LOT BUT ALSO BY THOSE THAT MAY BE
ADOPTED BY RESPONDENTS AFTER THE PURCHASE.

III. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS BOUND BY THE RULES BECAUSE
SHE VOLUNTARILY ENTERED INTO THE SALE AND PURCHASE OF THE MEMORIAL LOT.
IV. THE APPELLATE COURT ERRED IN SUSTAINING THE VALIDITY OF RULE 69 DESPITE THE FACT THAT IT
WAS VOID FOR BEING CONTRARY TO LAW, MORALS, PUBLIC ORDER, AND PUBLIC POLICY.

V. THE APPELLATE COURT ERRED IN NOT ORDERING RESPONDENTS TO PAY PETITIONER DAMAGES AS
PRAYED FOR IN HER COMPLAINT AND PROVED DURING THE TRIAL. 16

The issues are whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and Regulations for memorial
works in the mausoleum areas of the park when the Pre-Need Purchase Agreement and the Deed of Sale was
executed; and whether the said rule is valid and binding upon petitioner.

Petitioner argues that respondents failed to prove that respondent SFMPI approved the rules and regulations on May
25, 1972, before she purchased the lot. Petitioner avers that as testified to by NBI Document Examiner Albacea, the
rules and regulations were not drafted on May 25, 1972. In any event, she never consented to comply with the
memorial park rules and regulations, and all amendments, additions, and modifications thereto. Petitioner further avers
that the questioned Rule 69 is unreasonable and oppressive, therefore, void for being contrary to law, morals, public
order, and public policy. Petitioner additionally denies being in estoppel as she never made any admission or
representation in the contracts she signed, which, according to petitioner, were both contracts of adhesion.

Respondents, on the other hand, contend that petitioner's plea for injunction had become moot and academic because
petitioner had already caused the completion of said mausoleum as early as July 8, 1997, in patent violation of the trial
and appellate courts' orders to cease and desist construction. Moreover, petitioner presented NBI Document Examiner
Albacea as a witness, and is thus barred from assailing the probative weight thereof. Respondents maintain that the
Pre-Need Purchase Agreement as well as the Deed of Sale and Certificate of Perpetual Care are not contracts of
adhesion, and petitioner could have easily refused to enter into said contracts if she truly had concerns regarding any
of the stipulations therein. Rule 69 of the SFMPI Rules and Regulations does not permanently deprive the owners of
their right to use their own property; hence, the rule is not oppressive or unconscionable.

The petition is denied for lack of merit.

Time and again the Court has emphasized that findings of facts of lower courts, particularly when affirmed by the
appellate court, are deemed final and conclusive. The Supreme Court cannot go over such findings on appeal,
especially when they are borne out by the records or are based on substantial evidence. It is not the function of this
Court to analyze or weigh the evidence all over again, unless there is a showing that the findings of the lower court are
entirely devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse of discretion. 17

The reason for the rule is that the trial court is in a better position to examine the demeanor of the witnesses while
testifying. Our jurisdiction is in principle limited to reviewing errors of law that might have been committed by the CA. A
fortiori, as in this case, where the factual findings of the trial court are affirmed in toto by the CA, there is great reason
for not disturbing such findings and for regarding them as not reviewable by this Court. 18 There are also settled
exceptions to this rule: (1) when the factual findings of the CA and the trial court are contradictory; (2) when the
conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (3) when the inference made by the
CA from its findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion
in the appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of the case and
such findings are contrary to the admissions of both appellant and appellee; (6) when the judgment of the CA is
premised on a misapprehension of facts; (7) when the CA failed to notice certain relevant facts which, if properly
considered, would justify a different conclusion; (8) when the findings of fact are themselves conflicting; (9) when the
findings of fact are conclusions without citation of the specific evidence on which they are based; and (10) when the
findings of fact of the CA are premised on the absence of evidence but such findings are contradicted by the evidence
on record.19 In the case at bar, none of these exceptions is present which would warrant a review of the factual findings
of the courts below.

Under the Pre-Need Purchase Agreement executed by petitioner and respondents, the parties covenanted that upon
the completion of all payments by the purchaser, the seller would convey to the purchaser a certificate of ownership to
the aforesaid interment property for the interment of human remains only. The certificate of SFMPI now existing or
which may hereafter be adopted for the government of said cemetery and said certificate shall be in the form used by
the seller, a copy of which petitioner acknowledged she had examined and approved. Petitioner agreed to abide by all
such rules and regulations governing SFMPI,20 among them Rule 69 which prevents lot owners from "contract[ing]
other contractors for the construction of the said buildings and memorial" but gives the owners free rein "to give their
own design for the mausoleum to be constructed, as long as it is in accordance with the park standards."

Under the Deed of Sale and Certificate of Perpetual Care, petitioner agreed to be bound not only by the existing rules
but also by future rules and regulations that may be adopted by respondent SFMPI. It is also stated in the said rules
and regulations kept in the office of respondent which could be inspected by petitioner at any time:

2. The PURCHASER, his heirs, successors and assigns, shall have, hold and use the property subject to the rules and
regulations of SELLER for the government of the cemetery now in force and those which may hereafter be adopted. A
copy of said rules and regulations and all amendments, additions and modifications thereto is kept in the office of the
SELLER and is subject to inspection by the PURCHASER at all times during normal office hours. Said rules and
regulations and all amendments, additions, and modifications thereto are hereby incorporated herein and made
integral parts hereof by reference as if set forth herein in full. 21

Thus, when petitioner executed the Pre-Need Purchase Agreement and conformed to the Deed of Sale, it was with full
knowledge of the terms and conditions thereof, including the rules and regulations issued by respondent SFMPI.
Hence, petitioner is precluded from asserting that she had no knowledge of said rules and regulations, and that she
never consented to comply with them. More importantly, petitioner cannot feign ignorance of said rules. In law,
whatever fairly puts a person on inquiry is sufficient notice, where the means of knowledge are at hand, which if
pursued by the proper inquiry, the full truth might have been ascertained. 22 In this case, the appellate court declared:

x x x [k]knowledge will be imputed and may be implied from circumstances where the circumstances known to one
concerning a matter in which he is interested are sufficient to require him, as an honest and prudent person, to
investigate concerning the rights of others in the same matter, and diligent investigation will lead to discovery of any
right conflicting with his own.23

For its part, the trial court made the following findings:

Plaintiff's allegation that she was not aware of the said Rules and Regulations lacks credence. Admittedly, in her
Complaint and during the trial, plaintiff testified that she informed the defendants of her intention to construct a
mausoleum. Even counsel for the plaintiff, who is the son of the plaintiff, informed the Court during the trial in this case
that her mother, the plaintiff herein, informed the defendants of her plan to construct and erect a mausoleum. This act
of the plaintiff clearly shows that she was fully aware of the said rules and regulations otherwise she should not
consult, inform and seek permission from the defendants of her intention to build a mausoleum if she is not barred by
the rules and regulations to do the same. When she signed the contract between [sic] the defendants, she is [sic]
estopped to question and attack the legality of said contract later on. ( Emphasis supplied)24

Petitioner is obliged to abide by the terms and conditions of the Pre-Need Purchase Agreement and the Deed of Sale,
as well as said rules and regulations which formed integral parts of said deeds.

Basic is the principle that contracts, once perfected, bind both contracting parties. 25 The parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided these are not contrary to law,
morals, good customs, public order, or public policy. It follows that obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good faith. 26

We quote with approval the ruling of the trial court:

The appellant's ownership of the memorial lot was subject to the rules and regulations legally and validly restricting her
enjoyment and use of the property. Art. 428, Civil Code, states that the owner has the right to enjoy and dispose of a
thing without other limitations than those established by law. It is recognized that the limitations include those that are
imposed by the will of the transmitting owner, that is, the transmitting owner transfers his property by whatever title and
imposes on the acquirer whatever limitations he wishes as long as the limitations are not contrary to the nature of
ownership and not prohibited by law (e.g., servitudes, encumbrances, prohibition against alienation).

Otherwise stated, the appellant should adhere to and comply with the terms and conditions of the pre-need purchase
agreement and the deed of sale and certificate of perpetual care. Her perceived disadvantage does not amount to her
deprivation of property or other rights without due process of law considering that she had voluntarily entered into the
purchase and considering also that she remains free to exercise her right as property owner, under which she can
build a mausoleum provided she does so in accordance with the memorial park's standards and rules common to all
owners of lots.27

Petitioner is an experienced businesswoman. She doubtlessly dealt with numerous documents, and is therefore
presumed to know the import thereof. It cannot be further emphasized that it behooves every contracting party to learn
and know the contents of an instrument before signing and agreeing to it. 28

We are not persuaded by petitioner's claim that Rule 69 of respondent's rules and regulations is unreasonable and
oppressive because the provision unduly restricts her right of ownership over the property. Rule 69 of the said rules
and regulations is neither excessive nor despotic. The rule itself specifies that the "lot owner is free to give their own
design for the mausoleum to be constructed, as long as it is in accordance with the park standards." Clearly, the rule
allows the construction of a mausoleum but with certain restrictions. Moreover, as the proprietor of the entire memorial
park, the formulation of a reasonable set of rules and regulations is within the power of the management of respondent
SFMPI. It is noteworthy that the same rule permits petitioner, or any other buyer of memorial lot, to use the property for
the purpose for which it was contemplated.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

A contract of adhesion, wherein one party imposes a readymade form of contract on the other, is not strictly against the
law.29 A contract of adhesion is as binding as ordinary contracts, the reason being that the party who adheres to the
contract is free to reject it entirely.30 Contrary to petitioner's contention, not every contract of adhesion is an invalid
agreement. As we had the occasion to state in Development Bank of the Philippines v. Perez: 31

x x x In discussing the consequences of a contract of adhesion, we held in Rizal Commercial Banking Corporation v.
Court of Appeals:

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true that we have, on
occasion, struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant
bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing, Nevertheless, contracts of adhesion are not invalid per se; they are not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 32

The validity or enforceability of the impugned contracts will have to be determined by the peculiar circumstances
obtaining in each case and the situation of the parties concerned. Indeed, Article 24 of the New Civil Code provides
that "[in] all contractual, property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age, or other handicap, the courts must be vigilant
for his protection."33 In this case, however, there is no reason for the Court to apply the rule on stringent treatment
towards contracts of adhesion. To reiterate, not only is petitioner educated, she is likewise a well-known and
experienced businesswoman; thus, she cannot claim to be the weaker or disadvantaged party in the subject contracts
so as to call for a strict interpretation against respondents. Moreover, she executed the Pre-Need Purchase Agreement
and Deed of Sale without any complaint or protest. She assailed Rule 69 of the Rules and Regulations of respondent
SFMPI only when respondents rejected her request to cause the construction of the mausoleum.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 52311 dated
May 10, 2005, and the Resolution dated September 6, 2005, are AFFIRMED. Costs against petitioner.

SO ORDERED.

FIRST DIVISION
 G.R. No. 131013. December 14, 2001

BLADE INTERNATIONAL MARKETING CORPORATION, EVAN J. BORBON, EDGAR J. BORBON, and MARCIAL
GERONIMO, petitioners, vs. COURT OF APPEALS and METROPOLITAN BANK & TRUST COMPANY, Respondents.

DECISION

PARDO, J.:

The Case

The case under consideration is a petition to annul the decision 1 of the Court of Appeals that ordered petitioners Blade
International Marketing Corporation, Evan J. Borbon, Edgar J. Borbon, and Marcial Geronimo to pay, jointly and
severally, the total amount of their obligation to respondent Metropolitan Bank and Trust Company, including interest,
penalty charge and attorneys fees.

The Facts

The facts, as stated in the petition, are as follows:

1. The instant complaint for a Sum of Money was instituted by the Metropolitan Bank & Trust Co. with an application for
issuance of a Writ of Preliminary Attachment against the petitioners Blade International Marketing Corporation, Evan J.
Borbon, Edgar J. Borbon, Marcial Geronimo and Elenito G. Santos. The complaint consisted of eight (8) causes of
actions involving the delivery, shipment of merchandise, and tools. Private Respondent alleged, that it paid the
suppliers thereof by way of letters of credit against bills of exchange and that said merchandise or shipment were
delivered in trust and/or accepted by the petitioner/s under the condititions of the trust receipt which required the said
petitioner/s as entrustee/s to hold the goods, merchandise, documents and/or instrument as well as the proceeds
thereof, for the payment of petitioner/s obligations acceptances, indebtedness and liabilities and that without justifiable
reason, they allegedly failed and refused to account for and turn over to the private respondent the proceeds of sale of
the above mentioned goods or merchandise, documents and instruments subject matter of the trust, the details of
which are as follows:

x x x.

2. On 20 November 1987, petitioners BLADE, Evan J. Borbon, Edgar J. Borbon and Marcial Geronimo filed a Joint
Answer with Counterclaim, and which answer was anchored on the following grounds:

1. That defendant corporation thru its authorized officers applied for and in its own behalf for several commercial letters
of credit with the plaintiff in blank form;

2. That defendants further denied the material and ultimate facts of the eight (8) causes of actions in the complaint and
interposed Special and Affirmative Defenses, to wit:

x x x.

3. By way of Special and Affirmative Defenses, defendants also maintained, that individual defendants Evan J. Borbon,
Marcial Geronimo and Edgar J. Borbon never signed the letters of credit and related documents in their personal
capacities nor agreed to be bound thereon in anyway or as sureties or as entrustees to the plaintiff, since they merely
acted for and in behalf of defendant corporation in the execution of the documents in question and therefore not liable
thereon in their personal capacities; that defendants and/or individual defendants never received the subject
merchandise/goods in concept of a trust or as entrustees to account or to hold and/or turn over the
goods/merchandise, instruments or the proceeds of sale thereof to the plaintiff and that they have not misused or
converted the merchandise or proceeds thereof and that plaintiff has not made any demand nor given any notice to
defendants to account for or hold or turn over of the merchandise, instruments, documents, as well as the proceeds
thereof to the plaintiff, and further the plaintiff has no causes of actions and that the trust receipts being simulated
contracts are void and unenforceable;

4. Defendant by way of counterclaim further maintained, that the suit was premature and filed maliciously and in bad
faith by making it appear that the defendant corporation and individual defendants committed breaches of trust which
are non-existent, since the documents supposedly the trust receipts were prepared and executed for convenience
purposes but not in concept of trust and therefore simulated contracts or void ab initio. However, the plaintiff with full
knowledge thereof maliciously instituted this suit, as a consequence plaintiff unduly prejudiced and/or damaged
defendants corporation as well as the individual defendants business reputation and/or credit standing and further
caused the individual defendants to suffer unnecessary damages for which defendants are entitled moral damages in
the sum of P100,000.00 and for having dragged the defendants before to court, who were compelled and to protect
their rights and interest in the premises for which they agreed to pay counsel the sum of P25,000.00 as and for
attorneys fees;

5. After due hearing, the Trial Court rendered a decision on 10 February 1992 dismissing both the complaint and
counterclaim, the dispositive portion of which provides, as follows:

xxx

WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Metropolitan Bank and Trust
Company against defendants Blade International Marketing Corporation, Evan J. Borbon, Edgar J. Borbon and Marcial
Geronimo, as well as the counter claim of the latter against the former, without pronouncement as to costs.

6. On 24 February 1992, the private respondent not satisfied with the said Decision filed a Notice of Appeal before the
Honorable Court of Appeals, upon the ground that said decision is contrary to the evidence adduced by the parties and
to the applicable laws and jurisprudence;

7. On 13 June 1997, the Honorable Court of Appeals (Third Division) rendered a Decision, which reversed and set-
aside the assailed decision and a new one was entered, copy of which was received by the petitioners thru counsel on
20 June 1997, the dispositive portion of which are as follows:

WHEREFORE, finding reversible error in the assailed decision, the same is hereby REVERSED and SET ASIDE and a
new one is ENTERED finding the appellees liable, jointly and severally, with each other and ordering them to pay the
appellant the sum of P2,118,841.20 representing the total amount of the obligation as of May 31, 1997, inclusive of
18% interest and 2% penalty charge until their obligation is fully paid, and the payment of P50,000.00 as attorneys
fees. No pronouncement as to costs.

SO ORDERED.

8. On 04 July 1997, petitioners filed a Motion for Reconsideration thereof, and the Honorable Court of Appeals
DENIED the same in its Resolution dated 24 October 1997, copy of which was received on 30 October 1997, the
dispositive portion of which reads as follows:

WHEREFORE, the instant motion for reconsideration is hereby DENIED for lack of merit.

SO ORDERED.2cräläwvirtualibräry

Hence, this appeal. 3

The Issue
The issue raised is whether the petitioners Evan J. Borbon, Edgar J. Borbon, and Marcial Geronimo are personally
liable jointly and severally with Blade International for fulfillment of its obligations under the letters of credit opened with
Metrobank.

Petitioners Evan J. Borbon, Edgar J. Borbon, and Marcial Geronimo disclaim liability because they never signed the
letters of credit and related documents in their personal capacities.

The Courts Ruling

We hold petitioners liable solidarily.

In this case, petitioners admit that they signed the letters of credit and related documents pertaining to the transactions
with Metrobank. However, petitioners claimed that they signed the forms in blank. The documents show that the
petitioners agreed to jointly and severally undertake payment of the obligations and also consented to each and all of
the stipulated conditions on the documents. An experienced businessman who signs important legal papers cannot
disclaim the consequent liabilities therefor after being a signatory thereon. 4cräläwvirtualibräry

Thus, the Court of Appeals was correct in finding that petitioners contractually agreed to hold themselves personally
solidarily liable with the corporation in the fulfillment of its obligations to Metrobank.

The Fallo

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals in toto. 5cräläwvirtualibräry

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

SECOND DIVISION

[G.R. No. 113363. August 24, 1999.]

ASIA WORLD RECRUITMENT INC., Petitioner, v. NATIONAL LABOR RELATIONS COMMISSION (2nd DIVISION),
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA) and PHILIP MEDEL, JR, Respondents.

DECISION

QUISUMBING, J.:

This is a special civil action for certiorari under Rule 65 of the Rules of Court assailing (a) the Decision 1 dated
September 13, 1993 of the National Labor Relations Commission (NLRC), Second Division, in NLRC-NCR CA No.
001637-91, which affirmed with modification the decision of the Philippine Overseas Employment Administration
(POEA) 2 in POEA Case No. 89-10-1002 finding petitioner liable, among others, for illegal dismissal of private
respondent, and (b) the Resolution 3 of the NLRC, dated December 15, 1993, denying reconsideration.

Petitioner Asia World Recruitment is a domestic corporation with authority granted by the POEA to recruit and deploy
Filipino overseas contract workers abroad. Petitioner’s principal is Roan Selection Trust International Ltd., a diamond
and gold mining company in Angola, Africa, owned by one Christian Rudolf G. Hellinger.
Private respondent Philip Medel, Jr., is a Filipino who entered into an employment contract 4 with petitioner to work as
a Security Officer in its diamond mine in Cafunfo, Angola, for a period of twelve (12) months commencing upon his
departure from the Philippines, with a salary rate of US $800.00 a month, plus 50% of the salary by way of bonus or a
total of US$1,200.00 a month. 5 The parties also agreed that private respondent would work for six (6) hours a day,
with one rest day every week and that he would be entitled to overtime pay for work in excess of six (6) hours at the
rate of $5.00 per hour. 6 Private respondent arrived in Angola sometime in December, 1988. In addition to being a
Security Officer, he was made to work as a Dispatcher and Metallurgy Inspector in the diamond mine. During his
employment, private respondent elevated the grievances of his Filipino co-workers to the management, 7 which
apparently strained relations between him and management.

On March 10, 1989, private respondent received a letter of termination 8 dated March 1, 1989 signed by General
Manager A.J. Smith, who informed him that the company was not satisfied with his performance within the three-month
trial period, and that his employment with the company would be terminated on March 13, 1989. The records show,
however, that private respondent was repatriated to the Philippines on March 12, 1989, barely two (2) days after he
received the notice of termination.chanroblesvirtuallawlibrary

Aggrieved by his precipitate termination, private respondent filed on October 18, 1989, a complaint 9 for illegal
dismissal, cancellation of petitioner’s license, refund of placement fee plus interest, payment of salary differentials,
reimbursement of amounts illegally deducted from his monthly salary, payment of salaries for the unexpired portion of
the contract, damages and attorney’s fees against petitioner and its principal, Roan Selection Trust International Ltd.

On March 12, 1991, the POEA Adjudication Office rendered a decision 10 finding petitioner (with his co-respondents
therein) solidarily liable for illegal dismissal, and ordering them to pay herein private respondent the sum of seven
thousand two hundred ($7,200.00) dollars representing salaries for the unexpired portion of the contract, but
disallowing private respondent’s other monetary claims. 11

On April 1, 1991, petitioner and private respondent elevated their respective appeals to the NLRC. Petitioner sought
the reversal of the POEA decision, while private respondent filed an Urgent Motion for the Partial Reconsideration of
the POEA decision denying his other monetary claims.

On September 13, 1993, the NLRC, through its Second Division, rendered the assailed decision dismissing petitioner’s
appeal and granting private respondent’s Partial Motion for Reconsideration as regards his claims for illegal
deductions, salary differentials and overtime pay, finding as follows:chanrobles.com:cralaw:red

"As established from the records, the parties agreed that complainant’s basic monthly salary was US $800.00 plus
50% of such salary as bonus or a total of $1,200.00 a month. The bonus represents complainant’s hazard pay. For
according to respondents there is a war going on in Angola.

The POEA by denying the complainant’s claim for illegal deduction and/or salary differential held that the respondents
has proven that complainant has already been paid were it not for the legal deductions made against his salaries
representing the damages caused to company vehicle by complainant. A careful study of the record reveals that said
deductions on the complainant’s salary is not justified considering that complainant in his position paper was able to
establish the fact that he was not negligent in driving his assigned vehicle but was the subject of sabotage as an
attempt to silence him for seeking redress and elevating the grievances of his co-Filipino workers to the management.
It can thus be said that respondent made it appear that complainant committed a misdemeanor by issuing complainant
the misdemeanor application note wherein he was made to pay for the cost of the repair of vehicle (Record, p. 32).

Furthermore, there is no showing that an investigation was made to establish the liability of complainant regarding the
alleged vehicular accident. Neither was there proof showing that deductions be made from the salary of the
complainant. No less than the Labor Code, Article 116 thereof, provides that "it shall be unlawful for any person,
directly or indirectly withhold any amount from the wages of a worker . . . without the worker’s consent."cralaw
virtua1aw library

As shown by the bank records, respondent employer transmitted to complainant’s bank account in the Philippines the
total amount of US $2,190.77 (See Records, p. 242) representing complainant’s salary during his entire period of
employment. Based on complainant’s US $1,200.00 a month salary ($800.00 monthly salary plus 50% thereof as
bonus), complainant is supposed to receive $3,600.00. Complainant is therefore entitled to receive the difference of
$1,409.23, as his salary differential.

Anent the claim for overtime pay, the same should have been allowed by the POEA in the light of the
evidences/document submitted to wit: Forecast of Duties for February 1989 and March 1989 (Records, pp. 70-71) and
the Legend of Forecast of Duties (Records, p. 38). As borne by these documents, complainant, like other security
officers had render (sic) twelve (12) hours of duty per shifting. In the summary of complainant’s Tour of Duties
(Records, pp. 116 to 119) it was established that complainant had rendered work for a total of fifty six (56) days.
Considering that he worked for twelve (12) hours each day, complainant has rendered an excess of six (6) hours of
overtime work per day or a total of 336 hours. Based on the prevailing hourly rate for the overtime work which is $5 per
hours, complainant is entitled to US $1,680.00. Under the circumstances, the documents submitted by complainant in
support of his claim for overtime pay are adequate enough to establish the fact of his overtime work and should have
been given credence rather than respondents’ which merely denied the claim without submitting their own evidence to
refute. As held by the Supreme Court in the case of Cuadra v. NLRC, G.R. No. 98030, March 17, 1992, to
wit:cralawnad

‘Regarding the claim for overtime pay, we do not agree that it should have been disallowed because of the failure of
the petitioner to substantiate it. . . .

The claim of our overseas workers against their foreign employers should have not (sic) subjected to the rules of
evidence and procedure that we usually apply to other complainants who have facility in obtaining the required
evidence to prove their demands.’

Records show that complainant has engaged the professional services of two (2) lawyers. Pursuant to Article 211 of
the Labor Code and Rule VIII Section II Book III of the Rules Implementing the Labor Code, complainant is entitled to
his claim for attorney’s fees."cralaw virtua1aw library

The NLRC then modified the POEA decision, to wit:jgc:chanrobles.com.ph

"WHEREFORE, the decision of the POEA dated March 12, 1991 is hereby modified as follows:chanrob1es virtual 1aw
library

Respondents are hereby held solidarily liable to pay complainant:chanrob1es virtual 1aw library

1. The sum of Seven Thousand Two Hundred US Dollars (US$7,200) representing his salaries for the unexpired
portion of his contract.

2. US Dollars One Thousand Six Hundred Eighty (US$1,680.00) as and for complainant’s overtime pay.

3. US Dollars One Thousand Four Hundred Nine and Twenty-Three (US$1,409.23) as salary differential.

4. Attorney’s fees, representing 10% of the totality of the amount of the award."cralaw virtua1aw library

Thereafter, the NLRC, acting on private respondent’s Motion for Clarificatory Judgment and/or Motion for
Reconsideration, rendered a Decision dated October 29, 1993, clarifying that the aforesaid amounts should be paid at
their prevailing peso equivalent at the time of payment. 12 Petitioner’s Motion for Reconsideration of the aforesaid
Decision was likewise denied by the NLRC for lack of merit.

Hence, the instant petition for certiorari, which was given due course by this Court after the private respondent, and
public respondents, through the Office of the Solicitor General, filed their respective Comments, and private
respondent filed his Reply thereto. The parties thereafter submitted their respective Memoranda.

The issue raised in this petition is whether or not public respondent NLRC committed grave abuse of discretion when it
affirmed the decision of the POEA finding that private respondent was illegally dismissed with the modification that
salary differential, overtime pay and attorney’s fees should be allowed. 13
During the pendency of the case, by virtue of a writ of execution issued by the NLRC, petitioner made substantial
payments to private respondent in partial satisfaction of the NLRC decision thus prompting private respondent to file a
Motion to Dismiss dated April 20, 1996 and a subsequent Supplemental Motion to Dismiss dated September 19, 1996,
stating that:jgc:chanrobles.com.ph

"a. that on October 23, 1993, the NLRC resolution (sic) modified its DECISION (dated September 13, 1993), by
ordering the petitioner Asiaworld to pay him the following:chanrob1es virtual 1aw library

1. The sum of Seven Thousand Two Hundred US Dollars (US$7,200.00) or its prevailing peso equivalent at the time of
payment representing his salaries for the unexpired portion of his contract.

2. US Dollars One Thousand Six Hundred Eighty (US$1,680.00) or its prevailing peso equivalent at the time of
payment as and for complainant’s overtime pay.

3. US Dollars One Thousand Four Hundred Nine and Twenty-Three (US$1,409.23) or its prevailing peso equivalent at
the time of payment as salary differential.

4. Attorney’s fees, representing 10% of the totality of the amount of the award. . ."cralaw virtua1aw library

The total award, including attorney’s fees, is US$11,318.13.

b. that on April 20, 1996, he filed a MOTION TO DISMISS because of partial payment made by Asiaworld Recruitment,
in the sum of P201,564.13;

c. that on July 26, 1996, the petitioner Asia World Recruitment Inc paid him the additional sum of US2,881.69, subject
to his reservation to demand for the balance or the correct computation of the award, per NLRC Resolution dated 29
October 1993.chanrobles virtual lawlibrary

d. the prevailing peso equivalent at the time of payment, as of July 26, 1996, was P26.19 x US$1.00. Using the stated
peso-dollar conversion rate, he (Medel) is still entitled to the balance of US$741.98.

Computation:chanrob1es virtual 1aw library

P201,564.13 is equivalent to US$7,694.46,

leaving a; balance of US$3,623.67

(US US$11,318.13 - US$7,694.46);

US$3,623.67 - US$2,881.69 = US$741.98.

WHEREFORE, in supplement of his motion to dismiss (dated April 20, 1996), the complainant prays that the above-
entitled petition of the Asia World Recruitment Inc. be DISMISSED."cralaw virtua1aw library

Private respondent’s Motion to Dismiss and Supplemental Motion to Dismiss are akin to a partial quitclaim as to the
amounts awarded by the NLRC. Nevertheless, we are mindful of the rule that "a deed of release or quitclaim cannot
always bar an employee from demanding what is legally due him." 14 Hence, notwithstanding the substantial
satisfaction of the amounts prayed for, the basic issue in this case remains for the Court’s resolution.

At the outset, except for serious lapses, we are not at liberty to overturn the findings of both the NLRC and the POEA
Administrator on the circumstances concerning the dismissal of private Respondent. These are essentially factual
matters which are within the competence of the administrative agencies to determine. Their findings are accorded by
this Court respect and finality if, as in this case, they are supported by substantial evidence. 15

The records clearly show that private respondent was an employee with a fixed period of twelve (12) months. Private
respondent, therefore, was an employee hired for a fixed term whose employment was to end only at the expiration of
the period stipulated in his contract. 16 Thus, this is not a simple case of illegal dismissal of an employee whose
employment is without a definite period, rather, we find that the principal cause of action in private respondent’s
complaint is breach of contract of employment for a definite period. 17 As a party to this contract, he enjoys security of
tenure, for the period of time his contract is in effect. 18 Petitioner contends that private respondent was only a
probationary employee for a period of three (3) months. Even if granted, for the sake of argument, that this were true,
as a probationary employee, he is nonetheless entitled to constitutional protection of security of tenure that no worker
shall be dismissed except for cause provided by law and after due process. 19 Security of tenure is a right of
paramount value guaranteed by the Constitution and should not be denied on mere speculation. 20 Furthermore, the
right of an employer to freely select or discharge his employees is regulated by the State, considering that the
preservation of the lives of the citizens is a duty of the State, more basic than the preservation of business profit. 21

The burden is on the employer to prove that the termination was after due process, and for a valid or authorized cause.
22 For the two requisites in our jurisdiction to constitute a valid dismissal are: (a) the existence of a cause expressly
stated in Article 282 of the Labor Code; and (b) the observance of due process, including the opportunity given the
employee to be heard and defend himself. 23 As correctly found by the NLRC, there was no valid cause for dismissal
of private Respondent. Thus —

"As in the instant case respondent claim that complainant was terminated due to incompetence. The burden of proof to
[establish] such incompetence rests on respondents. The evidence adduced by them were insufficient to prove the
alleged incompetence of complainant. Even the ‘termination letter’ itself does not state the how and why complainant
was considered incompetent. It merely stated that the company ‘is not satisfied’ with his performance during the
probationary period. Respondent even failed to attach to said letter the rating sheets of complainant for his information
as that he may present his side." 24

Worse, in the petition for certiorari, petitioner invoked the provision in the employment contract which allows summary
dismissal for cases provided therein. 25 Consequently, petitioner argues that written notice to the private respondent
was no longer an indispensable procedural requirement to satisfy the dictates of due process but was merely a
formality in the course of effecting severance of employment. 26 Such blatant violation of basic labor law principles
cannot be permitted by this Court. Although a contract is law between the parties, the provisions of positive law which
regulate such contracts are deemed included and shall limit and govern the relations between the parties." 27
Petitioner, in our view, failed to rebut the following findings of the respondent NLRC —

"Records also show that the letter of termination dated March 1, 1989 was received by complainant on March 10, 1989
when he was terminated. He was repatriated on March 12, 1989. Taking into consideration the effectivity date of his
termination, and the span of time the letter was received and his date of repatriation, we cannot consider that such is
the notice required for a valid termination of employment." 28

Jurisprudence abounds on the twin requirements of due process, substantive and procedural, which must be complied
with, before a valid dismissal exists. 29 The twin requirements of notice and hearing constitute the essential elements
of due process. Simply put, the employer shall afford the worker ample opportunity to be heard and to defend himself
with the assistance of his representative, if he so desires. As held in the case of International Pharmaceuticals, Inc. v.
National Labor Relations Commission, 287 SCRA 213, 227 (1998):chanroblesvirtual|awlibrary

"The law requires that the employer must furnish the worker sought to be dismissed with two written notices before
termination of employee can be legally effected: (1) notice which apprises the employee of the particular acts or
omissions for which his dismissal is sought; and (2) the subsequent notice which informs the employee of the
employer’s decision to dismiss him. (Sec. 13, BP 130; Sections 2-6, Rule XIV, Book V, Rules and Regulations
Implementing the Labor Code as amended). Failure to comply with the requirements taints the dismissal with illegality .
. . [Citing Aurora Land Projects Corp. v. NLRC; 266 SCRA 48 (1997); Tingson, Jr. v. NLRC, 185 SCRA 498 (1990);
National Service Corporation v. NLRC, 168 SCRA 122 (1988); Ruffy v. NLRC, 182 SCRA 365 (1990).]"

Applying the above legal criteria, we find that private respondent herein was indeed dismissed without cause and
without due process.

Although the Labor Code is silent on the liability of an employer for damages in case the termination is declared to be
unjust, we have ruled, 30 however, that the employer may be so liable if, in terminating the employment, it also
committed an antisocial and oppressive abuse of its right to investigate and dismiss its employee in violation of Article
1701 of the Civil Code. 31 Further, in CLLC E.G. Gochangco Workers Union v. NLRC, 161 SCRA 655, 671 (1988), we
already stated:jgc:chanrobles.com.ph

"As for moral damages, we hold the said respondent liable therefor under the provisions of Article 2220 of the Civil
Code providing for damages for ‘breaches of contract where the defendant acted fraudulently or in bad faith."cralaw
virtua1aw library

Hence, we now hold that private respondent is entitled to moral damages amounting. to TWENTY-FIVE THOUSAND
PESOS (P25,000.00), considering that his dismissal was marked by precipitate dispatch and utter disregard of due
process.

One final note. The need for strict enforcement of the law as well as rules and regulations governing Filipino Contract
workers cannot be over emphasized. Many hapless citizens of this country have sought employment abroad to earn a
few dollars in order to improve their lot, and provide proper education and a decent future for their children, but have
found themselves exploited by foreign employers or recruiters who harass or abuse them. They are deprived of their
jobs without cause or at the slightest pretense. Hence, Filipino recruiting agencies must not only faithfully comply with
Government-prescribed responsibilities; they must also impose upon themselves the duty, borne out of a social
conscience, to properly help fellow citizens sent abroad to work for foreign principals. They must keep in mind that this
country is not exporting slaves but human beings, and, above all, fellow Filipinos seeking merely to improve their lives.
32

WHEREFORE, finding no grave abuse of discretion committed by public respondent NLRC, the assailed Decision
dated September 13, 1993 and Resolution dated October 29, 1993 are hereby AFFIRMED, with the MODIFICATION
that, it appearing that petitioner already partially satisfied the NLRC judgment except for a balance of US $741.98,
petitioner is hereby ordered to pay private respondent said amount or its prevailing peso equivalent at the time of
payment. 33 The Court also finds it proper to award private respondent moral damages, and hereby ORDERS
petitioner to pay P25,000.00 as moral damages. Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza and Buena, JJ., concur.

 THIRD DIVISION

[G.R. NO. 161003 : May 6, 2005]

FELIPE O. MAGBANUA, CARLOS DE LA CRUZ, REMY ARNAIZ, BILLY ARNAIZ, ROLLY ARNAIZ, DOMINGO
SALARDA, JULIO CAHILIG and NICANOR LABUEN, Petitioners, v. RIZALINO UY, Respondent.

DECISION

PANGANIBAN, J.:

Rights may be waived through a compromise agreement, notwithstanding a final judgment that has already settled the
rights of the contracting parties. To be binding, the compromise must be shown to have been voluntarily, freely and
intelligently executed by the parties, who had full knowledge of the judgment. Furthermore, it must not be contrary to
law, morals, good customs and public policy.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 31, 2000 Decision 2 and the
October 30, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 53581. The challenged Decision
disposed as follows:

"WHEREFORE, having found that public respondent NLRC committed grave abuse of discretion, the Court
hereby SETS ASIDE the two assailed Resolutions and REINSTATES the order of the Labor Arbiter dated February 27,
1998."4

The assailed Resolution denied reconsideration.

The Facts

The CA relates the facts in this wise:

"As a final consequence of the final and executory decision of the Supreme Court in Rizalino P. Uy v. National Labor
Relations Commission, et. al.  (GR No. 117983, September 6, 1996) which affirmed with modification the decision of
the NLRC in NLRC Case No. V-0427-93, hearings were conducted [in the National Labor Relations Commission Sub-
Regional Arbitration Branch in Iloilo City] to determine the amount of wage differentials due the eight (8) complainants
therein, now [petitioners]. As computed, the award amounted to P1,487,312.69 x x x.

"On February 3, 1997, [petitioners] filed a Motion for Issuance of Writ of Execution.

"On May 19, 1997, [respondent] Rizalino Uy filed a Manifestation requesting that the cases be terminated and closed,
stating that the judgment award as computed had been complied with to the satisfaction of [petitioners]. Said
Manifestation was also signed by the eight (8) [petitioners]. Together with the Manifestation is a Joint Affidavit dated
May 5, 1997 of [petitioners], attesting to the receipt of payment from [respondent] and waiving all other benefits due
them in connection with their complaint.

xxx

"On June 3, 1997, [petitioners] filed an Urgent Motion for Issuance of Writ of Execution wherein they confirmed that
each of them received P40,000 from [respondent] on May 2, 1997.

"On June 9, 1997, [respondent] opposed the motion on the ground that the judgment award had been fully satisfied. In
their Reply, [petitioners] claimed that they received only partial payments of the judgment award.

xxx

"On October 20, 1997, six (6) of the eight (8) [petitioners] filed a Manifestation requesting that the cases be considered
closed and terminated as they are already satisfied of what they have received (a total of P320,000) from [respondent].
Together with said Manifestation is a Joint Affidavit in the local dialect, dated October 20, 1997, of the six (6)
[petitioners] attesting that they have no more collectible amount from [respondent] and if there is any, they are
abandoning and waiving the same.

"On February 27, 1998, the Labor Arbiter issued an order denying the motion for issuance of writ of execution and
[considered] the cases closed and terminated x x x.

"On appeal, the [National Labor Relations Commission (hereinafter 'NLRC')] reversed the Labor Arbiter and directed
the immediate issuance of a writ of execution, holding that a final and executory judgment can no longer be altered and
that quitclaims and releases are normally frowned upon as contrary to public policy." 5

Ruling of the Court of Appeals

The CA held that compromise agreements may be entered into even after a final judgment. 6 Thus, petitioners validly
released respondent from any claims, upon the voluntary execution of a waiver pursuant to the compromise
agreement.7

The appellate court denied petitioners' motion for reconsideration for having been filed out of time. 8

Hence, this Petition.9

The Issues

Petitioners raise the following issues for our consideration:

"1. Whether or not the final and executory judgment of the Supreme Court could be subject to compromise settlement;
"2. Whether or not the petitioners' affidavit waiving their awards in [the] labor case executed without the assistance of
their counsel and labor arbiter is valid;

"3. Whether or not the ignorance of the jurisprudence by the Court of Appeals and its erroneous counting of the period
to file [a] motion for reconsideration constitute a denial of the petitioners' right to due process." 10

The Court's Ruling

The Petition has no merit.

First Issue:

Validity of the Compromise Agreement

A compromise agreement is a contract whereby the parties make reciprocal concessions in order to resolve their
differences and thus avoid or put an end to a lawsuit. 11 They adjust their difficulties in the manner they have agreed
upon, disregarding the possible gain in litigation and keeping in mind that such gain is balanced by the danger of
losing.12 Verily, the compromise may be either extrajudicial (to prevent litigation) or judicial (to end a litigation). 13

A compromise must not be contrary to law, morals, good customs and public policy; and must have been freely and
intelligently executed by and between the parties. 14 To have the force of law between the parties,15 it must comply with
the requisites and principles of contracts.16 Upon the parties, it has the effect and the authority of res judicata, once
entered into.17

When a compromise agreement is given judicial approval, it becomes more than a contract binding upon the parties.
Having been sanctioned by the court, it is entered as a determination of a controversy and has the force and effect of a
judgment.18 It is immediately executory and not appealable, except for vices of consent or forgery. 19 The nonfulfillment
of its terms and conditions justifies the issuance of a writ of execution; in such an instance, execution becomes a
ministerial duty of the court.20

Following these basic principles, apparently unnecessary is a compromise agreement after final judgment has been
entered. Indeed, once the case is terminated by final judgment, the rights of the parties are settled. There are no more
disputes that can be compromised.

Compromise Agreements
after Final Judgment

The Court is tasked, however, to determine the legality of a compromise agreement after final judgment, not
the prudence of entering into one. Petitioners vehemently argue that a compromise of a final judgment is invalid under
Article 2040 of the Civil Code, which we quote:21

"Art. 2040. If after a litigation has been decided by a final judgment, a compromise should be agreed upon, either or
both parties being unaware of the existence of the final judgment, the compromise may be rescinded.

"Ignorance of a judgment which may be revoked or set aside is not a valid ground for attacking a compromise." (Bold
types supplied)

The first paragraph of Article 2040 refers to a scenario in which either or both of the parties are unaware of a court's
final judgment at the time they agree on a compromise. In this case, the law allows either of them to rescind the
compromise agreement. It is evident from the quoted paragraph that such an agreement is not prohibited or void or
voidable. Instead, a remedy to impugn the contract, which is an action for rescission, is declared available. 22 The law
allows a party to rescind a compromise agreement, because it could have been entered into in ignorance of the fact
that there was already a final judgment. Knowledge of a decision's finality may affect the resolve to enter into a
compromise agreement.

The second paragraph, though irrelevant to the present case, refers to the instance when the court's decision is still
appealable or otherwise subject to modification. Under this paragraph, ignorance of the decision is not a ground to
rescind  a compromise agreement, because the parties are still unsure of the final outcome of the case at this time.

Petitioners' argument, therefore, fails to convince. Article 2040 of the Civil Code does not refer to the validity of a
compromise agreement entered into after final judgment. Moreover, an important requisite, which is lack of knowledge
of the final judgment, is wanting in the present case.

Supported by Case Law

The issue involving the validity of a compromise agreement notwithstanding a final judgment is not novel. Jesalva v.
Bautista23 upheld a compromise agreement that covered cases pending trial, on appeal, and with final judgment. 24 The
Court noted that Article 2040 impliedly allowed such agreements; there was no limitation as to when these should be
entered into.25 Palanca v. Court of Industrial Relations26 sustained a compromise agreement, notwithstanding a final
judgment in which only the amount of back wages was left to be determined. The Court found no evidence of fraud or
of any showing that the agreement was contrary to law, morals, good customs, public order, or public policy. 27

Gatchalian v. Arlegui28 upheld the right to compromise prior to the execution of a final judgment. The Court ruled that
the final judgment had been novated and superseded by a compromise agreement. 29 Also, Northern Lines, Inc. v.
Court of Tax Appeals30 recognized the right to compromise final and executory judgments, as long as such right was
exercised by the proper party litigants.31

Rovero v. Amparo,32 which petitioners cited, did not set any precedent that all compromise agreements after final
judgment were invalid. In that case, the customs commissioner imposed a fine on an importer, based on the appraised
value of the goods illegally brought to the country. The latter's appeal, which eventually reached this Court, was
denied. Despite a final judgment, the customs commissioner still reappraised the value of the goods and effectively
reduced the amount of fine. Holding that he had no authority to compromise a final judgment, the Court explained:

"It is argued that the parties to a case may enter into a compromise about even a final judgment rendered by a court,
and it is contended x x x that the reappraisal ordered by the Commissioner of Customs and sanctioned by the
Department of Finance was authorized by Section 1369 of the [Revised Administrative Code]. The contention may be
correct as regards private parties who are the owners of the property subject-matter of the litigation, and who are
therefore free to do with what they own or what is awarded to them, as they please, even to the extent of renouncing
the award, or condoning the obligation imposed by the judgment on the adverse party. Not so, however, in the present
case. Here, the Commissioner of Customs is not a private party and is not the owner of the money involved in the fine
based on the original appraisal. He is a mere agent of the Government and acts as a trustee of the money or property
in his hands or coming thereto by virtue of a favorable judgment. Unless expressly authorized by his principal or by
law, he is not authorized to accept anything different from or anything less than what is adjudicated in favor of the
Government."33 (Bold types supplied)

Compliance with the

Rule on Contracts

There is no justification to disallow a compromise agreement, solely because it was entered into after final judgment.
The validity of the agreement is determined by compliance with the requisites and principles of contracts, not by when
it was entered into. As provided by the law on contracts, a valid compromise must have the following elements: (1) the
consent of the parties to the compromise, (2) an object certain that is the subject matter of the compromise, and (3) the
cause of the obligation that is established.34

In the present factual milieu, compliance with the elements of a valid contract is not in issue. Petitioners do not
challenge the factual finding that they entered into a compromise agreement with respondent. There are no allegations
of vitiated consent. Neither was there any proof that the agreement was defective or could be characterized as
rescissible,35 voidable,36 unenforceable,37 or void.38 Instead, petitioners base their argument on the sole fact that the
agreement was executed despite a final judgment, which the Court had previously ruled to be allowed by law.

Petitioners voluntarily entered into the compromise agreement, as shown by the following facts: (1) they signed
respondent's Manifestation (filed with the labor arbiter) that the judgment award had been satisfied; 39 (2) they executed
a Joint Affidavit dated May 5, 1997, attesting to the receipt of payment and the waiver of all other benefits due
them;40 and (3) 6 of the 8 petitioners filed a Manifestation with the labor arbiter on October 20, 1997, requesting that
the cases be terminated because of their receipt of payment in full satisfaction of their claims. 41 These circumstances
also reveal that respondent has already complied with its obligation pursuant to the compromise agreement. Having
already benefited from the agreement, estoppel bars petitioners from challenging it.

Advantages of Compromise

A reciprocal concession inherent in a compromise agreement assures benefits for the contracting parties. For the
defeated litigant, obvious is the advantage of a compromise after final judgment. Liability arising from the judgment
may be reduced. As to the prevailing party, a compromise agreement assures receipt of payment. Litigants are
sometimes deprived of their winnings because of unscrupulous mechanisms meant to delay or evade the execution of
a final judgment.

The advantages of a compromise agreement appear to be recognized by the NLRC in its Rules of Procedure. As part
of the proceedings in executing a final judgment, litigants are required to attend a pre-execution conference to thresh
out matters relevant to the execution.42 In the conference, any agreement that would settle the final judgment in a
particular manner is necessarily a compromise.

Novation of an Obligation

The principle of novation supports the validity of a compromise after final judgment. Novation, a mode of extinguishing
an obligation,43 is done by changing the object or principal condition of an obligation, substituting the person of the
debtor, or surrogating a third person in the exercise of the rights of the creditor. 44

For an obligation to be extinguished by another, the law requires either of these two conditions: (1) the substitution is
unequivocally declared, or (2) the old and the new obligations are incompatible on every point. 45 A compromise of a
final judgment operates as a novation of the judgment obligation, upon compliance with either requisite. 46 In the
present case, the incompatibility of the final judgment with the compromise agreement is evident, because the latter
was precisely entered into to supersede the former.

Second Issue:

Validity of the Waiver

Having ruled on the validity of the compromise agreement in the present suit, the Court now turns its attention to the
waiver of claims or quitclaim executed by petitioners. The subject waiver was their concession when they entered into
the agreement. They allege, however, that the absence of their counsel and the labor arbiter when they executed the
waiver invalidates the document.

Not Determinative
of the Waiver's Validity

The presence or the absence of counsel when a waiver is executed does not determine its validity. There is no law
requiring the presence of a counsel to validate a waiver. The test is whether it was executed voluntarily, freely and
intelligently; and whether the consideration for it was credible and reasonable. 47 Where there is clear proof that a
waiver was wangled from an unsuspecting or a gullible person, the law must step in to annul such transaction. 48 In the
present case, petitioners failed to present any evidence to show that their consent had been vitiated.

The law is silent with regard to the procedure for approving a waiver after a case has been terminated. 49 Relevant,
however, is this reference to the NLRC's New Rules of Procedure:

"Should the parties arrive at any agreement as to the whole or any part of the dispute, the same shall be reduced to
writing and signed by the parties and their respective counsel, or authorized representative, if any, 50 before the Labor
Arbiter.

"The settlement shall be approved by the Labor Arbiter after being satisfied that it was voluntarily entered into by the
parties and after having explained to them the terms and consequences thereof.

"A compromise agreement entered into by the parties not in the presence of the Labor Arbiter before whom the case is
pending shall be approved by him, if after confronting the parties, particularly the complainants, he is satisfied that they
understand the terms and conditions of the settlement and that it was entered into freely and voluntarily by them and
the agreement is not contrary to law, morals, and public policy." 51

This provision refers to proceedings in a mandatory/conciliation conference during the initial stage of the litigation.
Such provision should be made applicable to the proceedings in the pre-execution conference, for which the procedure
for approving a waiver after final judgment is not stated. There is no reason to make a distinction between the
proceedings in mandatory/conciliation and those in pre-execution conferences.

The labor arbiter's absence when the waivers were executed was remedied upon compliance with the above
procedure. The Court observes that the arbiter made searching questions during the pre-execution conference to
ascertain whether petitioners had voluntarily and freely executed the waivers. 52 Likewise, there was evidence that they
made an intelligent choice, considering that the contents of the written waivers had been explained to them. 53 The labor
arbiter's absence when those waivers were executed does not, therefore, invalidate them.

The Court declines to rule on the allegation that respondent's counsels encroached upon the professional employment
of petitioners' lawyer when they facilitated the waivers. 54 The present action is not the proper forum in which to raise
any charge of professional misconduct. More important, petitioners failed to present any supporting evidence.

The third issue, which refers to the timely filing of petitioners' Motion for Reconsideration filed with the CA, will no
longer be discussed because this Court's decision has resolved the case on the merits.

WHEREFORE, the Petition is DENIEDand the assailed Decision AFFIRMED. Costs against petitioners.

SO ORDERED.

Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.

 EN BANC

[G.R. No. L-24033. February 22, 1968.]

PHOENIX ASSURANCE CO., LTD., Plaintiff-Appellant, v. UNITED STATES LINES, Defendant-Appellee.

Quasha, Asperilla, Blanco & Associates, for Plaintiff-Appellant.

Enriquez D. Perez, for Defendant-Appellee.

SYLLABUS

1. COMMON CARRIER; BILL OF LADING; NATURE THEREOF. — A bill of lading operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As
a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks and condition, quality and value. As a contract, it names the contracting parties, which include the
consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and obligations assumed
by the parties.

2. ID.; ID.; ID.; CASE AT BAR. — Where by the terms of the bill of lading, the carrier shall not be liable for any loss or
damage to the goods, while the goods are not in its custody and there is no question that the crates subject matter of
this action were lost while in the possession and custody of the Manila Port Service, the carrier cannot be held
responsible for the loss of said crates. The carrier’s responsibility ceased the moment the goods were unloaded in
Manila.

DECISION

BENGZON, J.P., J.:

The facts antecedent to this appeal from a decision dated October 31, 1964 of the Court of First Instance of Manila, are
as follows:chanrob1es virtual 1aw library

On June 29, 1962, General Motors shipped and consigned on a CIF basis to Davao Parts and Service, Inc. at Davao
City from New York aboard the United States Lines’ vessel SS "Pioneer Moor" a cargo of truck spare parts in 25 cases
and 4 crates (2 pieces unboxed), for which United States Lines issued a short form bill of lading No. T-1 (Annex "A"
and Exh. "1"), and which shipment was insured against loss and damage with Phoenix Assurance Co., Ltd. The short
form bill of lading No. T-1 indicated Manila as the port of discharge and Davao City as the place where the goods were
to be transshipped, and expressly incorporated by reference the provisions contained in the carrier’s regular long form
bill of lading (Annex "B" and Exh. "2").

The SS "Pioneer Moor" on July 28, 1962 discharged at Manila to the custody of the Manila Port Service which was
then the operator of the arrastre service at the Port of Manila, the above described cargo, complete but with the
exception of two cases, namely, Cases Nos. 3139 and 3148 valued at P1,498.25.

On July 30, 1962, the Luzon Brokerage Corporation, customs broker hired by the United States Lines, filed in behalf of
the latter a provisional claim against the Manila Port Service for short-landed, short-delivered and/or landed in bad
order cargo ex-United States Lines’ vessel.

On August 30, 1962, the aforedescribed cargo, with the exception of Crates Nos. 3139 and 3148 which were not
discharged at the Manila Port, and Crates Nos. 3648 and 3649 which were discharged at the Manila Port but were lost
in the custody of the Manila Port Service, was transshipped by United States Lines to Davao through a vessel of its
Davao agent, Columbian Rope Company, and duly received in good order by the Davao Parts and Service, Inc.

Davao Parts and Service, Inc. filed on December 26, 1962 a formal claim with the United States Lines through the
latter’s agent, Columbian Rope Company, for the value of Crates Nos. 3139, 3148, 3648 and 3649 in the total sum of
P2,010.37.

The United States Lines, after proper verification, paid Davao Parts and Service, Inc. the sum of P1,458.25,
representing the value of Crates Nos. 3139 and 3148, when it was discovered that these two crates had been
overlanded in Honolulu, but refused to pay for the value of Crates Nos. 3648 and 3649 for the reason that these crates
had been lost while in the custody of the Manila Port Service.

The two crates (Nos. 3139 and 3148) which were overlanded in Honolulu and for which United States Lines paid
Davao Parts and Service, Inc. the sum of P1,458.25, were later recovered and returned to Davao Parts and Service,
Inc. and the latter refunded United States Lines for the sum it paid.

In view of United States Lines’ refusal to pay for the two crates (Nos. 3648 and 3649) which were lost while in the
custody of the Manila Port Service, Ker & Company, Ltd., agent of Phoenix Assurance Co., Ltd., in the Philippines, and
insurer of Davao Parts and Service, Inc., paid to the latter the value of said crates in the sum of P552,12.

On March 25, 1963, the United States Lines, through the Columbian Rope Company, by letter informed the Davao
Parts and Service, Inc. that it was filing a claim for the undelivered crates with the Manila Port Service. And true to its
word, it filed on March 30, 1963 a formal claim with the Manila Port Service for the value of Crates Nos. 3648 and
3649, but the latter declined to honor the same.

On June 26, 1963, United States Lines, through Columbian Rope Company, its Davao agent, informed the Davao
Parts and Service, Inc., inter alia, that the Manila Port Service had not yet settled its claim, and that the one-year
period provided by law within which to bring action against the Manila Port Service for the two crates (Nos. 3648 and
3649) would expire on July 28, 1963.

Phoenix Assurance Co., Ltd., through Ker & Company, Ltd., its agent in the Philippines, wrote on July 24, 1963 the
United States Lines expressing its appreciation to the latter for taking action against the Manila Port Service. In the
same letter it requested for an extension of time to file suit against the United States Lines (the prescriptive period for
doing so being set to expire on July 28, 1963), explaining that it could not file suit against any entity (including the
Manila Port Service) except the United States Lines with whom its subrogee, the Davao Parts and Service, Inc., was in
contract.

No reply having been received by it from the United States Lines, the Phoenix Assurance Co., Ltd. on July 29, 1963
filed a suit praying that judgment be rendered against the former for the sum of P552.12, with interest at the legal rate,
plus attorney’s fees and expenses of litigation. 1

On August 16, 1963, the United States Lines filed its answer with counterclaim, 2 while Phoenix Assurance Co., Ltd.
filed its answer to said counterclaim on August 26, 1963.

On March 9, 1964 the parties submitted a Partial Stipulation of Facts. 3

After trial, the lower court on October 31, 1964 rendered a decision dismissing plaintiff’s complaint. 4

Thus this appeal, raising the sole issue of whether or not the lower court erred in dismissing the complaint and in
exonerating defendant-appellee from liability for the value of the two undelivered crates Nos. 3648 and 3649.

It must be stated at the outset that a bill of lading operates both as a receipt and as a contract. It is a receipt for the
goods shipped and a contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date
and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition,
quality, and value. As a contract, it names the contracting parties, which include the consignee, fixes the route,
destination, and weight rate or charges, and stipulates the rights and obligations assumed by the parties. 5

In this jurisdiction, it is a statutory and decisional rule of law that a contract is the law between the contracting parties, 6
and where there is nothing in it which is contrary to law, morals, good customs, public policy, or public order, the
validity of the contract must be sustained. 7

The Bill of Lading (short form) No. T-1 dated June 29, 1962 (Annex "A" and Exh. "1") provides under Section 1 thereof
(Exh. "1-a") that, "It is agreed that the receipt, custody, carriage, delivery and transshipping of the goods are subject to
the terms appearing on the face and back hereof and also to the terms contained in the carrier’s regular long form bill
of lading, used in this service, including any clauses presently being stamped or endorsed thereon which shall be
deemed to be incorporated in this bill of lading, which shall govern the relations, whatsoever they may be, between
shipper, consignee, carrier and ship in every contingency, wheresoever and whensoever occuring and whether the
carrier be acting as such or as bailee, . . ." ( Emphasis supplied)

On the other hand, the regular long form Bill of Lading (Annex "B" and Exh. "2") provides, inter alia,
that:jgc:chanrobles.com.ph

"The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not
in its actual custody." (Par. 2, last subpar., Italics supplied)

"The carrier or master, in the exercise of its or his discretion and altho’ transshipment or forwarding of the goods may
not have been contemplated or provided for herein, may at port of discharge or any other place whatsoever transship
or forward the goods or any part thereof by any means at the risk and expense of the goods and at any time, whether
before or after loading on the ship named herein and by any route, whether within or outside the scope of the voyage
or beyond the port of discharge or destination of the goods and without notice to the shipper or consignee. The carrier
or master may delay such transshipping or forwarding for any reason, including but not limited to a waiting a vessel or
other means of transportation whether by the carrier or others.

"The carrier or master in making arrangements with any person for or in connection with all transshipping or forwarding
of the goods or the use of any means of transportation not used or operated by the carrier, shall be considered solely
the agent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof . The
receipt, custody, carriage and delivery of the goods by any such person or on-carrier and all transshipping and
forwarding shall be subject to all the provisions whatsoever of such person’s or on-carrier’s form of bill of lading or
agreement then in use, whether or not issued and even though such provisions may be less favorable to the shipper or
consignee in any respect than the provisions of this bill of lading. The shipper and consignee authorize the carrier or
master to arrange with any such person or on-carrier that the lowest valuation or limitation of liability contained in the
bill of lading or other agreement of such person on on-carrier shall apply.

"All responsibility of the carrier in any capacity shall altogether cease and the goods shall be deemed delivered by it
and this contract of carrier shall be deemed fully performed on actual or constructive delivery of the goods to itself as
such agent of the shipper and consignee or to any such person or on-carrier at port of discharge from ship or
elsewhere in case of an earlier transshipment.

"The shipper and consignee shall be liable to this carrier for and shall indemnify it against all expense of forwarding
and transshipping, including any increase in or additional freight or other charges whatsoever.

"Pending or during forwarding or transshipping this carrier or the master may store the goods ashore or afloat solely as
agent of the shipper and at the risk and expense of the goods and this carrier shall not be responsible for the acts,
neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for storage, handling, or any
service incidental thereto.

"In case the carrier issues a bill of lading covering transportation by a local or other carrier prior to the goods being
delivered to and put into the physical custody of the carrier, it shall not be under any responsibility or liability
whatsoever for any loss or damage to the goods occurring prior to or until the actual receipt or custody of the goods by
it at the port or place of transshipment and in arranging for the transportation to such port or place where the goods are
put in its physical custody, it acts solely as the agent of the shipper." (Par. 16, Emphasis supplied.)
It is admitted by both parties that the crates subject matter of this action were lost while in the possession and custody
of the Manila Port Service. Since the long form of Bill of Lading (Annex "B" and Exh. "2") provides that "The carrier
shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not in its actual
custody", appellee cannot be held responsible for the loss of said crates. For as correctly observed by the lower court,
it is hardly fair to make appellee accountable for a loss not due to its acts or omissions or over which it had no control.
8

Contrary to appellant’s stand, the appellee did not undertake to carry and deliver safely the cargo to the consignee in
Davao City. The short form Bill of Lading (Annex "A" and Exh. "1") states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City.
Pursuant to the terms of the long form Bill of Lading (Annex "B" and Exh. "2"), appellee’s responsibility as a common
carrier ceased the moment the goods were unloaded in Manila; and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. Contrary likewise to appellant’s contention, the cargo was not
transshipped with the use of transportation used or operated by appellee. It is true that the vessel used for
transshipment is owned and operated by appellee’s Davao agent, the Columbian Rope Company, but there is no proof
that said vessel is owned or operated by appellee. The vessels of appellee’s agent are being erroneously presumed by
appellant to be owned and operated by appellee.

Appellant argues that the provisions of the Bill of Lading exculpating the appellee from liability for cargo losses, do not
apply where full cargo freight is paid up to and beyond the point of stipulated discharge, and here defendant-appellee
agreed to absorb all costs of forwarding and transshipment — freight having been prepaid up to Davao City. But the
receipt of full cargo freight up to Davao City cannot render inoperative the provisions of the Bill of Lading relied upon by
appellee inasmuch as such a situation is not provided therein as an exception. In fact, one searches the Bills of Lading
(short and long forms) in vain for such an exception. Besides, it is for the convenience of both parties that full freight up
to Davao City had been prepaid, otherwise there would have been need to make further arrangements regarding the
transshipment of the cargo to Davao City. After all, the long form Bill of Lading provides that, "The shipper and
consignee shall be liable to this carrier for and shall indemnify it against all expense of forwarding and transshipping,
including any increase in or additional freight or other charges whatsoever," (Annex "B" and Exh, "2", par. 6, subpar. 4)

The filing of a claim by defendant-appellee with the Manila Port Service for the value of the losses cannot be
considered an indication that it is answerable for cargo losses up to Davao City. On the contrary, it is a convincing
proof that said party was not remiss in its duties as agent of the consignee. That appellee captioned its claim against
the Manila Port Service as "SS ‘Pioneer Moor’ Voy. 25, Reb. 1067 New York/Davao via Manila B/L T-1 31 Packages
Truck Spare Parts Cons: Davao Parts and Service", likewise, is no proof that appellee knowingly assumed liability for
cargo losses up to Davao City. It merely showed that the goods would have to be, as indeed they were, first unloaded
in Manila and thereafter transshipped to Davao City.

Through the short form Bill of Lading (Annex "A" and Exh. "1"), incorporating by reference the terms of the regular long
form bill of lading (Annex "3" and Exh. "2"), the United States Lines acknowledged the receipt of the cargo of truck
spare parts that it carried, and stated the conditions under which it was to carry the cargo, the place where it was to be
transshipped, the entity to which delivery is to be made, and the rate of compensation for the carriage. This it delivered
to the Davao Parts and Services, Inc. as evidence of a contract between them. By receiving the bill of lading, Davao
Parts and Services, Inc. assented to the terms of the consignment contained therein, and became bound thereby, so
far as the conditions named are reasonable in the eyes of the law. Since neither appellant nor appellee alleges that
any provision therein is contrary to law, morals, good customs, public policy, or public order, — and indeed We found
none — the validity of the Bill of Lading must be sustained and the provisions therein properly applied to resolve the
conflict between the parties.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the appellant. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
 SECOND DIVISION

[G.R. No. 81087. June 19, 1991.]

INTERTROD MARITIME, INC. and TROODOS SHIPPING CO., Petitioners, v. NATIONAL LABOR RELATIONS
COMMISSION and ERNESTO DE LA CRUZ, Respondents.

Del Rosario & Del Rosario for petitioners.

DECISION

PADILLA, J.:

This petition seeks the annulment and/or modification of the resolution * of the First Division of the National Labor
Relations Commission promulgated on 11 December 1987 in NSB Case No. 3997-82 entitled "Ernesto de la Cruz v.
Intertrod Maritime, Inc. and Troodos Shipping Company," which reversed the decision of then POEA Administrator
Patricia Sto. Tomas dated 20 December 1983.

On 10 May 1982, private respondent Ernesto de la Cruz signed a shipboard employment contract with petitioner
Troodos Shipping Company as principal and petitioner Intertrod Maritime, Inc., as agent to serve as Third Engineer on
board the M/T "BREEDEN" for a period of twelve (12) months with a basic monthly salary of US$950.00. 1

Private-respondent eventually boarded a sister vessel, M/T "AFAMIS" and proceeded to work as the vessel’s Third
Engineer under the same terms and conditions of his employment contract previously referred to. 2

On 26 August 1982, while the ship (M/T "Afamis") was at Port Pylos, Greece, private respondent requested for relief,
due to "personal reason." 3 The Master of the ship approved his request but informed private respondent that
repatriation expenses were for his account and that he had to give thirty (30) days notice in view of the Clause 5 of the
employment contract so that a replacement for him (private respondent) could be arranged. 4

On 30 August 1982, while the vessel was at Port Said in Egypt and despite the fact that it was only four (4) days after
private respondent’s request for relief, the Master "signed him off" and paid him in cash all amounts due him less the
amount of US$780.00 for his repatriation expenses, as evidenced by the wages account signed by the
private Respondent. 5

On his return to the Philippines, private respondent filed a complaint with the National Seamen Board (NSB) (now
POEA) charging petitioners for breach of employment contract and violation of NSB rules and regulations. 6 Private
respondent alleged that his request for relief was made in order to take care of a Filipino member of the crew of M/T
"AFAMIS" who was hospitalized on 25 August 1982 in Athens, Greece. However, the Master of the ship refused to let
him immediately disembark in Greece so that the reason for his request for relief ceased to exist. Hence, when the
Master of the ship forced him to step out in Egypt despite his protestations to the contrary, there being no more reason
to request for relief, an illegal dismissal occurred and he had no other recourse but to return to the Philippines at his
own expense. 7

In its Answer to the complaint, petitioners denied the allegations of the complainant and averred that the contract was
cut short because of private respondent’s own request for relief so that it was only proper that he should pay for his
repatriation expenses in accordance with the provisions of their employment contract. 8

The sole issue to be resolved in this case is whether or not complainant’s termination is illegal.chanrobles law library :
red

POEA rendered a decision dismissing the complaint for lack of merit. 9 On appeal to the NLRC, the decision was
reversed.

The dispositive portion of the NLRC decision reads:jgc:chanrobles.com.ph

"WHEREFORE, the appealed decision is hereby SET ASIDE and another one entered, directing respondents-
appellees to: (1) pay complainant-appellant the amount of US$780.00 representing his plane fare from Egypt to Manila;
and (2) pay complainant-appellant the amount of US$6,300.00 representing his unearned salary for nine (3) months,
the unexpired portion of the contract.

"Foreign exchange conversions shall be paid in Philippine currency at the rate of exchange at the actual payment
thereof.

"SO ORDERED." 10

Hence, this petition.

Article 21(c) of the Labor Code requires that the Philippine Overseas Employment Administration (formerly NSB)
should approve and verify a contract for overseas employment. 11 A contract, which is approved by the National
Seamen Board, such as the one in this case, is the law between the contracting parties; and where there is nothing in it
which is contrary to law, morals, good customs, public policy or public order, the validity of said contract must be
sustained. 12

In its resolution, the NLRC held that the immediate approval of private respondent’s request for relief should have
resulted in his disembarkation in Port Pylos, Greece; that failure of the Master to allow disembarkation in Greece
nullified the request for relief and its approval, such that private respondent’s subsequent disembarkation in Egypt is no
longer his doing but rather an illegal dismissal on the part of the Master. 13 We cannot support such a ruling for it fails
to consider the clear import of the provisions of the employment contract between petitioners and private Respondent.

Paragraph 5 of the Employment Contract between petitioners and private respondent Ernesto de la Cruz provides as
follows:jgc:chanrobles.com.ph

"5. That, if the seaman decide to terminate his contract prior to the expiration of the service period as stated and
defined in paragraph 4 of this Employment Contract, without due cause, he will give the Master thirty (30) days notice
and agree to allow his repatriation expenses to be deducted from wages due him." 14

Clearly, therefore, private respondent Ernesto de la Cruz was required by the employment contract not only to pay his
own repatriation expenses but also to give thirty (30) days notice should he decide to terminate his employment prior to
the expiration of the period provided in the contract. When the Master approved his request for relief, the Master
emphasized that private respondent was required to give thirty (30) days notice and to shoulder his own repatriation
expenses. Approval of his request for relief, therefore, did not constitute a waiver by petitioners of the provisions of the
contract, as private respondent would have us believe, for it was made clear to him that the provisions of the contract,
insofar as the thirty (30) days notice and repatriation expenses were concerned, were to be enforced.chanrobles
lawlibrary : rednad
Private respondent claims that his request for relief was only for the reason of taking care of a fellow member of the
crew so much so that when he was not allowed to disembark in Port Pylos, Greece, the reaction no longer existed and,
therefore, when he was forced to "sign off" at Port Said, Egypt even when he signified intentions of continuing his work,
he was illegally dismissed. 15 We sympathize with the private respondent; however, we cannot sustain such
contention. Resignation is the voluntary act of an employee who "finds himself in a situation where he believes that
personal reasons cannot be sacrificed in favor of the exigency of the service, then he has no other choice but to
disassociate himself from his employment." 16 The employer has no control over resignations and so, the notification
requirement was devised in order to ensure that no disruption of work would be involved by reason of the resignation.
This practice has been recognized because "every business enterprise endeavors to increase its profits by adopting a
device or means designed towards that goal." 17

Resignations, once accepted and being the sole act of the employee, may not be withdrawn without the consent of the
employer. In the instant case, the Master had already accepted the resignation and, although the private respondent
was being required to serve the thirty (30) days notice provided in the contract, his resignation was already approved.
Private respondent cannot claim that his resignation ceased to be effective because he was not immediately
discharged in Port Pylos, Greece, for he could no longer unilaterally withdraw such resignation. When he later signified
his intention of continuing his work, it was already up to the petitioners to accept his withdrawal of his resignation. The
mere fact that they did not accept such withdrawal did not constitute illegal dismissal for acceptance of the withdrawal
of the resignation was their (petitioners’) sole prerogative.

Once an employee resigns and his resignation is accepted, he no longer has any right to the job. If the employee later
changes his mind, he must ask for approval of the withdrawal of his resignation from his employer, as if he were re-
applying for the job. It will then be up to the employer to determine whether or not his service would be continued. If the
employer accepts said withdrawal, the employee retains his job. If the employer does not, as in this case, the
employee cannot claim illegal dismissal for the employer has the right to determine who his employees will be. To say
that an employee who has resigned is illegally dismissed, is to encroach upon the right of employers to hire persons
who will be of service to them.

Furthermore, the employment contract also provides as follows:jgc:chanrobles.com.ph

"4. That all terms and conditions agreed herein are for a service period of twelve (12) months provided the vessel is in
a convenient port for his repatriation, otherwise at Masters discretion, on vessel’s arrival at the first port where
repatriation is practicable provided that such continued service shall not exceed three months." 18

Under the terms of the employment contract, it is the ship’s Master who determines where a seaman requesting relief
may be "signed off." It is, therefore, erroneous for private respondent to claim that his resignation was effective only in
Greece and that because he was not immediately allowed to disembark in Greece (as the employer wanted
compliance with the contractual conditions for termination on the part of the employee), the resignation was to be
deemed automatically withdrawn.chanrobles law library : red

The decision of the NLRC is therefore set aside. To sustain it would be to authorize undue oppression of the employer.
After all, "the law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the
employer." 19

WHEREFORE, the petition is GRANTED. The questioned resolution of the National Labor Relations Commission
dated 11 December 1987 is hereby REVERSED and SET ASIDE and the decision of then POEA Administrator Patricia
Sto. Tomas dated 20 December 1983 is REVIVED. No pronouncement as to costs.

SO ORDERED.

Melencio-Herrera, Paras and Regalado, JJ., concur.

Sarmiento, J., is on leave.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-27239 August 20, 1986

ROYAL LINES, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and THE NATIONAL SHIPYARDS AND STEEL CORPORATION, respondents.

Regino Hermosisimo for petitioner.

CRUZ, J.:

Petitioner and the National Shipyards and Steel Corporation (NASSCO) entered into a written contract for the
conversion of the former's yacht, the M/V Sea Belle, into a passenger and cargo vessel for the stipulated price of
P121,980.00.1 Additional work was done on the ship, for which NASSCO demanded the sum of P196,245.37,
representing the difference between the amount already paid by the petitioner and the contract price. 2 Petitioner
rejected the demand, claiming it had not authorized the additional work in writing as required under Article 1724 of the
Civil Code. The trial court sustained NASSCO, and petitioner appealed. The Court of Appeals, in a 3-2 decision,
affirmed the court a quo, holding that the said article was not applicable in the instant case as it referred only to
structures on land and did not include vessels. 3 Petitioner come to us on certiorari to challenge this decision.

The lone assignment of error is the refusal of the Court of Appeals to apply Article 1724 of the Civil Code reading in full
as follows:

Art. 1724. The contractor who undertakes to build a structure or any other work for a stipulated
price, in conformity with plans and specifications agreed upon with the landowner can neither
withdraw from the contract nor demand an increase in the price on account of the higher cost of
labor or materials, save when there has been a change in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing, and

(2) The additional price to be paid to the contractor has been determined in writing by both parties.

Petitioner contends that it cannot be held liable for the additional work (which it admits) because it had not given any
written authorization therefor. The change had not been authorized "in writing" and the additional price to be paid had
not "been determined in writing by the parties." 4 To bolster its position, petitioner cites the case of San Diego v.
Sayson  5  and Tui Suico v. Habana,6 where this Court rejected claims for payment for additional work because these
had not been authorized in writing by the parties, nor had the price therefor been previously determined by written
agreement of the parties.
For its part, NASSCO argues that the above provision is not in point for the simple reason that it refers only to buildings
or structures constructed on land.7 The article in question constitutes the special rule applicable only to those
constructions. All other matters come under the general rules on contract and under such rules no particular form is
required for the agreement under consideration.8 Moreover, the cases cited by petitioner are not in point because they
involved buildings and not, as in this case, a vessel. 9

There is no ambiguity in the language of Article 1724. Plainly, it refers to a structure or any other work to be built on
land by agreement between the contractor and the landowner. It cannot apply to work done upon a vessel which is not
erected on land or owned by a landowner. Hence, the said article is not controlling in this case.

However, it does not follow that petitioner is absolved of liability for the work done upon its vessel which, to repeat, it
does not deny. Regarding this matter, the applicable rules, as it itself contends, are the general rules on contracts.

A contract is a meeting of minds between the parties and is perfected by mere consent 10 except in the case of certain
agreements like deposit, pledge and commodatum. 11 It may be entered into in whatever form 12 save where the law
requires a document or other special form as in the contract enumerated in Article 1388 of the Civil Code. As a general
rule , therefore, the contract may be oral or written.

In the case at bar, the original contract of services was in writing. It does not follow, however, that all supplements of
that written contract should also be written.

In Article IV of the written contract of services it was provided that:

during the performance of the work required on the vessel at the Bataan National Shipyard at
Mariveles, Bataan, the OWNER, at his option may send an authorized representative to be present
while the work is being performed. In the event that the OWNER requests for any modification,
change, and/or extra work to be performed on the vessel which are not otherwise specified herein
and which have not been included in the Specifications submitted by the BUILDER to the OWNER,
the same shall be subject of another contract between the parties hereto.

In stipulating that "any modification, change and/or extra work" shall be "subject of another contract," the contracting
parties did not necessarily or explicitly agree that the second contract should be in writing. The second contract could
be merely verbal, as in fact it was, and was binding on the parties as long as it represented a meeting of minds
between them.

We are satisfied with the finding of the Court of Appeals that Victorino Estrella and Steve Pierre were sent by petitioner
to the NASSCO shipyard in Mariveles while the M/V Sea Belle was being repaired and that they represented said
petitioner when they requested the extra work that was subsequently done on the vessel. 13 This second contract was
not reduced to writing, but it was nonetheless as binding between the parties as the first written contract.

As for the consideration for the extra work, it has been held that the same can be determined in relation to a definite
thing or under the usage and customs of the place or by leaving it to the judgment of the court in case of disagreement
or disputes. 14 The Court of Appeals has made its determination on the basis of the evidence before it, and we shall
also accept this finding.

We deplore the efforts of petitioner to evade a legitimate obligation for benefits it has admittedly received from the
additional work done by NASSCO. Strict legal considerations apart, what we see here is a shabby attempt to enrich
oneself at the expense of another by a clever disowning of benefits while at the same time enjoying them. This is
hardly sporting, to say the least; at worst, it is downright dishonest.

The study of the law is not an exact science with definite fields of black and white and unbending rules and rigid
dogmas. The beauty of this discipline is the "penumbra shading gradually from one extreme to another," in the words
of Justice Holmes, that gives rise to those honest differences of opinion among the brotherhood as to its correct
interpretation. Honest differences are allowed and, indeed, inevitable, but we certainly must frown on stilted readings to
suit one's motives, especially if they are less than noble. The law does not permit this, and much less, for that matter,
does equity.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the petitioner.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera and Paras, JJ., concur.

SECOND DIVISION

[G.R. No. L-22590. March 20, 1987.]

SOLOMON BOYSAW and ALFREDO M. YULO, JR., Plaintiffs-Appellants, v. INTERPHIL PROMOTIONS, INC., LOPE
SARREAL, SR., and MANUEL NIETO, JR., Defendants-Appellees.

Felipe Torres and Associates, for Plaintiffs-Appellants.

V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.

A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil Promotions, Inc.
 RESOLUTION

FERNAN, J.:

This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr., from the decision dated July 25, 1963 and
other rulings and orders of the then Court of First Instance [CFI] of Rizal, Quezon City, Branch V in Civil Case No. Q-
5063, entitled "Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus Interphil Promotions, Inc., Lope Sarreal, Sr.
and Manuel Nieto, Jr., Defendants," which, among others, ordered them to jointly and severally pay defendant-appellee
Manuel Nieto, Jr., the total sum of P25,000.00, broken down into P20,000.00 as moral damages and P5,000.00 as
attorney’s fees; the defendants-appellees Interphil Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as unrealized
profits, P33,369.72 as actual damages and P5,000.00 as attorney’s fees; and defendant-appellee Lope Sarreal, Sr.,
the additional amount of P20,000.00 as moral damages aside from costs.chanrobles virtual lawlibrary

The antecedent facts of the case are as follows:chanrob1es virtual 1aw library

On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc.
represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior
lightweight championship of the world.

It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not
later than thirty [30] days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior
to the date of the boxing contest, engage in any other such contest without the written consent of Interphil Promotions,
Inc.

On May 3, 1961, a supplemental agreement on certain details not covered by the principal contract was entered into by
Ketchum and Interphil. Thereafter, Interphil signed Gabriel "Flash" Elorde to a similar agreement, that is, to engage
Boysaw in a title fight at the Rizal Memorial Stadium on September 30, 1961.

On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las Vegas, Nevada,
U.S.A. [pp. 26-27, t.s.n., session of March 14, 1963].

On July 2, 1961, Ketchum, on his own behalf and on behalf of his associate Frank Ruskay, assigned to J. Amado
Araneta the managerial rights over Solomon Boysaw.

Presumably in preparation for his engagement with Interphil, Solomon Boysaw arrived in the Philippines on July 31,
1961.

On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights over Boysaw that be
earlier acquired from Ketchum and Ruskay. The next day, September 2, 1961, Boysaw wrote Lope Sarreal, Sr.
informing him of his arrival and presence in the Philippines.chanrobles law library : red

On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal, informing him of his acquisition of the managerial rights over
Boysaw and indicating his and Boysaw’s readiness to comply with the boxing contract of May 1, 1961. On the same
date, on behalf of Interphil, Sarreal wrote a letter to the Games and Amusement Board [GAB] expressing concern over
reports that there had been a switch of managers in the case of Boysaw, of which he had not been formally notified,
and requesting that Boysaw be called to an inquiry to clarify the situation.

The GAB called a series of conferences of the parties concerned culminating in the issuance of its decision to schedule
the Elorde-Boysaw fight for November 4, 1961. The USA National Boxing Association which has supervisory control of
all world title fights approved the date set by the GAB.

Yulo, Jr. refused to accept the change in the fight date, maintaining his refusal even after Sarreal on September 26,
1961, offered to advance the fight date to October 28, 1961 which was within the 30-day period of allowable
postponements provided in the principal boxing contract of May 1, 1961.

Early in October 1961, Yulo, Jr. exchanged communications with one Mamerto Besa, a local boxing promoter, for a
possible promotion of the projected Elorde-Boysaw title bout. In one of such communications dated October 6, 1961,
Yulo informed Besa that he was willing to approve the fight date of November 4, 1961 provided the same was
promoted by Besa.

While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never
materialized.

As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and
Manuel Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages allegedly occasioned by the refusal of Interphil
and Sarreal, aided and abetted by Nieto, Jr., then GAB Chairman, to honor their commitments under the boxing
contract of May 1, 1961.

On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge Coquia of the Solicitor General’s Office
and Atty. Romeo Edu of the GAB Legal Department from appearing for defendant Nieto, Jr. on the ground that the
latter had been sued in his personal capacity and, therefore, was not entitled to be represented by government
counsel. The motion was denied insofar as Solicitor General Coquia was concerned, but was granted as regards the
disqualification of Atty. Edu.

The case dragged into 1963 when sometime in the early part of said year, plaintiff Boysaw left the country without
informing the court and, as alleged, his counsel. He was still abroad when, on May 13, 1963, he was scheduled to take
the witness stand. Thus, the lower court reset the trial for June 20, 1963. Since Boysaw was still abroad on the later
date, another postponement was granted by the lower court for July 23, 1963 upon assurance of Boysaw’s counsel
that should Boysaw fail to appear on said date, plaintiff’s case would be deemed submitted on the evidence thus far
presented.

On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent motion for postponement of the July
23, 1963 trial, pleading anew Boysaw’s inability to return to the country on time. The motion was denied; so was the
motion for reconsideration filed by plaintiffs on July 22, 1963.chanrobles law library

The trial proceeded as scheduled on July 23,1963 with plaintiff’s case being deemed submitted after the plaintiffs
declined to submit documentary evidence when they had no other witnesses to present. When defendant’s counsel
was about to present their case, plaintiffs’ counsel after asking the court’s permission, took no further part in the
proceedings.

After the lower court rendered its judgment dismissing the plaintiffs’ complaint, the plaintiffs moved for a new trial. The
motion was denied, hence, this appeal taken directly to this Court by reason of the amount involved.

From the errors assigned by the plaintiffs, as having been committed by the lower court, the following principal issues
can be deduced:chanrob1es virtual 1aw library

1. Whether or not there was a violation of the fight contract of May 1, 1961; and if there was, who was guilty of such
violation.

2. Whether or not there was legal ground for the postponement of the fight date from September 1, 1961, as stipulated
in the May 1, 1961 boxing contract, to November 4, 1961.

3. Whether or not the lower court erred in refusing a postponement of the July 23, 1963 trial.

4. Whether or not the lower court erred in denying the appellant’s motion for a new trial.

5. Whether or not the lower court, on the basis of the evidence adduced, erred in awarding the appellees damages of
the character and amount stated in the decision.
On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that the contract was
violated by appellant Boysaw himself when, without the approval or consent of Interphil, he fought Louis Avila on June
19, 1961 in Las Vegas, Nevada. Appellant Yulo admitted this fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].

While the contract imposed no penalty for such violation, this does not grant any of the parties the unbridled liberty to
breach it with impunity. Our law on contracts recognizes the principle that actionable injury inheres in every contractual
breach. Thus:jgc:chanrobles.com.ph

"Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any
manner contravene the terms thereof, are liable for damages." [Art 1170, Civil Code].

Also:jgc:chanrobles.com.ph

"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." [Par 1, Art 1191, Civil Code].

There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are those
which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino, Civil Code of the
Philippines, Vol. IV, p. 175.]chanrobles law library

The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the undertaking
which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the
contract by the defendant, or recover damages by reason of his own breach." [Seva v. Alfredo Berwin, 48 Phil.
581, Emphasis supplied].

Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and
subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of
Interphil.

The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of the original contract
which, to be valid, should have been consented to by Interphil.

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." [Art. 1293, Civil Code, Emphasis
supplied].

That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961 of his acquisition of the managerial
rights over Boysaw cannot change the fact that such acquisition, and the prior acquisition of such rights by Araneta
were done without the consent of Interphil. There is no showing that Interphil, upon receipt of Yulo’s letter, acceded to
the "substitution" by Yulo of the original principal obligor, who is Ketchum. The logical presumption can only be that,
with Interphil’s letter to the GAB expressing concern over reported managerial changes and requesting for clarification
on the matter, the appellees were not reliably informed of the changes of managers. Not being reliably informed,
appellees cannot be deemed to have consented to such changes.

Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by
another, the aggrieved creditor is not bound to deal with the substitute.

"The consent of the creditor to the change of debtors, whether in expromision or delegacion is an indispensable
requirement .. Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of
the inability or insolvency of the new debtor, hence, the creditor should agree to accept the substitution in order that it
may be binding on him.

Thus, in a contract where x is the creditor and y is the debtor, if y enters into a contract with z, under which he transfers
to z all his rights under the first contract, together with the obligations there under, but such transfer is not consented to
or approved by x, there is no novation. X can still bring his action against y for performance of their contract or
damages in case of breach." [Tolentino, Civil Code of the Philippines, Vol. IV, p. 361].

From the evidence, it is clear that the appellees, instead of availing themselves of the options given to them by law of
rescission or refusal to recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an injury
that Elorde sustained in a recent bout. That the appellees had the justification to renegotiate the original contract,
particularly the fight date is undeniable from the facts aforestated. Under the circumstances, the appellees’ desire to
postpone the fight date could neither be unlawful nor unreasonable.

We uphold the appellees’ contention that since all the rights on the matter rested with the appellees, and appellants’
claims, if any, to the enforcement of the contract hung entirely upon the former’s pleasure and sufferance, the GAB did
not act arbitrarily in acceding to the appellee’s request to reset the fight date to November 4, 1961. It must be noted
that appellant Yulo had earlier agreed to abide by the GAB ruling.chanrobles virtual lawlibrary

In a show of accommodation, the appellees offered to advance the November 4, 1961 fight to October 28, 1961 just to
place it within the 30-day limit of allowable postponements stipulated in the original boxing contract.

The refusal of appellants to accept a postponement without any other reason but the implementation of the terms of
the original boxing contract entirely overlooks the fact that by virtue of the violations they have committed of the terms
thereof, they have forfeited any right to its enforcement.

On the validity of the fight postponement, the violations of the terms of the original contract by appellants vested the
appellees with the right to rescind and repudiate such contract altogether. That they sought to seek an adjustment of
one particular covenant of the contract, is under the circumstances, within the appellee’s rights.

While the appellants concede to the GAB’s authority to regulate boxing contests, including the setting of dates thereof,
[pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention that only Manuel Nieto, Jr. made the decision for postponement,
thereby arrogating to himself the prerogatives of the whole GAB Board.

The records do not support appellants’ contention. Appellant Yulo himself admitted that it was the GAB Board that set
the questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it must be stated that one of the strongest
presumptions of law is that official duty has been regularly performed. In this case, the absence of evidence to the
contrary, warrants the full application of said presumption that the decision to set the Elorde-Boysaw fight on
November 4, 1961 was a GAB Board decision and not of Manuel Nieto, Jr. alone.

Anent the lower court’s refusal to postpone the July 23, 1963 trial, suffice it to say that the same issue had been raised
before Us by appellants in a petition for certiorari and prohibition docketed as G.R. No. L-21506. The dismissal by the
Court of said petition had laid this issue to rest, and appellants cannot now hope to resurrect the said issue in this
appeal.

On the denial of appellant’s motion for a new trial, we find that the lower court did not commit any reversible error.

The alleged newly discovered evidence, upon which the motion for new trial was made to rest, consists merely of
clearances which Boysaw secured from the clerk of court prior to his departure for abroad. Such evidence cannot alter
the result of the case even if admitted for they can only prove that Boysaw did not leave the country without notice to
the court or his counsel.

The argument of appellants is that if the clearances were admitted to support the motion for a new trial, the lower court
would have allowed the postponement of the trial, it being convinced that Boysaw did not leave without notice to the
court or to his counsel. Boysaw’s testimony upon his return would, then, have altered the results of the case.

We find the argument without merit because it confuses the evidence of the clearances and the testimony of Boysaw.
We uphold the lower court’s ruling that:jgc:chanrobles.com.ph

"The said documents [clearances] are not evidence to offset the evidence adduced during the hearing of the
defendants. In fact, the clearances are not even material to the issues raised. It is the opinion of the Court that the
`newly discovered evidence’ contemplated in Rule 37 of the Rules of Court, is such kind of evidence which has
reference to the merits of the case, of such a nature and kind, that if it were presented, it would alter the result of the
judgment. As admitted by the counsel in their pleadings, such clearances might have impelled the Court to grant the
postponement prayed for by them had they been presented on time. The question of the denial of the postponement
sought for by counsel for plaintiffs is a moot issue . . . The denial of the petition for certiorari and prohibition filed by
them, had the effect of sustaining such ruling of the court . . . [pp. 296-297, Record on Appeal].

The testimony of Boysaw cannot be considered newly-discovered evidence for as appellees rightly contend, such
evidence has been in existence waiting only to be elicited from him by questioning.

We cite with approval appellee’s contention that "the two qualities that ought to concur or dwell on each and every
piece of evidence that is invoked as a ground for new trial in order to warrant the reopening . . . inhered separately on
two unrelated species of proof" which "creates a legal monstrosity that deserves no recognition."cralaw virtua1aw
library

On the issue pertaining to the award of excessive damages, it must be noted that because the appellants wilfully
refused to participate in the final hearing and refused to present documentary evidence after they no longer had
witnesses to present, they, by their own acts prevented themselves from objecting to or presenting proof contrary to
those adduced for the appellees.

On the actual damages awarded to appellees, the appellants contend that a conclusion or finding based upon the
uncorroborated testimony of a lone witness cannot be sufficient. We hold that in civil cases, there is no rule requiring
more than one witness or declaring that the testimony of a single witness will not suffice to establish facts, especially
where such testimony has not been contradicted or rebutted. Thus, we find no reason to disturb the award of
P250,000.00 as and for unrealized profits to the appellees.

On the award of actual damages to Interphil and Sarreal, the records bear sufficient evidence presented by appellees
of actual damages which were neither objected to nor rebutted by appellants, again because they adamantly refused to
participate in the court proceedings.

The award of attorney’s fees in the amount of P5,000.00 in favor of defendant-appellee Manuel Nieto, Jr. and another
P5,000.00 in favor of defendants-appellees Interphil Promotions, Inc. and Lope Sarreal, Sr., jointly, cannot also be
regarded as excessive considering the extent and nature of defense counsels’ services which involved legal work for
sixteen [16] months.

However, in the matter of moral damages, we are inclined to uphold the appellant’s contention that the award is not
sanctioned by law and well-settled authorities. Art. 2219 of the Civil Code provides:chanrobles.com:cralaw:red

"Art. 2219. Moral damages may be recovered in the following analogous cases:chanrob1es virtual 1aw library

1) A criminal offense resulting in physical injuries;

2) Quasi-delict 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 Art. 309.

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

The award of moral damages in the instant case is not based on any of the cases enumerated in Art. 2219 of the Civil
Code. The action herein brought by plaintiffs-appellants is based on a perceived breach committed by the defendants-
appellees of the contract of May 1, 1961, and cannot, as such, be arbitrarily considered as a case of malicious
prosecution.

Moral damages cannot be imposed on a party litigant although such litigant exercises it erroneously because if the
action has been erroneously filed, such litigant may be penalized for costs.

"The grant of moral damages is not subject to the whims and caprices of judges or courts. The court’s discretion in
granting or refusing it is governed by reason and justice. In order that a person may be made liable to the payment of
moral damages, the law requires that his act be wrongful. The adverse result of an action does not per se make the act
wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty
on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. [Barreto v. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52 O.G., No. 13, p.
5818.]

WHEREFORE, except for the award of moral damages which is herein deleted, the decision of the lower court is
hereby affirmed.

SO ORDERED.

Gutierrez, Jr., Paras, Padilla, Bidin and Cortes, JJ., concur.

FIRST DIVISION

[G.R. No. 97332. October 10, 1991.]

SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, Petitioners, v. THE HON. COURT OF APPEALS AND
SPOUSES MACARIA LABINGISA REYES AND ROBERTO REYES, Respondents.

Tranquilino F. Meris, for Petitioners.

Agripino G. Morga for Private Respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONSIDERATION; DEFINED. — As expressed in Gonzales v.

Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason which moves the contracting
parties to enter into the contract."cralaw virtua1aw library

2. ID.; ID.; ID.; CASE AT BAR. — The cause or the impelling reason on the part of private respondent in executing the
deed of option as appearing in the deed itself is the petitioners’ having agreed to buy the 300 square meter portion of
private respondents’ land at P70.00 per square meter "which was greatly higher than the actual reasonable prevailing
price." The respondent appellate court failed to give due consideration to petitioners’ evidence which shows that in
1969 the Villamor spouses bought an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square
meter which the private respondents did not rebut. Thus, expressed in terms of money, the consideration for the deed
of option is the difference between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per
sq. m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not
specifically stated in the deed of option, was ascertainable. Petitioners’ allegedly paying P52.00 per square meter for
the option may, as opined by the appellate court, he improbable but improbabilities does not invalidate a contract freely
entered into by the parties.

3. ID.; ID.; OPTIONAL CONTRACT; CONSTRUED. — An optional contract is a privilege existing in one person, for
which he had paid a consideration and which gives him the right to buy, for example, certain merchandise or certain
specified property, from another person, if he chooses, at any time within the agreed period at a fixed price (Enriquez
de la Cavada v. Diaz, 37 Phil. 982).

4. ID.; ID.; ACCEPTANCE OF OFFER TO SELL; EFFECTS. — The acceptance of an offer to sell for a price certain
created a bilateral contract to sell and buy and upon acceptance, the offered, ipso facto assumes obligations of a
vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandability may be exercised at any time after the
execution of the deed. In Sanchez v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376)

5. ID.; ID.; SALE; WHEN PERFECTED. — A contract of sale is, under Article 1475 of the Civil Code, "perfected at the
moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of
contracts."cralaw virtua1aw library

6. ID.; ID.; DEED OF OPTION; FAILURE OF EITHER PARTY TO DEMAND PERFORMANCE OF OBLIGATION FOR
UNREASONABLE LENGTH OF TIME, RENDERS CONTRACT INEFFECTUAL. — The Deed of Option did not provide
for the period within which the parties may demand the performance of their respective undertakings in the instrument.
The parties could not have contemplated that the delivery of the property and the payment thereof could be made
indefinitely and render uncertain the status of the land. The failure of either parties to demand performance of the
obligation of the other for an unreasonable length of time renders the contract ineffective.

7. ID.; PRESCRIPTION OF ACTIONS; ACTION BASED ON A WRITTEN CONTRACT PRESCRIBES WITHIN TEN
(10) YEARS; CASE AT BAR. — Under Article 1144 (1) of the Civil Code, actions upon a written contract must be
brought within ten (10) years. The Deed of Option was executed on November 11, 1971. The acceptance, as already
mentioned, was also accepted in the same instrument. The complaint in this case was filed by the petitioners on July
13, 1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action had
prescribed. There were allegations by the petitioners that they demanded from the private respondents as early as
1984 the enforcement of their rights under the contract. Still, it was beyond the ten (10) year period prescribed by the
Civil Code.

8. ID.; EQUITY; DOCTRINE APPLIED IN CASE AT BAR. — It is of judicial notice that the price of real estate in Metro
Manila is continuously on the rise. To allow the petitioner to demand the delivery of the property subject of this case
thirteen (13) years or seventeen (17) years after the execution of the deed at the price of only P70.00 per square meter
is inequitous. For reasons also of equity and in consideration of the fact that the private respondents have no other
decent place to live, this Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners’ prayer.

DECISION

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV. No. 24176 entitled,
"Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labingisa — Reyes and
Roberto Reyes, Defendants-Appellants," which reversed the decision of the Regional Trial Court (Branch 121) at
Caloocan City in Civil Case No. C-12942.

The facts of the case are as follows:chanrob1es virtual 1aw library

Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City, as evidenced by
Transfer Certificate of Title No. (18431) 18938, of the Register of Deeds of Rizal.

In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and Marina Villamor for the
total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses which amount was deducted from
the total purchase price of the 300 square meter lot sold. The portion sold to the Villamor spouses is now covered by
TCT No. 39935 while the remaining portion which is still in the name of Macaria Labingisa- is covered by TCT No.
39934 (pars. 5 and 7, Complaint). On November 11, 1971, Macaria executed a "Deed of option" in favor of Villamor in
which the remaining 300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor under the
conditions stated therein. The document reads:jgc:chanrobles.com.ph

"DEED OF OPTION

"This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of November, 1971, by and between
Macaria Labingisa-, of age, married to Roberto Reyes, likewise of age, and both residing on Reparo St., Baesa,
Caloocan City, on the one hand, and on the other hand the spouses Julio Villamor and Marina V. Villamor, also of age
and residing at No. 552 Reparo St., corner Baesa Road, Baesa, Caloocan City.chanrobles.com : virtual law library

"WITNESSES

"That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of 600 square meters, more or
less, more particularly described in TCT No. (18431) 18938 of the Office of the Register of Deeds for the province of
Rizal, issued in my name, I having inherited the same from my deceased parents, for which reason it is my
paraphernal property;

"That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the aforesaid spouses Julio
Villamor and Marina V. Villamor at the price of P70.00 per sq. meter, which was greatly higher than the actual
reasonable prevailing value of lands in that place at the time, which portion, after segregation, is now covered by TCT
No. 39935 of the Register of Deeds for the City of Caloocan, issued on August 17, 1971 in the name of the
aforementioned spouses vendees;

"That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the said one-half
portion at the above-stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still owned by me and now covered by TCT No.
39935 of the Register of Deeds for the City of Caloocan, whenever the need of such sale arises, either on our part or
on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square meter,
excluding whatever improvement may be found thereon;

"That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon the property
covered thereby, upon payment of the corresponding fees; and

"That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of this Deed of
Option.

"IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the persons
concerned, this 11th day of November, 1971.

"JULIO VILLAMOR "MACARIA LABINGISA

With My

Conformity:jgc:chanrobles.com.ph

"MARINA VILLAMOR "ROBERTO REYES

"Signed in the Presence Of:jgc:chanrobles.com.ph

"MARIANO Z. SUNIGA

"ROSALINDA S. EUGENIO

"ACKNOWLEDGMENT

"REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA) S.S.

"At the City of Manila, on the 11th day of November, 1971, personally appeared before me Roberto Reyes, Macaria
Labingisa, Julio Villamor and Marina Ventura-Villamor, known to me as the same persons who executed the foregoing
Deed of Option, which consists of two (2) pages including the page whereon this acknowledgment is written, and
signed at the left margin of the first page and at the bottom of the instrument by the parties and their witnesses, and
sealed with my notarial seal, and said parties acknowledged to me that the same is their free act and deed. The
Residence Certificates of the parties were exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on
Jan. 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-
1266104, both issued at Caloocan city on April 15, 1971, their joint Tax Acct. Number being 3028-767-6; Julio Villamor,
A-804, issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971; and Marina Ventura-
Villamor, A-803, issued at Manila on Jan. 14, 1971, their joint Tax Acct. Number being 608-202-6.chanrobles law
library

"ARTEMIO M. MALUBAY

Notary Public

Until December 31, 1972

PTR No. 338203, Manila

January 15, 1971

"Doc. No. 1526;

Page No. 24;

Book No. 38;

Series of 1971." (pp. 25-29, Rollo)

According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold by
them to the Villamor spouses but Marina Villamor refused and reminded them instead that the Deed of Option in fact
gave them the option to purchase the remaining portion of the lot.

The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining 300 square
meter portion of the lot but the Reyes had been ignoring them. Thus, on July 13, 1987, after conciliation proceedings in
the barangay level failed, they filed a complaint for specific performance against the Reyes.

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the dispositive portion of
which states:jgc:chanrobles.com.ph

"WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the
defendants ordering the defendant MACARIA LABINGISA REYES and ROBERTO REYES, to sell unto the plaintiffs
the land covered by T.C.T. No. 39934 of the Register of Deeds of Caloocan City, to pay the plaintiffs the sum of
P3,000.00 as and for attorney’s fees and to pay the cost of suit.
"The counterclaim is hereby DISMISSED, for LACK OF MERIT.

"SO ORDERED." (pp. 24-25, Rollo)

Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals on the following
assignment of errors:jgc:chanrobles.com.ph

"1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-
APPELLEES AND DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE THE LAPSE OF MORE
THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE CONTRACT;

"2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND STIPULATIONS
WHICH SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED AND
PREPARED THE SAME;

"3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND PURPOSE OF THE
PARTIES DESPITE ADVERSE, CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-
APPELLEES;

"4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR IGNORANCE PLACING

THEM AT A DISADVANTAGE IN THE DEED OF OPTION;

"5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE DEFENDANT-
APPELLANTS; and

"6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00

FOR AND BY WAY OF ATTORNEY’S FEES." (pp. 31-32, Rollo)

On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial court and dismissing
the complaint. The reversal of the trial court’s decision was premised on the finding of respondent court that the Deed
of Option is void for lack of consideration.

The Villamor spouses brought the instant petition for review on certiorari or the following
grounds:jgc:chanrobles.com.ph

"I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE ‘WHENEVER THE NEED FOR
SUCH SALE ARISES ON OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES JULIO D.
VILLAMOR AND MARINA V. VILLAMOR’ CONTAINED IN THE DEED OF OPTION DENOTES A SUSPENSIVE
CONDITION;

"II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION,
THE COURT OF APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN
FULFILLED;

"III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION,
THE COURT OF APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE
PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED
IN THE DEED OF OPTION;

"IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION IS VOID FOR LACK OF
CONSIDERATION;

"V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT CONSIDERATION IS NECESSARY TO
SUPPORT THE DEED OF OPTION DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED THEREIN."
(p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the private respondents
agreed to sell their lot to petitioners "whenever the need of such sale arises, either on our part (private respondents) or
on the part of Julio Villamor and Marina Villamor (petitioners)." The court a quo, rule that the Deed of Option was a
valid written agreement between the parties and made the following conclusions:chanrobles law library

"x       x       x

"It is interesting to state that the agreement between the parties are evidenced by a writing, hence, the controverting
oral testimonies of the herein defendants cannot be any better than the documentary evidence, which, in this case, is
the Deed of Option. (Exh.’A’ and ‘A-a’)

"The law provides that when the terms of an agreement have been reduced to writing it is to be considered as
containing all such terms, and therefore, there can be, between the parties and their successors in interest no evidence
of the terms of the agreement, other than the contents of the writing . . . . (Section 7 Rule 130 Revised Rules of Court)
Likewise, it is a general and most inflexible rule that wherever written instruments are appointed either by the
requirements of law, or by the contract of the parties, to be the repositories and memorials of truth, any other evidence
is excluded from being used, either as a substitute for such instruments, or to contradict or alter them. This is a matter
both of principle and of policy; of principle because such instruments are in their nature and origin entitled to a much
higher degree of credit than parol evidence, of policy, because it would be attended with great mischief if those
instruments upon which man’s rights depended were liable to be impeached by loose collateral evidence. Where the
terms of an agreement are reduced to writing, the document itself, being constituted by the parties as the expositor of
their intentions, it is the only instrument of evidence in respect of that agreement which the law will recognize so long
as it exists for the purpose of evidence. (Starkie, EV. pp. 648, 655 cited in Kasheenath v. Chundy, W.R. 68, cited in
Francisco’s Rules of Court, Vol. VII Part I p. 153) (Italic supplied, pp. 126-127, Records).

The respondent appellate court, however, ruled that the said deed of option is void for lack of consideration. The
appellate court made the following disquisitions:jgc:chanrobles.com.ph

"Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion purchased by them although the
prevailing price at that time was only P25.00 in consideration of the option to buy the remainder of the land. This does
not seem to be the case. In the first place, the deed of sale was never produced by them to prove their claim.
Defendant-appellants testified that no copy of the deed of sale had ever been given to them by the plaintiff-appellees.
In the second place, if this was really the condition of the prior sale, we see no reason why it should be reiterated in the
Deed of Option. On the contrary, the alleged overprice paid by the plaintiff-appellees is given in the Deed as reason for
the desire of the Villamors to acquire the land rather than as a consideration for the option given to them, although one
might wonder why they took nearly 13 years to invoke their right if they really were in due need of the lot.

"At all events, the consideration needed to support a unilateral promise to sell is a distinct one, not something that is as
uncertain as P70,00 per square meter which is allegedly ‘greatly higher than the actual prevailing value of lands.’ A
sale must be for a price certain (Art. 1458). For how much the portion conveyed to the plaintiff-appellees was sold so
that the balance could be considered the consideration for the promise to sell has not been shown, beyond a mere
allegation that it was very much below P70.00 per square meter.

"The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the time of the sale to
them of a portion of defendant-appellant’s lot does not necessarily prove that the prevailing market price at the time of
the sale was P18.00 per square meter. (In fact they claim it was P25.00). It is improbable that plaintiff-appellees should
pay P52.00 per square meter for the privilege of buying when the value of the land itself was allegedly P18.00 per
square meter." (pp. 34-35, Rollo)

As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason
which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of private
respondent in executing the deed of option as appearing in the deed itself is the petitioners’ having agreed to buy the
300 square meter portion of private respondents’ land at P70.00 per square meter "which was greatly higher than the
actual reasonable prevailing price." This cause or consideration is clear from the deed which stated:chanrobles.com :
virtual law library
"That the only reason why the spouses-vendees Julio Villamor and Marina V Villamor agreed to buy the said one-half
portion at the above stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still owned by me . . ." (p. 26, Rollo)

The respondent appellate court failed to give due consideration to petitioners’ evidence which shows that in 1969 the
Villamor spouses bought an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square meter
which the private respondents did not rebut. Thus, expressed in terms of money, the consideration for the deed of
option is the difference between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per sq.
m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not
specifically stated in the deed of option, was ascertainable. Petitioners’ allegedly paying P52.00 per square meter for
the option may, as opined by the appellate court, he improbable but improbabilities does not invalidate a contract freely
entered into by the parties.

The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a
privilege existing in one person, for which he had paid a consideration and which gives him the right to buy, for
example, certain merchandise or certain specified property, from another person, if he chooses, at any time within the
agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option"
signed by the parties, We will notice that the first part covered the statement on the sale of the 300 square meter
portion of the lot to Spouses Villamor at the price of P70.00 per square meter ‘which was higher than the actual
reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated that the only reason
why the Villamor spouses agreed to buy the said lot at a much higher price is because the vendor (Reyes) also agreed
to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there, there would
be no dispute that the deed is really an ordinary deed of option granting the Villamors the option to buy the remaining
300 square meter-half portion of the lot in consideration for their having agreed to buy the other half of the land for a
much higher price. But, the "deed of option" went on and stated that the sale of the other half would be made
"whenever the need of such sale arises, either on our (Reyes) part or on the part of the Spouses Julio Villamor and
Marina V. Villamor. It appears that while the option to buy was granted to the Villamors, the Reyes were likewise
granted an option to sell. In other words, it was not only the Villamors who were granted an option to buy for which they
paid a consideration. The Reyes as well were granted an option to sell should the need for such sale on their part
arise.

In the instant case, the option offered by private respondents had been accepted by the petitioner, the promises, in the
same document. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and
upon acceptance, the offered, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek,
102 Phil. 948). Demandability may be exercised at any time after the execution of the deed. In Sanchez v. Rigos, No.
L-25494, June 14, 1972, 45 SCRA 368, 376, We held:jgc:chanrobles.com.ph

"In other words, since there may be no valid contract without a cause of consideration, the promisor is not bound by his
promise and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however,
of the nature of an offer to sell which, if accepted, results in a perfected contract of sale."cralaw virtua1aw library

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of contracts." Since there was, between
the parties, a meeting of minds upon the object and the price, there was already a perfected contract of sale. What
was, however, left to be done was for either party to demand from the other their respective undertakings under the
contract. It may be demanded at any time either by the private respondents, who may compel the petitioners to pay for
the property or the petitioners, who may compel the private respondents to deliver the property.

However, the Deed of Option did not provide for the period within which the parties may demand the performance of
their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure of
either parties to demand performance of the obligation of the other for an unreasonable length of time renders the
contract ineffective.chanrobles.com:cralaw:red

Under Article 1144 (1) of the Civil Code, actions upon a written contract must be brought within ten (10) years. The
Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted in
the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years
from the time of the execution of the contract. Hence, the right of action had prescribed. There were allegations by the
petitioners that they demanded from the private respondents as early as 1984 the enforcement of their rights under the
contract. Still, it was beyond the ten (10) year period prescribed by the Civil Code. In the case of Santos v. Ganayo, L-
31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the observations of the court a quo
held, thus:jgc:chanrobles.com.ph

". . . Assuming that Rosa Ganayo, the oppositor herein, had the right based on the Agreement to Convey and Transfer
as contained in Exhibits ‘1’ and ‘1-A’, her failure or the abandonment of her right to file an action against Pulmano
Molintas when he was still a co-owner of the one-half (1/2) portion of the 10,000 square meters is now barred by
laches and or prescribed by law because she failed to bring such action within ten (10) years from the date of the
written agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so that when she filed the adverse claim
through her counsel in 1959 she had absolutely no more right whatsoever on the same, having been barred by laches.

It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To allow the petitioner to
demand the delivery of the property subject of this case thirteen (13) years or seventeen (17) years after the execution
of the deed at the price of only P70.00 per square meter is inequitous. For reasons also of equity and in consideration
of the fact that the private respondents have no other decent place to live, this Court, in the exercise of its equity
jurisdiction is not inclined to grant petitioners’ prayer.

ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is AFFIRMED for reasons cited in
this decision. Judgment is rendered dismissing the complaint in Civil Case No. C-12942 on the ground of prescription
and laches.chanrobles virtual lawlibrary

SO ORDERED.

Narvasa and Cruz, JJ., concur.

Griño-Aquino, J., took no part.

SECOND DIVISION

[G.R. NO. 165647 : March 26, 2009]

PHILIPPINES FIRST INSURANCE CO., INC., Petitioner, v. WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER
AND/OR UNKNOWN CHARTERER OF THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST
SHIP BUSINESS COMPANY," Respondents.

DECISION

TINGA, J.:

Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and Resolution3 of the Court of Appeals in
CA-G.R. No. 61885. The Court of Appeals reversed the Decision 4 of the Regional Trial Court (RTC) of Manila, Branch
55 in Civil Case No. 96-80298, dismissing the complaint for sum of money.

The facts of the case follow.5

On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore Master a
shipment consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min. (shipment), complete and in good
order for transportation to and delivery at the port of Manila for consignee, L.G. Atkimson Import-Export, Inc.
(consignee), covered by a Clean Bill of Lading. The Bill of Lading reflects the gross weight of the total cargo at 500,200
kilograms.6 The Owner and/or Charterer of M/V Offshore Master is unknown while the shipper of the shipment is
Shanghai Fareast Ship Business Company. Both are foreign firms doing business in the Philippines, thru its local ship
agent, respondent Wallem Philippines Shipping, Inc. (Wallem). 7

On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S Offshore Master from
which it was subsequently discharged. It was disclosed during the discharge of the shipment from the carrier that 2,426
poly bags (bags) were in bad order and condition, having sustained various degrees of spillages and losses. This is
evidenced by the Turn Over Survey of Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian Terminals,
Inc. (arrastre operator).8 The bad state of the bags is also evinced by the arrastre operator's Request for Bad Order
Survey.9

Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to the consignee's
warehouse in Quezon City,10 while the final inspection was conducted jointly by the consignee's representative and the
cargo surveyor. During the unloading, it was found and noted that the bags had been discharged in damaged and bad
order condition. Upon inspection, it was discovered that 63,065.00 kilograms of the shipment had sustained
unrecovered spillages, while 58,235.00 kilograms had been exposed and contaminated, resulting in losses due to
depreciation and downgrading.11

On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged shipment, to no avail.
Since the shipment was insured with petitioner Philippines First Insurance Co., Inc. against all risks in the amount
of P2,470,213.50,12 the consignee filed a formal claim13 with petitioner for the damage and losses sustained by the
shipment. After evaluating the invoices, the turn-over survey, the bad order certificate and other documents, 14 petitioner
found the claim to be in order and compensable under the marine insurance policy. Consequently, petitioner paid the
consignee the sum of P397,879.69 and the latter signed a subrogation receipt.

Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the recovery of the amount paid
by petitioner to the consignee. However, despite receipt of the letter, Wallem did not settle nor even send a response
to petitioner's claim.15

Consequently, petitioner instituted an action before the RTC for damages against respondents for the recovery
of P397,879.69 representing the actual damages suffered by petitioner plus legal interest thereon computed from the
time of the filing of the complaint until fully paid and attorney's fees equivalent to 25% of the principal claim plus costs
of suit.

In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner P397,879.69 with 6% interest
plus attorney's fees and costs of the suit. It attributed the damage and losses sustained by the shipment to the arrastre
operator's mishandling in the discharge of the shipment. Citing Eastern Shipping Lines, Inc. v. Court of Appeals, 17 the
RTC held the shipping company and the arrastre operator solidarily liable since both the arrastre operator and the
carrier are charged with and obligated to deliver the goods in good order condition to the consignee. It also ruled that
the ship functioned as a common carrier and was obliged to observe the degree of care required of a common carrier
in handling cargoes. Further, it held that a notice of loss or damage in writing is not required in this case because said
goods already underwent a joint inspection or survey at the time of receipt thereof by the consignee, which dispensed
with the notice requirement.

The Court of Appeals reversed and set aside the RTC's decision. 18 According to the appellate court, there is no
solidary liability between the carrier and the arrastre operator because it was clearly established by the court a quo  that
the damage and losses of the shipment were attributed to the mishandling by the arrastre operator in the discharge of
the shipment. The appellate court ruled that the instant case falls under an exception recognized in Eastern

Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:

1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the carrier's duties extend to the
obligation to safely discharge the cargo from the vessel;

2. Whether or not the carrier should be held liable for the cost of the damaged shipment;

3. Whether or not Wallem's failure to answer the extra judicial demand by petitioner for the cost of the lost/damaged
shipment is an implied admission of the former's liability for said goods;

4. Whether or not the courts below erred in giving credence to the testimony of Mr. Talens.

It is beyond question that respondent's vessel is a common carrier. 20 Thus, the standards for determining the existence
or absence of the respondent's liability will be gauged on the degree of diligence required of a common carrier.
Moreover, as the shipment was an exercise of international trade, the provisions of the Carriage of Goods

by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply. 22

The first and second issues raised in the petition will be resolved concurrently since they are interrelated.

It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The damage to the
shipment was documented by the turn-over survey23 and Request for Bad Order Survey.24 The turn-over survey, in
particular, expressly stipulates that 2,426 bags of the shipment were received by the arrastre operator in damaged
condition. With these documents, petitioner insists that the shipment incurred damage or losses while still in the care
and responsibility of Wallem and before it was turned over and delivered to the arrastre operator.

The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a cargo surveyor of Oceanica
Cargo Marine Surveyors Corporation, that the losses and damage to the cargo were caused by the mishandling of the
arrastre operator. Specifically, that the torn cargo bags resulted from the use of steel hooks/spikes in piling the cargo
bags to the pallet board and in pushing the bags by the stevedores of the arrastre operator to the tug boats then to the
ports.25 The appellate court affirmed the finding of mishandling in the discharge of cargo and it served as its basis for
exculpating respondents from liability, rationalizing that with the fault of the arrastre operator in the unloading of the
cargo established it should bear sole liability for the cost of the damaged/lost cargo.

While it is established that damage or losses were incurred by the shipment during the unloading, it is disputed who
should be liable for the damage incurred at that point of transport. To address this issue, the pertinent laws and
jurisprudence are examined.

Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. 26 Subject to certain exceptions enumerated
under Article 173427 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the
goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed
in the possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them. 28

For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for the cargo from the
time it is turned over to him at the dock or afloat alongside the vessel at the port of loading, until he delivers it on the
shore or on the discharging wharf at the port of unloading, unless agreed otherwise. In Standard Oil Co. of New York
v. Lopez Castelo,29 the Court interpreted the ship captain's liability as ultimately that of the shipowner by regarding the
captain as the representative of the ship owner.

Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the carrier in relation to
the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. 30 Section 3 (2) thereof then
states that among the carriers' responsibilities are to properly and carefully load, handle, stow, carry, keep, care for,
and discharge the goods carried.

The above doctrines are in fact expressly incorporated in the bill of lading between the shipper Shanghai Fareast
Business Co., and the consignee, to wit:

4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the time when the goods are
loaded on board the vessel and shall cease when they are discharged from the vessel.

The Carrier shall not be liable of loss of or damage to the goods before loading and after discharging from the vessel,
howsoever such loss or damage arises.31

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf or
between the establishment of the consignee or shipper and the ship's tackle. 32 Being the custodian of the goods
discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them over to the
party entitled to their possession.33

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees should observe
the standards and measures necessary to prevent losses and damage to shipments under its custody. 34

In Fireman's Fund Insurance Co. v. Metro Port Service, Inc. 35 the Court explained the relationship and responsibility of
an arrastre operator to a consignee of a cargo, to quote:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman. The relationship between the consignee and the common carrier is similar to that of the consignee
and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and obligated to deliver the goods in good condition to the
consignee.(Emphasis supplied) (Citations omitted) chanroblesvirtuallawlibrary

The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of Appeals36 with the
clarification that the arrastre operator and the carrier are not always and necessarily solidarily liable as the facts of a
case may vary the rule.

Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a carrier may not be
held solidarily liable at all times. But the precise question is which entity had custody of the shipment during its
unloading from the vessel?cralawred

The aforementioned Section 3(2) of the COGSA states that among the carriers' responsibilities are to properly and
carefully load, care for and discharge the goods carried. The bill of lading covering the subject shipment likewise
stipulates that the carrier's liability for loss or damage to the goods ceases after its discharge from the vessel. Article
619 of the Code of Commerce holds a ship captain liable for the cargo from the time it is turned over to him until its
delivery at the port of unloading.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled that like the duty of
seaworthiness, the duty of care of the cargo is non-delegable, 38 and the carrier is accordingly responsible for the acts
of the master, the crew, the stevedore, and his other agents. It has also been held that it is ordinarily the duty of the
master of a vessel to unload the cargo and place it in readiness for delivery to the consignee, and there is an implied
obligation that this shall be accomplished with sound machinery, competent hands, and in such manner that no
unnecessary injury shall be done thereto.39 And the fact that a consignee is required to furnish persons to assist in
unloading a shipment may not relieve the carrier of its duty as to such unloading. 40
The exercise of the carrier's custody and responsibility over the subject shipment during the unloading actually
transpired in the instant case during the unloading of the shipment as testified by Mr. Talens, the cargo surveyor, to
quote:

Atty. Repol:

- Do you agree with me that Wallem Philippines is a shipping [company]?cralawred

A Yes, sir.

Q And, who hired the services of the stevedores?cralawred

A The checker of the vessel of Wallem, sir. 41

xxx

Q Mr. Witness, during the discharging operation of this cargo, where was the master of the vessel?cralawred

A On board the vessel, supervising, sir.

Q And, observed the discharging operation?cralawred

A Yes, sir.

Q And, what did the master of the vessel do when the cargo was being unloaded from the vessel?cralawred

A He would report to the head checker, sir.

Q He did not send the stevedores to what manner in the discharging of the cargo from the vessel?cralawred

A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir. 42

xxx

Q Is he [the head checker] an employee of the company?cralawred

A He is a contractor/checker of Wallem Philippines, sir. 43

Moreover, the liability of Wallem is highlighted by Mr. Talen's notes in the Bad Order Inspection, to wit:

"The bad order torn bags, was due to stevedores['] utilizing steel hooks/spikes in piling the cargo to [the] pallet board at
the vessel's cargo holds and at the pier designated area before and after discharged that cause the bags to torn
[sic]."44 (Emphasis supplied)cralawlibrary

The records are replete with evidence which show that the damage to the bags happened before and after their
discharge45 and it was caused by the stevedores of the arrastre operator who were then under the supervision of
Wallem.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier. In the instant case, the damage or losses were incurred during the discharge of the shipment while under the
supervision of the carrier. Consequently, the carrier is liable for the damage or losses caused to the shipment. As the
cost of the actual damage to the subject shipment has long been settled, the trial court's finding of actual damages in
the amount of P397,879.69 has to be sustained.

On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility of witnesses is well-
settled:

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled to the highest respect
because it is more competent to so conclude, having had the opportunity to observe the witnesses' demeanor and
deportment on the stand, and the manner in which they gave their testimonies. The trial judge therefore can better
determine if such witnesses were telling the truth, being in the ideal position to weigh conflicting testimonies. Therefore,
unless the trial judge plainly overlooked certain facts of substance and value which, if considered, might affect the
result of the case, his assessment on credibility must be respected. 46

Contrary to petitioner's stance on the third issue, Wallem's failure to respond to its demand letter does not constitute an
implied admission of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes, thus:

A man cannot make evidence for himself by writing a letter containing the statements that he wishes to prove. He does
not make the letter evidence by sending it to the party against whom he wishes to prove the facts [stated therein]. He
no more can impose a duty to answer a charge than he can impose a duty to pay by sending goods. Therefore a
failure to answer such adverse assertions in the absence of further circumstances making an answer requisite or
natural has no effect as an admission.47

With respect to the attorney's fees, it is evident that petitioner was compelled to litigate this matter to protect its
interest. The RTC's award of P20,000.00 as attorney's fees is reasonable.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2004 and its Resolution
dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is ordered to pay petitioner the sum of P397,879.69,
with interest thereon at 6% per annum from the filing of the complaint on 7 October 1996 until the judgment becomes
final and executory. Thereafter, an interest rate of 12% per annum shall be imposed. 48 Respondents are also ordered
to pay petitioner the amount of P20,000.00 for and as attorney's fees, together with the costs of the suit.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-13660             November 13, 1918

E. M. BACHRACH, plaintiff-appellee,
vs.
VICENTE GOLINGCO, defendant-appellant.
Ramon Diokno for appellant.
No appearance for appellee.

STREET, J.:

This is a suit for the recovery of a sum of money claimed as a balance due to the plaintiff on a promissory note. From a
judgment in favor of the plaintiff for the sum of P8461, as principal, with interest thereon at the rate of 8 per cent per
annum from the 10th day of July, 1916, until paid, and for the further sum of P2,115.25, as a stipulated attorney's fee,
the defendant has appealed.

The note in question represents the purchase price of an automobile truck which the plaintiff sold to the defendant at
the time the note was executed. As security for the payment of said indebtedness, the plaintiff took a chattel mortgage
on the truck; and after the note had matured this chattel mortgage was foreclosed. At the foreclosure sale the plaintiff
himself became the purchaser for the sum of P539, which amount was credited upon the indebtedness.

Of the questions raised by the defense only two in our opinion require serious consideration. The first has reference to
irregularities in the foreclosure of the chattel mortgage; the second to the validity of the agreement for 25 per cent as
an attorney's fee for collection.

We find that the requirements of section 14 of Act No. 1508 (the Chattel Mortgage of Law) were not observed in the
sale of the truck. The irregularity consists in the fact the truck was brought by Bachrach from Albay (which was the
place of residence of the mortgagor) to the city of Manila and here sold by the sheriff of the city at the instance of the
plaintiff. There is no evidence that the mortgagor consented to the removal of the truck to Manila or to the sale that was
effected in the city; and it must therefore be held that the sale was improperly accomplished. The statute requires that
the mortgage chattel shall be sold in the municipality where the mortgagor resides, or where the property is situated;
and the latter expression has reference to the place where the thing is being kept for use by the mortgagor, not any
place where the mortgagee may choose to carry it when he takes it out of the custody of the mortgagor. It is admitted
that notice of the same was not posted anywhere in the municipality of Albay, as required in the section cited; and of
course publication there would have of little or no value when the sale was to be made in Manila.

The effect of this irregularity was, in our opinion, to make the plaintiff liable to the defendant for the full value of the
truck at the time the plaintiff thus carried it off to be sold; and of course the burden is on the defendant to prove the
amount of the damage to which he was thus subjected. With reference to the condition of the truck when it was sold,
we find the following statement in the testimony of Bachrach:

Q. What was the condition of the truck at the time it was sold? — At the time of the sale, everything that
wasn't actually built on the truck was removed; tires removed, generator, lamps, dynamo, everything that
could be taken off with a monkeywrench was removed. It was in a criminal condition.

Q. Was the body of the truck, or the chassis, and the motor on at the time you purchased it at the sheriff's
sale? — A. No.lawphil.net

Q. Had it been removed? — A. Yes. We had a telegram from the sheriff of Tabaco, saying that the day he
was to load the truck for Manila, he had a protest from Golingco demanding the body, and I telegraphed the
sheriff to deliver the body to Golingco, and send the truck.

There is no evidence to contradict Bachrach's testimony on this point; and we are bound to credit him when he states
his conclusion that the value of the truck at the time it was sold was the amount he paid for it. In the absence of proof
to the contrary this must also be taken to be its value at the time it was brought away from Albay. It results that the
defendant has failed to prove that he suffered any damage whatever by the irregular manner in which the sale was
conducted.

This brings us to the question of the amount of the attorney's fee allowed by the trial court. It is provided in the note
given by the defendant for the purchase price of the truck that, in the event it becoming necessary to employ counsel to
enforce its collection, the maker is to pay an additional twenty-five per cent "as fees for the attorney collecting the
same." The trial court gave judgment for the full amount due on the note and for an additional sum of P2,115.25, for
attorney's fees. The appellant assigns this as error and argues that the agreement to pay an attorney's fee, in addition
to the principal and stipulated interest, is void as usurious and as being grossly excessive.

We are of the opinion that it may lawfully be stipulated in favor of the creditor, whether the obligation be evidenced by
promissory note or otherwise, that in the event that it becomes necessary, by reason of the delinquency of the debtor,
to employ counsel to enforce payment of the obligation, a reasonable attorney's fee shall be paid by the debtor, in
addition to the amount due for principal and interest. The legality of such a stipulation, when annexed to a negotiate
instrument is expressly recognized by the Negotiable Instruments Law ((Act No. 2031, sec. 2, par. E). Inasmuch as the
statutory allowance for attorney's fees, as costs, is notoriously less than the amount which attorneys are entitled to
receive from their clients, unless such a stipulation is made and enforced, it follows that a creditor may be compelled to
pay, out of the money due him, a considerable sum as the necessary cost of enforcing payment by the delinquent
debtor.

Such a stipulation is not void as usurious, even when added to a contract for the payment of the highest rate of interest
permissible. The purpose of such a stipulation is not to increase in any respect the benefits ultimately to accrue to the
creditor. It is true that such a stipulation may be made for the purpose of concealing usury; but that is a matter of proof
to be determined in each case upon the evidence.

We cite, with approval, the ruling of the supreme court of Georgia upon this question, as follows:

A contract to pay attorney's fees for collecting, in addition to principal and interest, is not, on its face,
usurious; nor does it become usurious by reducing the debt to judgment, and including in the judgment ten
per cent for attorney's fees.

The law . . . recognizes the validity of such a stipulation, and it meets the justice of the case very frequently
for the debtor to pay for the collection rather than the creditor, . . . We do not mean to intimate that usury
might not be covered up by such a stipulation, that it might not be a disguise, or contrivance for the
concealment of usury; but there is no such indication in this case. There is no evidence that it was not a bona
fide stipulation to cover the contingency of having to incur expense in collecting this debt. (National bank of
Athens vs. Danforth, 80 Ga., 55.)

But the principle that it may be lawfully stipulated that the legal expense involved in the collection of a debt shall be
defrayed by the debtor does not imply that such stipulations must be enforced in accordance with their terms, no
matter how injurious or oppressive they may be. The lawful purpose to be accomplished by such a stipulation is to
permit the creditor to receive the whole amount due him under his contract without the deduction of the expenses
caused by the delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a source
of speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stand upon an entirely different footing from contracts for the
payment of compensation for any other services. By the express provision of section 29 of the Code of Civil Procedure,
an attorney is not entitled in the absence of express contract to recover more than a reasonable compensation for his
services; and even where an express contract is made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is a very different rule
from that announced in section 1091 of the Civil Code with reference to the obligation of contract in general, where it is
said that such obligation has the force of law between the contracting parties. Had the plaintiff herein made an express
contract to pay his attorney an uncontingent fee of P2,115.25, for the services to be rendered in reducing the note here
in suit to judgment, it would not have been enforceable against him had he seen fit to oppose it, as such a fee is
obviously far greater than is necessary to remunerate the attorney for the work involved and is therefore unreasonable.
In order to enable the court to ignore an express contract for an attorney's fees, it is not necessary to show, as in other
contracts, that it is contrary to morality or public policy (art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable.

We are not unmindful of the fact that the question as to the propriety of the stipulation for attorney's fee does not here
arise directly between the creditor in this note and the attorney into whose hands he might place the note for collection.
The stipulation is contained in the contract between the creditor and his debtor; and the attorney could not be held
bound thereby. Nevertheless we think the same rule applies as if the question had arisen directly between attorney and
client. As the court has power to fix the fee as between the attorney and the client, it must necessarily have the right to
say whether a stipulation, like this, inserted in a promissory note is valid. A different ruling, as may be readily seen,
would make it exceedingly easy to evade the usury laws. As stated at the beginning of this discussion, the lawful
purpose to be accomplished by such stipulation is to permit the creditor to receive the amount due without the
deduction of the expenses caused by the delinquency of the debtor. It must not be used as a cloak for an exorbitant
exaction.

We are therefore of the opinion that we are authorized to reduce the amount in question to a sum which will enable the
plaintiff to pay a reasonable compensation to his attorney; and we think that P800 is sufficient for this purpose. It is
possible that, as a matter of fact, the plaintiff may have contracted with his attorney for the performances of the
services to be rendered him in this matter for a sum less than P800, and had it been so made to appear, we would
have reduced the amount recoverable, under this particular clause of the note, to the corresponding sum. No evidence
having been adduced upon this point, however, we are compelled to exercise our discretion and make use of our
professional knowledge as to the reasonable compensation to which an attorney would be entitled for the performance
of such services as those which the plaintiff in this case has had occasion to require from his counsel.

Wherefore it is ordered that the plaintiff have and recover of the defendant the sum of P8,461, with interest thereon at
the rate of 8 per centum per annum, from the tenth day of July, 1916, until paid, and for the further sum of P800 as
attorney's fees, and for the statutory costs of both instances, exclusive of the statutory allowance for attorney's fees. So
ordered.

Torres, Johnson, Araullo, Malcolm and Fisher, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-25885 January 31, 1972

LUZON BROKERAGE CO., INC., plaintiff-appellee,

vs.
MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants, MARITIME BUILDING CO.,
INC., defendant-appellant.

Ross, Salcedo, Del Rosario, Bito and Misa for plaintiff-appellee.

C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa for defendant Myers Building Co., Inc.

Ambrosio Padilla Law Offices for defendant-appellant Maritima Building Co., Inc.

REYES, J.B.L., J.:p

Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building Co., Inc. from a decision of the Court of
First Instance of Manila (in its Civil Case No. 47319), the dispositive part of which provides as follows:

FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered declaring that the
Myers Building Co., Inc. is entitled to receive the rentals which the plaintiff has been paying,
including those already deposited in Court, thereby relieving the plaintiff of any obligation to pay the
same to any other party, and ordering the Maritime Building Co., Inc. to pay the commission fees
paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum of P3,000.00 as and for
attorney's fees.

On the cross-claim by the Myers Building Co., Inc., the Maritima Building Co., Inc. is hereby
ordered to pay the Myers Building Co., Inc. the sum of P10,000.00 damages, plus the sum of
 P30,000.00, representing rentals wrongfully collected by it from the plaintiff corresponding to the
months of March, April and May, 1961 and the costs hereof.

The antecedents of the litigation are summarized in the appealed judgment thus:

This is an action for interpleading.

It appears that on April 30, 1949, in the City of Manila, the defendant Myers Building Co., Inc.,
owner of three parcels of land in the City of Manila, together with the improvements thereon,
entered into a contract entitled "Deed of Conditional Sale" in favor of Bary Building Co., Inc., later
known as Maritime Building Co., Inc., whereby the former sold the same to the latter for
P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the execution of the
said contract and the parties agreed that the balance of P950,000.00 was to be paid in monthly
installments at the rate of P10,000.00 with interest of 5% per annum until the same was fully paid.

In Par. (O), they agreed that in case of failure on the part of the vendee to pay any of the
installments due and payable, the contract shall be annulled at the option of the vendor and all
payments already made by vendee shall be forfeited and the vendor shall have right to re-enter the
property and take possession thereof.

Later, the monthly installment of P10,000.00 above-stipulated with 5% interest per annum was
amended or decreased to P5,000.00 per month and the interest was raised to 5-1/2% per annum.
The monthly installments under the contract was regularly paid by the Bary Building Co., Inc.
and/or the Maritime Co., Inc. until the end of February, 1961. It failed to pay the monthly installment
corresponding to the month of March 1961, for which the Vice-President, George Schedler, of the
Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C. Parsons, requesting for
a moratorium on the monthly payment of the installments until the end of the year 1961, for the
reason that the said company was encountering difficulties in connection with the operation of the
warehouse business. However, Mr. C. Parsons, in behalf of the Myers Estate, answered that the
monthly payments due were not payable to the Myers Estate but to the Myers Building Co., Inc.,
and that the Board of Directors of the Myers Co., Inc. refused to grant the request for moratorium
for suspension of payments under any condition.

Notwithstanding the denial of this request for moratorium by the Myers Board of Directors the
Maritime Building Co., Inc. failed to pay the monthly installments corresponding to the months of
March, April and May, 1961. Whereupon, on May 16, 1961, the Myers Building Co., Inc. made a
demand upon the Maritime Building Co., Inc., for the payment of the installments that had become
due and payable, which letter, however, was returned unclaimed.

Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building Co., Inc. another
letter advising it of the cancellation of the Deed of Conditional Sale entered into between them and
demanding the return of the possession of the properties and holding the Maritime Building Co.,
Inc. liable for use and occupation of the said properties at P10,000.00 monthly.

In the meantime, the Myers Building Co., Inc. demanded upon the Luzon Brokerage Co., Inc. to
whom the Maritime Building Co., Inc. leased the properties, the payment of monthly rentals of
P10,000.00 and the surrender of the same to it. As a consequence, the Luzon Brokerage Co., Inc.
found itself in a payment to the wrong party, filed this action for interpleader against the Maritime
Building Co., Inc.

After the filing of this action, the Myers Building Co., Inc. in its answer filed a cross-claim against
the Maritime Building Co., Inc. praying for the confirmation of its right to cancel the said contract. In
the meantime, the contract between the Maritime Building Co., Inc. and the Luzon Brokerage Co.,
 Inc. was extended by mutual agreement for a period of four (4) more years, from April, 1964 to
March 31, 1968.

The Maritime Building Co., Inc. now contends (1) that the Myers Building Co., Inc. cannot cancel
the contract entered into by them for the conditional sale of the properties in question extrajudicially
and (2) that it had not failed to pay the monthly installments due under the contract and, therefore,
is not guilty of having violated the same.

It should be further elucidated that the suspension by the appellant Maritime Building Co., Inc. (hereinafter called
Maritime) of the payment of installments due from it to appellee Myers Building Co., Inc. (hereinafter designated as
Myers Corporation) arose from an award of backwages made by the Court of Industrial Relations in favor of members
of Luzon Labor Union who served the Fil-American forces in Bataan in early 1942 at the instance of the employer
Luzon Brokerage Co. and for which F. H. Myers, former majority stockholder of the Luzon Brokerage Co., had
allegedly promised to indemnify E. M. Schedler (who controlled Maritime) when the latter purchased Myers' stock in the
Brokerage Company. Schedler contended that he was being sued for the backpay award of some P325,000, when it
was a liability of Myers, or of the latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11",
Maritime) dated 7 April 1961 (two months and ten days before the initial complaint in the case at bar), Schedler
claimed the following:

At all times when the F. H. Myers Estate was open in the Philippine Islands and open in San
Francisco, the Myers Estate or heirs assumed the defense of the Labor Union claims and led us to
believe that they would indemnify us therefrom.

Recently, however, for the first time, and after both the Philippine and San Francisco F. H. Myers
Estates were closed, we have been notified that the F. H. Myers indemnity on the Labor Union
case will not be honored, and in fact Mrs. Schedler and I have been sued in the Philippines by my
successor in interest, Mr. Wentholt, and have been put to considerable expense.

You are advised that my wife and I, as the owners of the Maritime Building Company, intend to
withhold any further payments to Myers Building Company or Estate, in order that we can preserve
those funds and assets to set off against the potential liability to which I am now exposed by the
failure of the Myers heirs to honor the indemnity agreement pertaining to the Labor claims.

The trial court found the position of Schedler indefensible, and that Maritime, by its failure to pay, committed a breach
of the sale contract; that Myers Company, from and after the breach, became entitled to terminate the contract, to
forfeit the installments paid, as well as to repossess, and collect the rentals of, the building from its lessee, Luzon
Brokerage Co., in view of the terms of the conditional contract of sale stipulating that:

(d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the
Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full
payment by the vendee of the unpaid balance of the purchase price hereinabove stipulated; that
should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to
comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale
shall automatically and without any further formality, become null and void, and all sums so paid by
the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there
be free to enter into the premises, take possession thereof or sell the properties to any other party.

xxx xxx xxx

(o) In case the Vendee fails to make payment or payments, or any part thereof, as herein provided,
or fails to perform any of the covenants or agreements hereof, this contract shall, at the option of
the Vendor, be annulled and, in such event, all payments made by the Vendee to the Vendor by
virtue of this contract shall be forfeited and retained by the Vendor in full satisfaction of the
 liquidated damages by said Vendor sustained; and the said Vendor shall have the right to forthwith
re-enter, and take possession of, the premises subject-matter of this contract.

"The remedy of forfeiture stated in the next-preceding paragraph shall not be exclusive of any other
remedy, but the Vendor shall have every other remedy granted it by virtue of this contract, by law,
and by equity."

From the judgment of the court below, the dispositive portion whereof has been transcribed at the start of this opinion,
Myers duly appealed to this Court.

The main issue posed by appellant is that there has been no breach of contract by Maritime; and assuming that there
was one, that the appellee Myers was not entitled to rescind or resolve the contract without recoursing to judicial
process.

It is difficult to understand how appellant Maritime can seriously contend that its failure or refusal to pay the P5,000
monthly installments corresponding to the months of March, April and May, 1961 did not constitute a breach of contract
with Myers, when said agreement (transcribed in the Record on Appeal, pages 59-71) expressly stipulated that the
balance of the purchase price (P950,000) —

shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before the 10th day of
each month with interest at 5% per annum, this amount to be first applied on the interest, and the
balance paid to the principal thereof; and the failure to pay any installment or interest when due
shall ipso facto cause the whole unpaid balance of the principal and interest to be and become
immediately due and payable. (Contract, paragraph b; Record on Appeal, page 63)

Contrary to appellant Maritime's averments, the default was not made in good faith. The text of the letter to Myers
(Exhibit "11", Maritime), heretofore quoted, leaves no doubt that the non-payment of the installments was the result of
a deliberate course of action on the part of appellant, designed to coerce the appellee Myers Corporation into
answering for an alleged promise of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder of
appellant, for any payments to be made to the members of the Luzon Labor Union. This is apparent also from
appellant's letter to his counsel (Exhibit "12", Maritime):

... I do not wish to deposit pesos representing the months of March, April and May, since the Myers
refusal to honor the indemnity concerning the labor claims has caused me to disburse (sic) roughly
$10,000.00 to date in fees, cost and travel expenses. However, if the Myers people will deposit in
trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr.
Parsons, in trust, 15,000 pesos for March, April and May and will also post a monthly deposit of
5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until:

a) The Myers people indemnify me fully the labor cases;

b) The labor cases are terminated favorably to Luzon Brokerage and no liability exists;

c) The Myers people pay any judgment entered on the labor cases thereby releasing me; or

d) It is finally determined either in San Francisco or in the Philippines by a court that the Myers
heirs must honor the indemnity which Mr. F. H. Myers promised when I purchased Luzon
Brokerage Company.

Yet appellant Maritime (assuming that it had validly acquired the claims of its president and controlling stockholder, E.
M. Schedler) could not ignore the fact that whatever obligation F. H. Myers or his estate had assumed in favor of
Schedler with respect to the Luzon Brokerage labor case was not, and could not have been, an obligation of appellee
corporation (Myers Building Company). No proof exists that the board of directors of the Myers Corporation had agreed
to assume responsibility for the debts (if any) that the late Myers or his heirs had incurred in favor of Schedler. Not only
this, but it is apparent from the letters quoted heretofore that Schedler had allowed the estate proceedings of the late F.
M. Myers to close without providing for any contingent liability in Schedler's favor; so that by offsetting the alleged debt
of Myers to him, against the balance of the price due under the "Deed of Conditional Sale", appellant Maritime was in
fact attempting to burden the Myers Building Company with an uncollectible debt, since enforcement thereof against
the estate of F. H. Myers was already barred.

Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of
contract tainted with fraud or malice (dolo), as distinguished from mere negligence ( culpa), "dolo" being succinctly
defined as a "conscious and intentional design to evade the normal fulfillment of existing obligations" (Capistrano, Civil
Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed.,
Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116).

Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and
thereby erase the default or breach that it had deliberately incurred. Thus the lower court committed no error in
refusing to extend the periods for payment. To do otherwise would be to sanction a deliberate and reiterated
infringement of the contractual obligations incurred by Maritime, an attitude repugnant to the stability and obligatory
force of contracts.

From another point of view, it is irrelevant whether appellant Maritime's infringement of its contract was casual or
serious, for as pointed out by this Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 —

The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the
contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where
ownership is retained by the seller and is not to pass until the full payment of the price, such
payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there
was only a casual breach is to proceed from the assumption that the contract is one of absolute
sale, where non-payment is a resolutory condition, which is not the case.

But it is argued for Maritime that even if it had really violated the Contract of Conditional Sale with Myers, the latter
could not extrajudicially rescind or resolve the contract, but must first recourse to the courts. While recognizing that
paragraph (d) of the deed of conditional sale expressly provides inter alia  —

that should the Vendee fail to pay any of the monthly installments when due, or otherwise fail to
comply with any of the terms and conditions herein stipulated, then this Deed of Conditional
Sale shall automatically and without any further formality, become null and void, and all sums so
paid by the Vendee by reason thereof shall be considered as rentals.. (Emphasis supplied)

herein appellant Maritime avers that paragraph (e) of the deed contemplates that a suit should be brought in court for a
judicial declaration of rescission. The paragraph relied upon by Maritime is couched in the following, terms:

(e) It is also hereby agreed, covenanted and stipulated by and between the parties hereto that
should the Vendor rescind this Deed of Conditional Sale, for any of the reasons stipulated in the
preceding paragraph, the Vendee by these presents obligates itself to peacefully deliver the
properties subject of this contract to the Vendor, and in the event that the Vendee refuses to
peacefully deliver the possession of the properties subject of this contract to the Vendor in case of
rescission, and a suit should be brought in court by the Vendor to seek judicial declaration of
rescission and take possession of the properties subject of this contract, the Vendee hereby
obligates itself to pay all the expenses to be incurred by reason of such suit and in addition
obligates itself to pay the sum of P10,000.00, in concept of damages, penalty and attorney's fees.
Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed of Conditional Sale (quoted in page 5 of
this opinion) reveals no incompatibility between the two; and the suit to "be brought in Court by the Vendor to seek
judicial declaration of rescission" is provided for by paragraph(e) only in the eventuality that, notwithstanding the
automatic annulment of the deed under paragraph (d), the Vendee "refuses to peacefully deliver the possession of the
properties subject of this contract". The step contemplated is logical since the Vendor can not, by himself, dispossess
the Vendee manu militari, if the latter should refuse to vacate despite the violation of the contract, since no party can
take the law in his own hands. But the bringing of such an action in no way contradicts or restricts the automatic
termination of the contract in case the Vendee (i.e., appellant Maritime) should not comply with the agreement.

Anyway, this Court has repeatedly held that —

Well settled is, however, the rule that a judicial action for the rescission of a contract is not
necessary where the contract provides that it may be revoked and cancelled for violation of any of
its terms and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37
SCRA 327, 334,, and cases cited therein).1 (Emphasis supplied.)

Resort to judicial action for rescission is obviously not contemplated.... The validity of the
stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition
which in many cases has been upheld by this Court. (Ponce Enrile vs. Court of Appeals, L-27549,
30 Sept. 1969; 29 SCRA 504).

The obvious remedy of the party opposing the rescission for any reason being to file the corresponding action to
question the rescission and enforce the agreement, as indicated in our decision in University of the Philippines vs.
Walfrido de los Angeles,
L-28602, 29 September 1970, 35 SCRA 107.

Of course, it must be understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court. If the other
party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and
bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent indemnity awarded to the party
prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the
final judgment of the corresponding court that will conclusively and finally settle whether the action
taken was or was not correct in law. But the law definitely does not require that the contracting
party who believes itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have
to passively sit and watch its damages accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires that he should exercise due
diligence to minimize its own damages (Civil Code, Article 2203).

Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay despite its default:

ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.
Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Myers against Maritime in the court below
constituted a judicial demand for rescission that satisfies the requirements of said article.

But even if it were not so, appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged
by Article 1592, transferring ownership simultaneously with the delivery of the real property sold, but one in which the
vendor retained ownership of the immovable object of the sale, merely undertaking to convey it provided the buyer
strictly complied with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover possession of the
building from Maritime, appellee Myers is not after the resolution or setting aside of the contract and the restoration of
the parties to the status quo ante, as contemplated by Article 1592, but precisely enforcing the provisions of the
agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime
failed to comply with the specified condition precedent, which is to pay the installments as they fell due.

The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in
repeated decisions2 upholding the power of promisors under contracts to sell in case of failure of the other party to
complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or
installments already received, where such rights are expressly provided for, as in the case at bar.

Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000 already paid to Myers,
as a result of its failure to make good a balance of only P319,300.65, payable at P5,000 monthly, becomes
unimpressive when it is considered that while obligated to pay the price of one million pesos at P5,000 monthly, plus
interest, Maritime, on the other hand, had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid
P13,000 a month rent, from September, 1951 to August 1956, and thereafter until 1961, at P10,000 a month, thus
paying a total of around one and a half million pesos in rentals to Maritime. Even adding to Maritime's losses of
P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial court, it is undeniable that appellant
Maritime has come out of the entire transaction still at a profit to itself.

There remains the procedural objection raised by appellant Maritime to this interpleader action filed by the Luzon
Brokerage Co., the lessee of the building conditionally sold by Myers to Maritime. It should be recalled that when
Maritime defaulted in its payments to Myers, and the latter notified the former that it was cancelling the contract of
conditional sale, Myers also notified Luzon Brokerage, Maritime's lessee of the building, of the cancellation of the sale,
and demanded that Luzon should pay to Myers the rentals of the building beginning from June, 1961, under penalty of
ejectment (Record on Appeal, pages 14-15). In doubt as to who was entitled to the rentals, Luzon filed this action for
interpleader against Myers and Maritime, and deposited the rentals in court as they fell due. The appellant Maritime
moved to dismiss on the ground that (a) Luzon could not entertain doubts as to whom the rentals should be paid since
Luzon had leased the building from Maritime since 1949, renewing the contract from time to time, and Myers had no
right to cancel the lease; and (b) that Luzon was not a disinterested party, since it tended to favor appellee Myers. The
court below overruled Maritime's objections and We see no plausible reason to overturn the order. While Myers was
not a party to the lease, its cancellation of the conditional sale of the premises to Maritime, Luzon's lessor, could not
but raise reasonable doubts as to the continuation of the lease, for the termination of the lessor's right of possession of
the premises necessarily ended its right to the rentals falling due thereafter. The preceding portion of our opinion is
conclusive that Luzon's doubts were grounded under the law and the jurisprudence of this Court.

No adequate proof exists that Luzon was favoring any one of the contending parties. It was interested in being
protected against prejudice deriving from the result of the controversy, regardless of who should win. For the purpose it
was simpler for Luzon to compel the disputants to litigate between themselves, rather than chance being sued by
Myers, and later being compelled to proceed against Maritime to recoup its losses. In any event, Maritime ultimately
confirmed the act of Luzon in suing for interpleader, by agreeing to renew Luzon's lease in 1963 during the pendency
of the present action, and authorizing Luzon to continue depositing the rentals in court "until otherwise directed by a
court of competent jurisdiction" (Exhibit "18-Maritime"). The procedural objection has thus become moot.

PREMISES CONSIDERED, the appealed decision should be, and hereby is, affirmed, and appellant Maritime Building
Co., as well as appellee Luzon Brokerage Co., are further ordered to surrender the premises to the appellee Myers
Building Co. Costs against appellant.
Concepcion, C.J., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Fernando, J., took no part.

EN BANC

[G.R. No. L-25885. November 16, 1978.]

LUZON BROKERAGE CO., INC., Plaintiff-Appellee, v. MARITIME BUILDING CO., INC. AND MYERS BUILDING CO.,
INC., Defendants, MARITIME BUILDING CO., INC., Defendant-Appellant.

RESOLUTION

TEEHANKEE, J.:

The Court denies appellant Maritime Building Co. Inc.’s (Maritime) Second Motion for Reconsideration of October 7,
1972 on the following grounds and considerations:chanrob1es virtual 1aw library

1. A party litigant is entitled to only one Supreme Court to adjudicate his suit and should not be permitted to keep a
case pending by repetitious reiterations of the same contentions (already repeatedly and lengthily discussed by
appellant and extensively dealt with and rejected by the Court in its decision of January 21, 1972 and extended
resolution of August 18, 1972) in the expectation that his claim may eventually gain acceptance from vital changes in
the Court’s composition with the passage of time.

2. The second motion for reconsideration raises no new grounds but is merely a reiteration of the self-same arguments
already found to be unmeritorious and rejected for the reasons and considerations extensively discussed in the Court’s
decision of January 31, 1972 (6 years and 8 months ago) and in the Resolution of August 1 denying the first motion for
reconsideration. Such second motions for reconsideration are patently pro forma and serve no apparent purpose but to
gain time and therewith vital changes in the Court’s composition. Such dilatory motions should have long been denied
in consonance with public interest and public policy which demand that judgments of courts determining controversies
should not be left hanging but should become final at some definite time fixed by law or by a rule of practice recognized
by law and that the Court’s time and attention should not be inordinately diverted to this case which is of no special
significance but is a "mere adjudication of adversary rights between two litigants" (although they may be of "some
substantial financial standing" 1) to the prejudice of other cases in its full docket which are still awaiting the Court’s
determination and judgment.

3. In the 81 volumes of Supreme Court Reports Annotated, there appears the preface written by now Chief Justice
Castro wherein he stresses the importance of precedents and the governing principle of stare decisis which have
"given consistency and stability to the law." The whole thrust of appellant’s stand since the filing of the case on June
17, 1961 up to its pending second motion for reconsideration (seventeen years later) has been to ask the Court to
disregard the rule of stare decisis and to overturn the long-standing doctrine of 39 years upholding the promissor’s
contractual right, as stipulated in contracts to sell, to declare the contract cancelled upon breach thereof and the
putative buyer’s failure to pay the stipulated installments "which is simply an event that prevent(s) the obligation of the
vendor to convey title from acquiring binding force" 2 and ruling that Article 1592 (formerly Article 1504) of the New
Civil Code 3 (which grants the vendee of immovable property the right to pay even after the expiration of the period for
payment despite a stipulation to the contrary, as long as no demand by suit or notarial act has been made upon him
but further provides that "after the demand, the Court may not grant him a new term") does not apply to a contract to
sell.chanrobles law library : red

The Court has seen no valid reason for yielding to the appellant’s insistent importunings to cast aside the precedents
(as an exception in its case) and to disregard the contractual stipulations, freely entered into by it with the assistance of
counsel and with full awareness of the import of the covenanted terms and conditions and of the legal consequence of
breach thereof in accordance with past precedents, as the binding law between the parties.

4. The governing law and precedents which demand denial of the second motion for reconsideration as stated and
reiterated in the decision and resolution denying reconsideration may briefly be summarized thus:chanrob1es virtual
1aw library

(a) The contract between the parties was a contract to sell or conditional sale with title expressly reserved in the vendor
Myers Building Co., Inc., (Myers) until the suspensive condition of full and punctual payment of the full price shall have
been met on pain of automatic cancellation of the contract upon failure to pay any of the monthly installments when
due and retention of the sums theretofore paid as rentals. When the vendee, appellant Maritime, willfully and in bad
faith failed since March, 1961 to pay the P5,000.-monthly installments notwithstanding that it was punctually collecting
P10,000-monthly rentals from the lessee Luzon Brokerage Co., Myers was entitled, as it did in law and fact, to enforce
the terms of the contract to sell and to declare the same terminated and cancelled.

(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such contracts to sell or conditional
sales and no error was committed by the trial court in refusing to extend the periods for payment.

(c) As stressed in the Court’s decision, "it is irrelevant whether appellant Maritime’s infringement of its contract was
casual or serious" for as pointed out in Manuel v. Rodriguez. 4" (I)n contracts to sell, where ownership is retained by
the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive
condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of
the vendor to convey title from acquiring binding force . . ." 5

(d) It should be noted, however, that Maritime’s breach was far from casual but a most serious breach of contract:
since the execution of the contract to sell on April 30, 1949, Maritime, after paying the P50,000.-down payment, was
merely paying for the balance of the purchase price in the sum of P950,000.00 with the property’s own rental earnings
of P13,000.00, later P10,000.00, a month from the lessee Luzon Brokerage Co. Maritime had as of the time of its willful
refusal and failure to pay the stipulated installments of P5,000.00 a month collected a total of P1,500,000.00 in rentals
from the property, out of which it had paid Myers P973,000.00 on account of both the principal and stipulated 5%
interest per annum, 6 leaving still a substantial unpaid balance of P319,300.65 in the principal with a net gain of
P527,000.00 out of the collected rentals alone for Maritime. Yet, Maritime had deliberately defaulted on the monthly
installments due after its request for a suspension of payments until the close of 1961 had been expressly rejected
"under any condition" by Myers and then nevertheless withheld the payments and gave Myers notice that it would
"withhold any further payments" unless the heirs of the late F.H. Myers honored a totally unconnected alleged personal
promise of the F.H. Myers to indemnify it for a possible liability of about P396,000.00 to a labor union in connection
with a completely different transaction (which alleged liability was already barred against the estate of F. H. Myers and
with which appellee Myers corporation had nothing whatsoever to do).chanrobles law library : red

(e) Even if the contract were considered an unconditional sale so that Article 1592 of the Civil Code could be deemed
applicable, Myers’ answer to the complaint for interpleader in the court below constituted a judicial demand for
rescission of the contract and by the very provision of the cited codal article, 7 "after the demand, the court may not
grant him a new term" for payment; and

(f) Assuming further that Article 1191 of the new Civil Code governing rescission of reciprocal obligations could be
applied (although Article 1592 of the same Code is controlling since it deals specifically with sales of real property",
said article provides that" (T)he court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period" and there exists no "just cause" as shown above, for the fixing of a further period. Assuming further
that Article 1234 of the Civil Code which provides that" (I)f 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" could be applied, Maritime cannot invoke its benefits because as shown above there has not been substantial
performance on its part and it has been guilty of bad faith in defaulting on and withholding payment of the stipulated
installments.

5. The enactment on September 14, 1972 by Congress of Republic Act No. 6552 entitled "An Act to Provide Protection
to Buyers of Real Estate on Installment Payments" (known also as the Maceda law) has now placed the 39-year old
jurisprudence of this Court (recognizing the right of cancellation of the contract of conditional sale of real estate or on
installments upon failure to pay the stipulated installments and retention or forfeiture as rentals of the installments
previously paid) into the category of a law (insofar as industrial lots and commercial buildings as is the case at bar are
concerned) which is now beyond overturning even by this Court. The Court cannot now deny or refuse to honor Myer’s
contractual right of cancellation, which is now reaffirmed and recognized by the law itself and is no longer a matter of
precedents or doctrinal jurisprudence.

6. The plea for equitable considerations on behalf of Maritime has no basis in law and in fact. As shown above, it acted
with dolo or bad faith and must bear the consequences of its deliberate withholding of, and refusal to make, the
monthly payments, notwithstanding Myers’ rejection of its request for suspension of payments, by asserting against
Myers corporation (as if it had a right of offset) a totally unconnected alleged personal liability to it of the late F. H.
Myers and seeking to burden Myers corporation for such liability which it could no longer collect from F. H. Myers.
Maritime still came out of the cancelled contract with a net profit of P527,000.00 derived totally from the rental-earnings
of the property. On the other hand, Myers acted but in consonance with law and equity and established precedents of
39 years standing in asserting its right of cancellation pursuant to the express provisions of the contract which
constitutes the law between the parties, and the mandate of Article 1159 of the Civil Code that "Obligations arising from
contracts have the force of law between the contracting parties and should be complied with in good faith. As the Court
stressed in Garcia v. Rita Legarda, Inc. 8 "when the contract is thus cancelled, the agreement of the parties is in reality
being fulfilled. Indeed, the power thus granted can not be said to be immoral, much less unlawful, for it could be
exercised — not arbitrarily — but only upon the other contracting party committing the breach of contract of non-
payment of the installments agreed upon. Obviously, all that said party had to do to prevent the other from exercising
the power to cancel the contract was for him to comply with his part of the contract." This is aside from the fact that
what is involved here is a pure business contract between two big real estate corporations and to paraphrase Justice
Fernando 9 such a plea for equity would not elicit, especially from the higher tribunals, an affirmative response since
considering their economic status they are "very likely . . . to be able to protect themselves in the clinches."cralaw
virtua1aw library
What follows now is an amplification of the above grounds and considerations which were stated in precise form or by
way of a brief summary of the essential points for denying Maritime’s second and pro forma motion for reconsideration
which somehow remained pending in this Court for six (6) years now.chanrobles virtual lawlibrary

1. A party is entitled to only one Supreme Court; vital changes in the Court’s composition since 1972; Justice Barredo’s
dissent never gathered sufficient votes to reverse.

A party litigant is entitled to only one Supreme Court to adjudicate his suit, but here over six years after this Court (the
Concepcion Court 1966-April 17, 1973) had rendered the decision of January 31, 1972 affirming on appeal the trial
court’s decision and the resolution of August 18, 1972 denying reconsideration, the composition of the Court has so
radically changed that out of the present membership of twelve, only four members of the Court who took part in the
original decision and resolution of January 31, and August 18, 1972 remain and this Court (the Castro Court,
December 22, 1975) may truly be said to be in effect another Supreme Court. The very raison d’etre of courts, more so
the Supreme Court, is to put an end to controversy and public policy and sound practice demand that no second
motion for reconsideration be kept pending this long as to allow the litigant to speculate on changes in the membership
of the Court and to have another Supreme Court review his lost case once more.

(a) The original decision at bar of January 31, 1972 10 (penned by Justice J.B.L. Reyes, retired on August 19, 1972)
affirming on direct appeal (prior to the effectivity of Republic Act 5440) the judgment of the Court of First Instance of
Manila of November 26, 1965, was unanimously concurred in by nine members of its ten-member composition then
namely, (Concepcion, C.J., Reyes, Makalintal (A.C.J. April 17, 1973, C.J. October 24, 1973 to Dec. 22, 1975), Zaldivar,
Castro, (now C.J.), Teehankee, Barredo, Villamor and Makasiar, JJ., with Justice Fernando having inhibited himself
and not taking part.

(b) This same Court with a full membership of eleven denied appellant’s motion for reconsideration of March 27, 1972
in its extended and signed 8-page Resolution of August 18, 1972 11 (penned by Justice J.B.L. Reyes on the eve of his
retirement in consonance with the Court’s tradition of the ponente disposing with the Court of pending motions for
reconsideration before his retirement). A majority of six of the original nine Justices, namely Concepcion, C.J., Reyes,
Makalintal (in the result), Castro, Teehankee and Makasiar, JJ., concurred in the resolution. Justice Barredo, however,
dissented with an 86-page opinion and was joined by Justice Zaldivar and a new member Justice Antonio (appointed
on April 10, 1972). Justice Fernando maintained his inhibition and took no part, while the eleventh member Justice
Esguerra (a new member appointed on June 21, 1972 to fill the vacancy left by Justice Villamor who retired on April
12, 1972) likewise inhibited himself and did not take part.

(c) It is readily seen that during the pendency for six (6) years of appellant’s second motion for reconsideration of
October 7, 1972 the Court’s composition has seen vital changes. Only four of the original 10-member Court that
rendered the decision of January 31, 1972 are still members, namely, now Chief Justice Castro, and Justice
Teehankee, Barredo and Makasiar. As noted above, Justice Fernando had inhibited himself and did not take part in the
case.

(d) In the six-year interval, the Court’s membership was increased to fifteen and the retirement age of new appointees
reduced to 65 years under the 1973 Constitution. Ten (10) new members joined the Supreme Court in this interval (all
after the 1973 Constitution except the first two named), as follows: Antonio, Esguerra (retired on June 19, 1976),
Estanislao Fernandez (retired on March 28, 1975), Muñoz Palma, Aquino, Concepcion Jr., Martin (retired on January
12, 1978), Santos, Ramon Fernandez and Guerrero, JJ., so that in effect this is another Supreme Court. There is no
call for such special treatment for a simple private case — of no public import at all — of cancellation of a conditional
sale effected in accordance with the contract between the parties which has the binding force of law between them and
which is backed up by the 39-year standing jurisprudence of this Code now confirmed and given statutory force by the
Maceda law.

(e) Maritime’s second motion for reconsideration violates the warning given by the Court in Zarate v. Director of Lands
12 that litigants should not be "allowed to speculate on changes in the personnel of the Court" and to keep importuning
the Court for "reagitation, reexamination and reformulation." Although stated in support of the principle of the "law of
the case" this warning is equally and specially applicable to motions for reconsideration, particularly a second motion
for reconsideration, when vital changes have taken place in the Court’s membership as has
happened:jgc:chanrobles.com.ph

". . .’Without the rule there would be no end to criticism, reagitation, re-examination, and reformulation. In short, there
would be endless litigation. It would be intolerable if parties litigant were allowed to speculate on changes in the
personnel of a court, or on the chance of our rewriting propositions once gravely ruled on solemn argument and
handed down as the law of a given case. An itch to reopen questions foreclosed on a first appeal would result in the
foolishness of the inquisitive youth who pulled up his corn to see how it grew, Courts are allowed, if they so choose, to
act like ordinary sensible persons. The administration of justice is a practical affair. The rule is a practical and a good
one of frequent and beneficial use.’ (Mangold v. Bacon, 237 Mo. 496). . ."cralaw virtua1aw library

(f) Withal, let it be noted that during this period of six years as vital changes in its membership were taking place,
periodic tentative votes were taken on the pending second motion for reconsideration and on no occasion were there
ever mustered the required eight votes to support Justice Barredo’s dissent and to reverse the original decision. (Of the
writer’s own knowledge, even Justice Zaldivar who had joined Justice Barredo’s dissent in the August 18, 1972
resolution denying reconsideration had expressed second thoughts about such dissent and was ready to rejoin the
original majority, when he compulsory retired from the Court on September 13, 1974).

2. Second motion for reconsideration is pro forma — "a mere dilatory strategy" which should have been given short
shrift long ago.

(a) Maritime’s second motion for reconsideration has raised no new grounds or special circumstances not available at
the time of the filing of the first motion for reconsideration but is merely a reiteration of reasons and arguments or
amplification thereof which have already been considered, weighed and resolved adversely and which serve no
apparent purpose but to gain time and therewith possible changes in the Court’s composition. As invariably held by the
Court, such second motions which are based on grounds already existing at the time of the first motion are clearly pro
forma. 13

As such pro forma motion for reconsideration (although with leave) such second motion deserves no further
consideration and should be denied in consonance with the Court’s consistent stand against multiplicity of motions
(Rule 52, sec. 1) in the interest of avoiding further delay in the remand of a case already decided and to avoid needless
slowdowns in the Court’s disposition of other cases in its full docket which are more deserving of its study and
attention. Cases entitled to preferential attention under the law have incurred in delay because of the inordinate time
and attention this case has received, including the preparation and submittal intra-Court of extensive research papers
and memoranda.chanrobles.com : virtual law library

(b) As has ever been stressed since the early case of Arnedo v. Llorente (18 Phil. 257, 263 [1911])" controlling and
irresistible reasons of public policy and of sound practice in the courts demand that at the risk of occasional error,
judgments of courts determining controversies submitted to them should become final at some definite time fixed by
law, or by a rule of practice recognized by law, so as to be thereafter beyond the control even of the court which
rendered them for the purpose of correcting errors of fact or of law, into which, in the opinion of the court it may have
fallen. The very purpose for which the courts are organized is to put an end to controversy, to decide the questions
submitted to the litigants, and to determine the respective rights of the parties."cralaw virtua1aw library

(c) Now Chief Justice Castro succinctly restated the pro forma doctrine in Dacanay v. Alvendia thus: "Mere citation
and/or amplification of authorities not previously brought to the court’s attention on the same argument does not
remove the pleading from the ambit of the pro forma doctrine. The Rules of Court, looking with disfavor on piecemeal
argumentation, have provided the omnibus motion rule, whereunder ‘(A) motion attacking a pleading or proceeding
shall include all objections then available, and all objections not so included shall be deemed waived.’ The salutary
purpose of the rule is to obviate multiplicity of motions as well as discourage dilatory pleadings. As we said in Medran
v. Court of Appeals, ‘litigants should not be allowed to reiterate identical motions, speculating on the possible change
of opinion of the Court or of the judges thereof .’ The mere citation of additional authorities by the petitioner in his last
motion for reconsideration reiterating his thrice-rejected identical arguments as to the sufficiency of his amended
complaints did not salvage the said motion from the proper application thereto of the pro forma doctrine." 14

(d) Justice Barredo in Lucas v. Mariano 15 emphasized that "it is in the public interest and consistent with the public
policy, that controversial rights in property be settled as soon as possible in order to promote stability in all matters
affected thereby" and that a second motion for reconsideration which contains "mere iterations and reiterations of the
same points and arguments over and over again . . . becomes, in effect, a mere dilatory strategy and consequently
nothing more than pro forma." The pertinent excerpts from said case are fully applicable, mutatis mutandis, to the case
at bar:jgc:chanrobles.com.ph

"Looking at this case from other angles, however, the Court is inclined to agree with private respondents that the order
of dismissal of September 16, 1965 has already become final and executory. Taking all relevant matters into
consideration, We are loathe to let this litigation to protract further. Involving as it does the ownership and possession
of a rather large piece of residential land, it is in the public interest and consistent with the public policy, that
controversial rights in property be settled as soon as possible, in order to promote stability in all matters affected
thereby that this case is terminated right here in this proceeding, it being within the authority of this Court to do so in
the premises.

"Not only have petitioners had enough occasions and opportunities to present their main contentions and to be heard
amply on them, but, more than that, We see no possibility that their pretensions, whether factual or legal, can prosper.
In their complaint in the court below, as well as in their various motions for reconsideration in relation to as many of its
orders and their oppositions to the motions for reconsideration also on the part of private respondents, petitioners have
as often lengthily discussed and explained repeatedly their position as to all aspects of their claim of title. We have
gone over all these representations and We find them to be mere iterations and reiterations of the same points and
arguments over and over again. Thus both the first and second motions for reconsideration of petitioners respectively
dated November 5, 1965 and January 25, 1966 raised exactly the same issues as their opposition to the motions to
dismiss separately filed by private respondents. When the opportunity to appeal to a higher court is open to a party
aggrieved by an order of an inferior court, tribunal, commission or body, our procedural rules allow the filing of only one
motion for reconsideration of its final order and judgment, and a second motion may be filed only when there is need to
raise new points or matters not touched upon in the first motion, since otherwise, litigations will unnecessarily drag in
the trial courts to the obvious detriment of the interests of justice not only in the particular case on hand but more so in
the then cases pending in the court which cannot be attended to. As earlier noted, a second motion for reconsideration
is actually a motion for reconsideration only of the order of denial of the first motion, and if it does not raise any new
issue relative to the first order, naturally, it cannot affect the legality and validity thereof, and becomes, in effect, a mere
dilatory strategy and consequently, nothing more than pro forma. An attempt to have a reconsideration of the denial of
a previous plea for reconsideration is not conducive to speedy administration of justice. After all, the party aggrieved
has a more effective recourse by appealing immediately to the appropriate appellate tribunal."cralaw virtua1aw library

In the lower courts, the pro forma motion does not stop the period for appeal from slipping away — and results in the
judgment sought to be appealed becoming final and executory. In this Court, the pro forma first and/or second motion
for reconsideration (although with leave of Court) — which merely reiterate the same grounds already considered and
resolved in its decision or resolution denying due course (as the case may be) — have similarly been treated and the
decision or resolution sought to be reconsidered have invariably been denied with a declaration of finality and entry of
judgment, by virtue of "controlling and irresistible reasons of public policy and of sound practice in the courts" which
demand an end to litigation at some definite point of time as a "fundamental concept in the organization of civil
society." Interest republicae ut sit finis litium. 15

3. The governing principle of stare decisis.

In each volume of Supreme Court Reports Annotated, Chief Justice Castro’s preface cites the governing principle of
precedents and stare decisis "which has given consistency and stability to the law" by which lawyers and litigants may
know the law in concrete controverted cases, thus:chanrobles virtual lawlibrary

"In his famous essay, the Path of the Law, Justice Oliver Wendell Holmes defined law as a prediction of what the court
will do.

"The prediction is based on precedents. The governing principle, which has given consistency and stability to the law,
is stare decisis et non quieta movere (follow past precedents and do not disturb what has been settled).

"The officials enforcing statutory law and regulations, the lawyers and litigants seeking to know the law in concrete
controverted cases, and the judges in adversary litigations, should be well posted on precedents."cralaw virtua1aw
library

Such precedents and jurisprudence of this Court form part of our legal system by force of the provision of Article 8 of
the new Civil Code that "Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the
legal system of the Philippines" and may not be lightly treated.

Reconsideration may not be granted without doing violence to this cardinal principle and overturning well established
principles and provisions of law such as freedom of contract which is the law between the parties as provided by Article
1306 of the Civil Code 16 the right of a vendor in contracts to sell or conditional sales with reserved title to cancel the
sale upon failure of the vendee to pay the stipulated installments and retain the sums already paid (which has now
been elevated into the category of a law in the case of industrial and commercial real properties as in this case by the
Maceda law, and which not even this Court can now overturn) and that he who pleads for equity must come to court
with clean hands.

4. The governing law and precedents.

The governing law and established precedents which demand peremptory denial of the second motion for
reconsideration have been hereinabove stated, supra. 17 Suffice it to herein underscore the following:chanrob1es
virtual 1aw library

(a) As stated in the Court’s decision, the vendor’s right in contracts to sell with reserved title to extrajudicially cancel the
sale upon failure of the vendee to pay the stipulated installments and retain the sums or installments already received
has long been recognized by the well established doctrine of 39 years standing" (T)he distinction between contracts of
sale and contracts to sell with reserved title has been recognized by this Court in repeated decisions (Manila Racing
Club v. Manila Jockey Club, 69 Phil. 57; Caridad Estates v. Santero, 71 Phil. 114; Miranda v. Caridad Estates, L-2077,
3 October 1950; Jocson v. Capitol Subdivision, L-6573, 28 February 1955; Manuel v. Rodriguez, 109 Phil. 1; see also
Sing Yee Cuan, Inc. v. Santos [C, App.] 47 O. G. 6372) upholding the power of promissors under contracts to sell in
case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse
conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in
the case at bar." 18

(b) In the Resolution of August 18, 1972, Justice J.B.L. Reyes further stressed for the Court that:" (M)ovant Maritime’s
insistence upon the application to the present case of Art. 1191 of the Civil Code of the Philippines (tacit resolutory
condition in reciprocal obligations) studiously ignores the fact that Myers’ obligation to convey the property was
expressly made subject to a suspensive (precedent) condition of the punctual and full payment of the balance of the
purchase price."cralaw virtua1aw library

He cited the express stipulations of the contract of conditional sale thus:jgc:chanrobles.com.ph

"(d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the Vendor will execute and
deliver to the Vendee a definite or absolute deed of sale upon the full payment by the Vendee of the unpaid balance of
the purchase price hereinabove stipulated; that should the Vendee fail to pay any of the monthly installments, when
due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this deed of Conditional
Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee
by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the
premises, take possession thereof or sell the properties to any other party.

x       x       x

"(i) Title to the properties subject of this contract remains with the Vendor and shall pass to, and be transferred in the
name of the Vendee only upon complete payment of the full price above agreed upon. ( Emphasis supplied)."cralaw
virtua1aw library

He had previously cited in the decision the acceleration clause in the contract that: ". . . the failure to pay any
installment or interest when due shall ipso facto cause the whole unpaid balance of the principal and interest to be and
become immediately due and payable." 19

He thus articulated the inescapable conclusion that the express contractual stipulations "make it crystal clear that the
full payment of the price (through the punctual performance of the monthly payments) was a condition precedent to the
execution of the final sale and to the transfer of the property from Myers to Maritime; so that there was to be no actual
sale until and unless full payment was made. It is uncontroverted that none was here made. The upshot of all these
stipulations is that in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not
rescinding (or more properly, resolving) the contract, but precisely enforcing it according to its express terms," citing
from the well known Spanish commentators, Castan and Puig Peña.chanroblesvirtualawlibrary

(c) The Resolution of August 18, 1972 likewise clearly disposed of Maritime’s contention that its breach of contract was
casual thus: "there is no point in discussing whether or not Maritime’s breach of contract was casual or serious, since
the issue here is whether the suspensive condition (of paying P5,000.00 monthly until full price is paid) was or was not
fulfilled, and it is not open to dispute that the stipulated suspensive condition was left unaccomplished through the
deliberate actions of movant Maritime. The stubborn fact is that there can be no rescission or resolution of an
obligation as yet non-existent, because the suspensive condition did not happen.

"Resolving identical arguments, as those of Maritime, this Court ruled in Manuel v. Rodriguez, 109 Phil. 9-10, as
follows:chanrob1es virtual 1aw library

‘. . . Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas Subdivision had no right to cancel the
contract, as there was no demand by suit or notarial act, as provided by Article 1504 of the old Code (Art. 1592, N. C.
C.). This is without merit, because Article 1604 requiring demand by suit or notarial act in case the vendor or realty
wants to rescind, does not apply to a contract to sell or promise to sell, where title remains with the vendor until
fulfillment to a positive suspensive condition, such as full payment of the price (Caridad Estates v. Santero, 71 Phil.
114, 121; Albea v. Inquimboy, 86 Phil. 476; 47 OFF. Gaz. Supp. 12, p. 131; Jocson v. Capitol Subdivision Inc. Et. Al.,
L-6573, February 28, 1955; Miranda v. Caridad Estates, L-2077 and Aspuria v. Caridad Estates, L-2121, October 23,
1950).

‘The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only
a ‘casual breach’ is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not to pass
until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is
not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual
breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory
condition, which is not the case.’"

(d) It should also be appreciated that Maritime’s breach of contract, far from being casual, was of the gravest character.
As stated above, this was pure business contract between two real estate corporations where Maritime as conditional
vendee got the most liberal terms and was purchasing the property out of the property’s rental earnings with plenty to
spare for its own gains. Thus, it was receiving the rentals from the property of P10,000.00 a month (or P120,000.00 per
annum) and had only to pay punctually the stipulated monthly installments of only P5,000.00 a month (or P60,000.00
per annum leaving it with a clear superavit of P60,000.00 every year). Under these circumstances, the only condition
demanded by Myers as vendee was that Maritime pay religiously the monthly installments when due under pain of
automatic voiding of the contract for non-fulfillment of the suspensive (precedent) condition of punctual and full
payment of the balance of the purchase price.

Yet, Maritime willfully and deliberately defaulted on the payments due since March, 1961 notwithstanding that its
request for a suspension of payments until the end of 1961 had been expressly rejected "under any condition" by
Myers and notwithstanding that it was collecting from the lessee Luzon Brokerage Co. the corresponding rentals of
P10,000.00 monthly for March, April and May, 1961 or a total of P30,000.00 (double the amount of the stipulated
monthly installments due from it). Worse, it injected a totally unconnected alleged personal promise of the late F.H.
Myers to indemnify it for a possible liability to a labor union of some P396,000.00 in connection with a completely
separate transaction totally unrelated to their contract to sell and gave notice that it was "withholding any further
payments" unless the heirs of the deceased honored his claim, notwithstanding that it was already barred against the
deceased’s estate which had already been closed.chanrobles law library : red
As further noted in the Court’s Resolution of August 18, 1972," (M)aritime’s bad faith is further confirmed by Schedler’s
letter to his counsel informing the latter that the attorneys in the United States were trying to reopen the closed Myers’
estate to be able to file a contingent claim therein. And yet he was already seeking to burden Myers’ Corporation with
that very obligation."cralaw virtua1aw library

(e) Maritime’s breach of contract therefore was most serious:chanrob1es virtual 1aw library

1. It refused to pay the monthly installments from March to May, 1961 totalling P15,000.00 notwithstanding that it had
the money and had collected the corresponding rentals in double the amount of P30,000.00 for said months. (The trial
court’s judgment as affirmed by this Court consequently sentenced Maritime inter alia to pay Myers "the sum of
P30,000.00 representing rentals wrongfully collected by (Maritime) from the plaintiff in interpleader corresponding to
the months of March, April and May, 1961" ;

2. Its unpaid balance on account of the purchase price amounted to almost one-third of the stipulated price in the sum
of P319,300.65 which besides the stipulated interest became immediately due and payable under the contract’s
acceleration clause;

3. Having breached the contract, Maritime completely foiled Myers’ plans for investment and utilization of the monthly
installments as due. Worse, Maritime did not honor either its obligation extrajudicially to return the property, so much
so that since March, 1961 Myers could not avail of the fruits and rentals of its reserved title which had then reverted
absolutely to it with the cancellation of the contract, so much so that the lessee Luzon Brokerage Co. had to file the
interpleader below and all the rentals which properly belong to Myers as owner since then have been tied up in Court
for seventeen (17) long years to the present.

4. And it is the height of irony for Maritime to plead now that the accumulated rentals on the property — which it had
prevented Myers from rightfully making use of as the lawful owner all these seventeen (17) long years come up to
seven figures — to contend that after all it had willfully failed only to pay the three months’ installments in March to
May, 1961. This is not all Maritime failed to pay. It also failed to pay the whole unpaid balance of P319,300.65 besides
the stipulated interests which under the acceleration clause became immediately due and payable upon default. The
rentals that Luzon Brokerage Co. as plaintiff in interpleader deposited monthly with the trial court beginning June, 1961
were not sufficient at the time of default in March 1961 to pay this unpaid balance. But the whole irony of it is that these
rentals belonged no longer to Maritime but solely and wholly to Myers as the lawful owner in whom its reserved title
had reverted by virtue of the cancellation of the contract due to Maritime’s willful and deliberate default with dolo.

5. As the Court pointed out in Garcia v. Rita Legarda, Inc. 20 the buyer on installments has only himself to blame — for
the power of cancellation "could be exercised — not arbitrarily — but only upon the other party committing the breach
of contract of non-payment of the installments agreed upon" and that to avoid the stipulated and foreseen
consequences of cancellation and forfeiture of all previous payments" all that (the buyer) had to do . . . was to comply
with (its) part of the bargain. Having failed to do so, (it) really has no valid reason to complain." Parenthetically, due to
the most liberal terms of the contract, Maritime here, despite cancellation and forfeiture of all previous installments in
the concept of rentals, still came out of the transaction with a gain of P527,000.00 and a net gain of P514,000.00 after
deducting the P13,000.00 in stipulated damages and attorneys’ fees granted by the trial court’s decision as affirmed by
this Court due to Myers having had to avail of judicial recourse to enforce its right of cancellation and regain
possession of its property.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

(f) Finally, no case can be cited where this Court has denied the vendor on installments the stipulated right of
cancellation of the contract to sell or of sale on installments of industrial or commercial real estate with forfeiture of all
previous payments upon breach of the contract by failure to pay the stipulated installments when due in line with the
long line of precedents above cited. As discussed in the next following part, this right of cancellation in the case of
industrial and commercial properties is now expressly recognized in the Maceda law.

(g) The agitation by Maritime for reexamination of the Court’s 39-year old doctrine of the vendor’s right of extrajudicial
cancellation with forfeiture of previous payments (assuming that it is not barred by the enactment of RA 6522) cannot
be properly done in this case which was decided more than six (6) years ago (on January 31, 1972 with
reconsideration denied in the extended Resolution of August 18, 1972) and been frequently cited authoritatively in law
books and treatises, including Maritime’s counsel, former Senator Ambrosio Padilla’s extensive Annotations on the
Civil Code and the Philippine Law Journal’s Survey of Philippine Law and Jurisprudence 21 citing anew the "important
distinction" drawn by this Court between a contract of sale and a contract to sell, to which latter contract Article 1592 of
the Civil Code has always been held to be inapplicable. The bench and bar would needlessly be subjected to confusion
if now this case which has been cited for over 6 years as maintaining the 39-year old doctrine re cancellation of
contracts to sell should all of a sudden no longer be a valid authority.

The Court itself has rejected pleas for reexamination of the doctrine in petitions filed after this Court’s decision and
Resolution of August 18, 1972 at bar citing Justice Barredo’s dissent in support thereof, as in the petition in L-44593
entitled Lim Hu v. Court of Appeals, wherein the Court denied the petition per its Resolution of March 18, 1977 22 and
denied reconsideration per its Resolution of June 6, 1977. 23

5. RA 6552 (Maceda Law) expressly recognizes vendor’s right of cancellation of sale on installments of industrial and
commercial properties with full retention of previous payments.

(a) The enactment on September 14, 1972 by Congress of Republic Act No. 6552 entitled "An Act to Provide
Protection to Buyer of Real Estate on installment Payments" which inter alia compels the seller of real estate on
installments (but excluding industrial lots, commercial buildings among others from the Act’s coverage) to grant one
month’s grace period for every one year of installments made before the contract to sell may be cancelled for non-
payment of the installments due forecloses any overturning of this Court’s long-established jurisprudence. Republic Act
6552 recognizes in conditional sales of all kinds of real estate (industrial and commercial as well as residential) the
non-applicability of Article 1592 (1504) Civil Code to such contracts to sell on installments and the right of the seller to
cancel the contract (in accordance with the established doctrine of this Court) upon non-payment "which is simply an
event that prevents the obligation of the vendor to convey title from acquiring binding force." (Manuel v. Rodriguez, 109
Phil. 1, 10, per Reyes, J.B.L.). The Act in modifying the terms and application of Art. 1592 Civil Code reaffirms the
vendor’s right to cancel unqualifiedly in the case of industrial lots and commercial buildings (as in the case at bar) and
requires a grace period in other cases, particularly residential lots, with a refund of certain percentages of payments
made on account of the cancelled contract. 24

(b) Since Congress has through RA 6552 adopted into law the 39-year jurisprudence of the Court and recognized that
in the sale of industrial lots and commercial buildings (as in the case at bar), non-payment of installments is simply an
event that prevents the conditional obligation of the vendor to convey title from acquiring binding force and entitles the
vendor to cancel the conditional contract, the Court can no longer overturn the doctrine long enunciated by it for 39
years since it would be in effect overturning the law itself. Certainly, the Court cannot deny Myers’ right of cancellation
recognized by the law itself.

(c) Justice Barredo explained and premised his extensive 86-page dissent, as follows:jgc:chanrobles.com.ph

"Considering that Our decision in this case is a unanimous one penned by no less than Justice J.B.L. Reyes whose
views on the legal issues We have resolved are admittedly authoritative, ordinarily, my concurrence in a denial
resolution should be practically a matter of course. After going over the motion for reconsideration, however, my
curiosity was aroused by it principally on two points, namely, (1) the unhappy and helpless plight of thousands upon
thousands of subdivision buyers who under the ruling We laid down are hound to suffer the loss of their life earnings
only because of an oversight or difficulty in paying one or two installments, unless We firmed up the doctrine laid down
by the Chief Justice in Javier or We made clearer their right to avail of Article 1592 of the New Civil Code under so-
called contracts or promises to sell which are in vogue in subdivision sales; and (2) the clarification once and for all of
the juridical concepts We have been adopting in Our decisions concerning promises or contracts to sell with
reservation of title, lest We perpetuate a posture in doctrinal law which may be questioned later."25cralaw:red

(1) Congress in enacting in September 1972 Republic Act 6552 (the Maceda law), has by law which is its proper and
exclusive province (and not that of this Court which is not supposed to legislate judicially) has taken care of Justice
Barredo’s concern over "the unhappy and helpless plight of thousands upon thousands of subdivision buyers" of
residential lots.

The Act even in residential properties recognizes and reaffirms the vendor’s right to cancel the contract to sell upon
breach and non-payment of the stipulated installments but requires a grace period after at least two years of regular
installment payments (of one month for every one year of installment payments made, but to be exercise by the buyer
only once in every five years of the life of the contract) with a refund of certain percentages of payments made on
account of the cancelled contract (starting with fifty percent with gradually increasing percentages after five years of
installments). In case of industrial and commercial properties, as in the case at bar, the Act recognizes and reaffirms
the Vendor’s right unqualifiedly to cancel the sale upon the buyer’s default.chanrobles.com : virtual law library

(2) As to the clarification of "juridical concepts", the decision and resolution penned by Justice J. B. L. Reyes are quite
clear that in cases of contracts to sell with reserved title, non-payment of the stipulated installment is simply the failure
of a positive suspensive condition — an event that prevents the conditional obligation of the vendor to convey title from
acquiring binding force and entitles the vendor to cancel the conditional contract. Justice Barredo’s premise that there
was no such thing as a promise to sell under the Spanish Civil Code and that Article 1478 of the Philippine Civil Code
(1950) providing that "ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser
until he has fully paid the price" is an entirely new concept not recognized in the Spanish Civil Code is with all due
respect a misconception and error, for said Article 1478 merely incorporated in the Philippine Civil Code a principle
long recognized in Spanish and Philippine jurisprudence. The Court’s decision and Resolution of August 18, 1972 cited
Castan, Derecho Civil, Vol. 3, 7th Ed. page 129 and Pairo’s Teoria de Obligaciones, the line of Philippine decisions
prior to the effectivity in 1950 of the Philippine Civil Code, as well as decisions of the Supreme Court of Spain, all
holding to the same effect that:jgc:chanrobles.com.ph

"El repetido convenio de no quedar transferido al comprador el dominio completo de la cosa hasta el completo pago
del precio envuelve sustancialmente una verdadera condicion suspensiva TS Sent. 11 March 1929) ( Emphasis
supplied).

"El vendedor por razon de esta reserva solo transmite el disfrute de la cosa entregada mientras el precio no sea
totalmente entregado (TS. sent. 7 March 1906)." 26

(d) Justice Barredo’s reply re the enactment of RA 6552 (the Maceda law) on September 14, 1972 is that it "need not
be considered because it is based on the new Civil Code" (1950) and not on the old Code which was in force at the
time that the parties executed their contract in 1949. This is not quite the case.

The point is that Congress thru RA 6552 adopted and elevated into law the 39-year old jurisprudence and now
reaffirms as law the doctrine held by the Court since 1939 (when it first ruled that Article 1504 [now Article 1592] of the
Civil Code is not applicable to contracts to sell or conditional sales). In other words, Congress could have overturned
the doctrine by providing nevertheless that there can no longer be an automatic cancellation upon the buyer’s default
and failure to pay the stipulated installments, i.e. by outlawing this standard provision in tens, if not hundreds, of
thousands of such installments contracts. Since such standard right of cancellation of the sale upon the buyer’s default
with the seller’s retention of all previous payments (sustains Myers’ cancellation of the sale, as has always been upheld
by this Court) has now been expressly recognized and ratified by the law, it is now beyond this Court’s power to
reexamine and overturn its said doctrine (with the end of denying Myers’ right of cancellation) since such right is now
recognized and reaffirmed by the law itself and not even this Court can overturn and go against the law itself. (In sensu
contrario, and this is where Justice Barredo’s reply would have relevance, if RA 6552 had outlawed the seller’s right of
cancellation, since it was enacted only in September, 1972, it certainly would be open to the grave question of whether
it could retroact and negate buyer’s right of cancellation of the sale as recognized under the Court’s established
doctrine).

6. No basis for plea for equitable considerations; on balance, Maritime comes off the cancellation with a net gain of
over P500,000.00 from the property’s rental earnings; contract is pure business contract between two big real estate
corporations and their contract is the law between them; corporations are not people and their business is simply
business.

(a) There is no basis for the plea for equitable considerations and even Justice Barredo concedes in his memorandum
to the Court of July 27, 1978 that "I am not aware that there is any such appeal [for equity] in the record." His thesis is
that the Court’s rulings in Tuason v. Javier, 31 SCRA 829 and Legarda v. Saldaña, 55 SCRA 324 which involved small
residential subdivision lots be applied to this million-peso transaction between two big real estate corporations on the
premise that" (T)o insist that the ruling applied in one case should also be applied in another where the facts are similar
and to disregard the difference in the economic positions of the parties involved is not an appeal for equity but for plain
legal justice." Javier’s case involved a small residential subdivision lot with a price of P3,691.20 and the Court in the
interest of justice and equity granted the buyer an additional period of sixty days since the buyer had substantially
complied with the contract in good faith. 27 Saldaña’s case in turn involved the purchase of two small residential lots
and the Court found that "the appellate court’s judgment finding that of the total sum of P3,582.06 (including interests
of P1,889.78) already paid by respondent (which was more than the value of two lots), the sum applied by petitioners
to the principal alone in the amount of P1,682.28 was already more than the value of one lot of P1,500.00 and hence
one of the two lots as chosen by respondent would be considered as fully paid, is fair and just and in accordance with
law and equity," while the cancellation of the sale for the other lot due to failure to pay the installments was upheld. 28
It should be noted that the buyer Saldaña therein "adhered to the validity of the doctrine of the Caridad Estates cases
(Caridad Estates v. Santero, 71 Phil. 114; Miranda v. Caridad Estates, L-2077, Oct. 3, 1950)" but disputed its
applicability contending inter alia that the sellers "were equally in default as the lots were ‘completely under water . . .’"
29

It is patently seen that there is no parity nor justification for applying said cases to the one at bar. The said cases
involved merely small residential subdivision lots where the price had been in fact substantially paid in good faith and
the Court’s ruling therein was the precursor to the enactment of RA 6522 which provided certain measures of
protection for the buyers of residential lots but recognized and reaffirmed the vendor’s right of cancellation of contracts
to sell without refund of previous payments upon the buyer’s default in sales of commercial and industrial properties, as
in the case at bar.chanrobles.com : virtual law library

(b) The Court expressly found no basis for the application of equity under the facts of the case at bar,
thus:jgc:chanrobles.com.ph

"Maritime also pleads that as the stipulated forfeiture of the monthly payments already made is in fact a penalty, and
the same should be equitably reduced. We find no justification for such reduction for the following
reasons:jgc:chanrobles.com.ph

"a) Maritime intentionally risked the penalty by deliberately refusing to make the monthly payments for March to May,
1961, and trying to inject into its contract with Myers corporation the totally unconnected personal promise of F. H.
Myers to indemnify its eventual liability to the Luzon Labor Union, allegedly made on the occasion of the sale of the
Luzon (Stevedoring) to E. Schedler by F. H. Myers, and trying to extrajudicially force Myers corporation to assume
responsibility for such liability.

"b) Under Article 1234 of the present Civil Code, an obligation must be substantially performed in good faith, for such
performance to stand in lieu of payment; Maritime, on the contrary, acted with dolo or bad faith, and is not a position to
invoke the benefits of the article.

"c) Maritime’s loss of the forfeited payments was more than balanced by the rentals it received from the Luzon
Brokerage as lessee of the building for the corresponding periods, at a rate of double the monthly payments required of
Maritime under its contract with Myers." 30

In terms of pesos and centavos, Maritime received a total amount of some P1,500,000.00 from the property’s own
rental earnings. By virtue of its willful default and the resulting cancellation of the sale, the P973,000.00 previously paid
by it to Myers out of the same rental earnings as installments on account of the principal and interest (with an unpaid
balance of P319,000.65 representing still almost 1/3 of the principal agreed price) were retained by Myers as rentals in
turn from Maritime under the express terms of their contract, since Maritime was the one collecting the rentals from the
property’s lessee at double the rate of its installments and continued to do so until May, 1961 despite its default three
months earlier in May. Still, Maritime came out of the cancelled sale with excess earnings from the property’s rentals of
P527,000.00. Maritime really has no valid reason to complain of having lost the right to the property and the larger
share of the rentals — for all that" (it) had to do . . . was to comply with its part of the bargain." 31

(c) The injunction of now Chief Justice Castro in Dy Pac Workers Union v. Dy Pac & Co. Inc. 32 that "equitable
considerations . . . cannot offset the demands of public policy and public interest which are also responsive to the
tenets of equity" is controlling here, viz:" (T)he equitable considerations that led the lower court to take the action
complained of cannot offset the demands of public policy and public interest — which are also responsive to the tenets
of equity — requiring that all issues passed upon in decisions or final orders that have become executory, be deemed
conclusively disposed of and definitely closed, for, otherwise, there would be no end to litigations, thus setting at
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.

"(d) This is but a case involving two big real estate corporations which entered into the contract to sell with the
assistance of counsel and with full awareness of the import of the covenants, terms and conditions expressly stipulated
and of the legal consequences of non-compliance therewith. Their contract is the binding law between them and equity
cannot be pleaded by one who has not come with clean hands nor complied therewith in good faith as mandated by
Article 1159 of the Civil Code (supra, page 5) but instead willfully and deliberately breached the contract and refused to
pay the stipulated installments despite prior rejection "under any condition" of its request for suspension of payments
and its having collected the property’s rentals out of which it could easily pay the stipulated installments.

This suit represents a mere adjudication of private adversary rights between two litigants with no significance in terms
of doctrinal value since Maritime only pleads that it be given special treatment and that the cancellation of its contract
be somehow rejected notwithstanding Myers’ clear and incontrovertible right under the contract and the law to do so
and Maritime’s wilfull and deliberate breach of the contract in bad faith.

Justice Fernando’s observation in Chemplex v. Pamatian 33 that "struggles between prototypes of what was referred
to by Roosevelt as economic royalists, do not automatically elicit, especially from the higher tribunals, an affirmative
response to the plea that they be heard" ; that "the morality of the business world is not the morality of institutions of
rectitude like the pulpit and the academe" ; and." . . It is not the interest of the parties as such, but the significance it
possesses in terms of its doctrinal value, that supplies the criterion. Chafee had occasion to refer to an opinion of
Justice Frankfurter which implies that what is decisive is a question of import for public policy presented, not a mere
adjudication of adversary rights between the two litigants. At any rate, such a mode of viewing the matter is not likely to
be productive of injustice to the main protagonists before us who, considering their economic status, are very likely, to
paraphrase that caustic but realistic critic of law and of life, Professor Rodell, to be able to protect themselves in the
clinches," may well be heeded.

As was recently observed, "it’s time to put an end to the fiction that corporations are people." 34 The business of big
corporations such as the protagonists at bar is business. They are bound by the lawful contracts that they enter into
and they do not ask for nor are they entitled to considerations of equity.

For a final note of the writer. While the vote of Justice Fernando to grant the second motion for reconsideration when
heretofore he has inhibited himself and did not take part in the decision of January 31, 1972 and Resolution of August
18, 1972 has not proven to be decisive, the writer took exception and herein makes of record his objection to the
participation of Justice Fernando. This is done in all objectivity and with an due respect. If he had inhibited himself
before from taking part in the decision and resolution against Maritime presumably for valid reasons, the writer feels
that we are entitled to know whether those reasons no longer exist and he feels uninhibited now to vote for Maritime
and granting its second motion for reconsideration. The writer is all too aware of his views shared with some other
member(s) of the Court that their inhibition or disqualification is a matter of their own personal decision and conscience
notwithstanding the provisions of Rule 137 of the Rules of Court which they consider in a way as not applicable to
member of the Supreme Court. This delicate question has heretofore not been addressed nor resolved by the
Court . . . 35 and should be determined once and for all for the guidance of the bench and bar and the litigants in
court.chanrobles.com : virtual law library

ACCORDINGLY, and for lack of the necessary votes (five votes for denying the second motion and seven votes for
granting the same 36), appellant Maritime’s second motion for reconsideration is denied and this denial is final.

Makasiar, Muñoz Palma, and Guerrero, JJ., concur.

Castro, C.J., on the basis of the Court’s decision of January 31, 1972 (43 SCRA 93) and the Court’s resolution of
August 18, 1972 (46 SCRA 381), I vote to deny the second motion for reconsideration.

Fernando, J., concurs in the dissent of Justice Barredo and, in addition, submits a brief opinion.

Barredo, J., voted to grant the second motion for reconsideration for the reasons stated in a separate opinion.
Antonio, Aquino, Concepcion Jr., Santos, and Fernandez, JJ., voted to grant the second motion for reconsideration.

SECOND DIVISION

[G.R. No. 118746. September 7, 1995.]

ATTY. WILFREDO TAGANAS, Petitioner, v. NATIONAL LABOR RELATIONS COMMISSION, MELCHOR

ESCULTURA, ET AL., Respondents.

Wilfredo Espiritu Taganas in his own behalf.

The Solicitor General for Respondents.

SYLLABUS

1. LEGAL AND JUDICIAL ETHICS; ATTORNEY’S FEES; CONTINGENT FEE ARRANGEMENT; SUBJECT TO THE
SUPERVISION OF A COURT AS TO ITS REASONABLENESS. — A contingent fee arrangement is an agreement laid
down in an express contract between a lawyer and a client in which the lawyer’s professional fee, usually a fixed
percentage of what may be recovered in the action, is made to depend upon the success of the litigation. This
arrangement is valid in this jurisdiction. It is, however, under the supervision and scrutiny of the court to protect clients
from unjust charges. Section 13 of the Canons of Professional Ethics states that" [a] contract for a contingent fee,
where sanctioned by law, should be reasonable under all the circumstances of the case including the risk and
uncertainty of the compensation, but should always be subject to the supervision of a court, as to its reasonableness."
When it comes, therefore, to the validity of contingent fees, in large measure it depends on the reasonableness of the
stipulated fees under the circumstances of each case. The reduction of unreasonable attorney’s fees is within the
regulatory powers of the courts.

2. ID.; ID.; ID.; ID.; APPLICATION IN CASE AT BAR. — We agree with the NLRC’s assessment that fifty percent of the
judgment award as attorney’s fees is excessive and unreasonable. The financial capacity and economic status of the
client have to be taken into account in fixing the reasonableness of the fee. Noting that petitioner’s clients were lowly
janitors who receive miniscule salaries and that they were precisely represented by petitioner in the labor dispute for
reinstatement and claim for backwages, wage differentials, emergency cost of living allowance, thirteenth-month pay
and attorney’s fees to acquire what they have not been receiving under the law and to alleviate their living condition,
the reduction of petitioner’s contingent fee is proper. Labor cases, it should be stressed, call for compassionate justice.
Furthermore, petitioner’s contingent fee falls within the purview of Article 111 of the Labor Code. This article fixes the
limit on the amount of attorney’s fees which a lawyer, like petitioner, may recover in any judicial or administrative
proceedings since the labor suit where he represented private respondents asked for the claim and recovery of wages.
In fact, We are not even precluded from fixing a lower amount than the ten percent ceiling prescribed by the article
when circumstances warrant it. Nonetheless, considering the circumstances and the able handling of the case,
petitioner’s fee need not be further reduced. The manifestation of petitioner’s four clients indicating their conformity with
the contingent fee contract did not make the agreement valid. The contingent fee contract being unreasonable and
unconscionable the same was correctly disallowed by public respondent NLRC even with respect to the four private
respondents who agreed to pay higher percentage. Petitioner is reminded that as a lawyer he is primarily an officer of
the court charged with the duty of assisting the court in administering impartial justice between the parties. When he
takes his oath, he submits himself to the authority of the court and subjects his professional fees to judicial control.

RESOLUTION

FRANCISCO, J.:

Petitioner Atty. Wilfredo E. Taganas represented herein private respondents in a labor suit for illegal dismissal,
underpayment and non-payment of wages, thirteenth-month pay, attorney’s fees and damages conditioned upon a
contingent fee arrangement granting the equivalent of fifty percent of the judgment award plus three hundred pesos
appearance fee per hearing. 1 The Labor Arbiter ruled in favor of private respondents and ordered Ultra Clean
Services (Ultra) and the Philippine Tuberculosis Society, Inc., (PTSI) respondents therein, jointly and severally to
reinstate herein private respondents with full backwages, to pay wage differential, emergency cost of living allowance,
thirteenth-month pay and attorney’s fee, but disallowed the claim for damages for lack of basis. 2 This decision was
appealed by Ultra and PTSI to the National Labor Relations Commission (NLRC), and subsequently by PTSI to the
Court but to no avail. During the execution stage of the decision, petitioner moved to enforce his attorney’s charging
lien. 3 Private respondents, aggrieved for receiving a reduced award due to the attorney’s charging lien, contested the
validity of the contingent fee arrangement they have with petitioner, albeit four of the fourteen private respondents have
expressed their conformity thereto. 4

Finding the arrangement excessive, the Labor Arbiter ordered the reduction of petitioner’s contingent fee from ,fifty
percent of the judgment award to ten percent, except for the four private respondents who earlier expressed their
conformity. 5 Petitioner appealed to NLRC which affirmed with modification the Labor Arbiter’s order by ruling that the
ten percent contingent fee should apply also to the four respondents even if they earlier agreed to pay a higher
percentage. 6 Petitioners motion for reconsideration was denied, hence this petition for certiorari.

The sole issue in this petition is whether or not the reduction of petitioner’s contingent fee is warranted. Petitioner
argues that respondent NLRC failed to apply the pertinent laws and jurisprudence on the factors to be considered in
determining whether or not the stipulated amount of petitioner’s contingent fee is fair and reasonable. Moreover, he
contends that the invalidation of the contingent fee agreement between petitioner and his clients was without any legal
justification especially with respect to the four clients who manifested their conformity thereto. We are not persuaded.

A contingent fee arrangement is an agreement laid down in an express contract between a lawyer and a client in which
the lawyer’s professional fee, usually a fixed percentage of what may be recovered in the action, is made to depend
upon the success of the litigation. 7 This arrangement is valid in this jurisdiction. 8 It is, however, under the supervision
and scrutiny of the court to protect clients from unjust charges. 9 Section 13 of the Canons of Professional Ethics
states that" [a] contract for a contingent fee, where sanctioned by law, should be reasonable under all the
circumstances of the case including the risk and uncertainty of the compensation, but should always be subject to the
supervision of a court, as to its reasonableness" Likewise, Rule 138, Section 24 of the Rules of Court
provides:chanrob1es virtual 1aw library

SECTION 24. Compensation of attorneys; agreement as to fees. — An attorney shall be entitled to have and recover
from his client no more than a reasonable compensation for his services, with a view to the importance of the subject-
matter of the controversy, the extent of the services rendered, and the professional standing of the attorney. No court
shall be bound by the opinion of attorneys as expert witnesses as to the proper compensation but may disregard such
testimony and base its conclusion on its own professional knowledge. A written contract for services shall control the
amount to be paid therefor unless found by the court to be unconscionable or unreasonable.
When it comes, therefore, to the validity of contingent fees, in large measure it depends on the reasonableness of the
stipulated fees under the circumstances of each case. The reduction of unreasonable attorney’s fees is within the
regulatory powers of the courts. 10

We agree with the NLRC’s assessment that fifty percent of the judgment award as attorney’s fees is excessive and
unreasonable. The financial capacity and economic status of the client have to be taken into account in fixing the
reasonableness of the fee. 11 Noting that petitioner’s clients were lowly janitors who receive miniscule salaries and that
they were precisely represented by petitioner in the labor dispute for reinstatement and claim for backwages, wage
differentials, emergency cost of living allowance, thirteenth-month pay and attorney’s fees to acquire what they have
not been receiving under the law and to alleviate their living condition, the reduction of petitioner’s contingent fee is
proper. Labor cases, it should be stressed, call for compassionate justice.

Furthermore, petitioner’s contingent fee falls within the purview of Article 111 of the Labor Code. This article fixes the
limit on the amount of attorney’s fees which a lawyer, like petitioner, may recover in any judicial or administrative
proceedings since the labor suit where he represented private respondents asked for the claim and recovery of wages.
In fact, We are not even precluded from fixing a lower amount than the ten percent ceiling prescribed by the article
when circumstances warrant it. 12 Nonetheless, considering the circumstances and the able handling of the case,
petitioner’s fee need not be further reduced.

The manifestation of petitioner’s four clients indicating their conformity with the contingent fee contract did not make
the agreement valid. The contingent fee contract being unreasonable and unconscionable the same was correctly
disallowed by public respondent NLRC even with respect to the four private respondents who agreed to pay higher
percentage. Petitioner is reminded that as a lawyer he is primarily an officer of the court charged with the duty of
assisting the court in administering impartial justice between the parties. When he takes his oath, he submits himself to
the authority of the court and subjects his professional fees to judicial control. 13

WHEREFORE, finding no grave abuse of discretion the assailed NLRC decision is hereby affirmed in toto.

Narvasa, C.J., Regalado, Puno and Mendoza, JJ., concur.

 THIRD DIVISION

[G.R. No. L-33205. August 31, 1987.]

LIRAG TEXTILE MILLS, INC. and BASILIO L. LIRAG, Petitioners, v. SOCIAL SECURITY SYSTEM and HON.
PACIFICO DE CASTRO, Respondents.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE LOWER COURT THAT THE PURCHASE AGREEMENT IS A
DEBT INSTRUMENT, BINDING ON APPEAL. — We uphold the lower court’s finding that the Purchase Agreement is,
indeed, a debt instrument. Its terms and conditions unmistakably show that the parties intended the repurchase of the
preferred shares on the respective scheduled dates to be an absolute obligation which does not depend upon the
financial ability of petitioner corporation. This absolute obligation on the part of petitioner corporation is made manifest
by the fact that a surety was required to see to it that the obligation is fulfilled in the event of the principal debtor’s
inability to do so. The unconditional undertaking of petitioner corporation to redeem the preferred shares at the
specified dates constitutes a debt which is defined "as an obligation to pay money at some fixed future time, or at a
time which becomes definite and fixed by acts of either party and which they expressly or impliedly, agree to perform in
the contract. The Purchase Agreement provided that failure on the part of petitioner to repurchase the preferred shares
on the scheduled due dates renders the entire obligation due and demandable, with petitioner in such eventuality liable
to pay 12% of the then outstanding obligation as liquidated damages. These features of the Purchase Agreement,
taken collectively, clearly show the intent of the parties to be bound therein as debtor and creditor, and not as
corporation and stockholder.

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT ENTERED INTO CONSTITUTES LAW BETWEEN
PARTIES; CASE AT BAR. — The Purchase Agreement constitutes the law between the parties and obligations arising
ex contractu must be fulfilled in accordance with the stipulations. Besides, it was precisely this eventuality that was
sought to be avoided when respondent SSS required a surety for the obligation. Thus, it follows that petitioner Basilio
L. Lirag cannot deny liability for petitioner corporation’s default.

3. ID.; ID.; OBLIGATION OF SURETY DISTINGUISHED FROM GUARANTOR’S OBLIGATION. — As surely, Basilio
L. Lirag is bound immediately to pay respondent SSS the amount then outstanding. "The obligation of a surety differs
from that of a guarantor in that the surety insures the debt, whereas the guarantor merely insures solvency of the
debtor; and the surety undertakes to pay if the principal does not pay, whereas a guarantor merely binds itself to pay if
the principal is unable to pay."cralaw virtua1aw library

4. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT ENTERED INTO CLEARLY INDICATES INTENTION
TO PAY INTEREST. — On the liability of petitioners to pay 8% cumulative dividend, We agree with the observation of
the lower court that the dividends stipulated by the parties served evidently as interests. The amount thereof was fixed
at 8% per annum and was not made to depend upon or to fluctuate with the amount of profits or surplus realized, a
clear indication that the parties intended to give a sure and fixed earnings on the principal loan. The fact that the
dividends were supposed to be paid out of net profits and earned surplus, of which there were none, does not excuse
petitioners from the payment thereof, again for the reason that the undertaking of petitioner Basilio L. Lirag as surety,
included the payment of dividends and other obligations then outstanding.

5. ID.; ID.; GRANT OF LIQUIDATED DAMAGES EXPRESSLY PROVIDED FOR. — The award of the sum of
P146,400.00 in liquidated damages representing 12% of the amount then outstanding is correct, considering that
petitioners in the stipulation of facts admitted having failed to fulfill their obligations under the Purchase Agreement.
The grant of liquidated damages in the amount stated is expressly provided for in the Purchase Agreement in case of
contractual breach.

6. REMEDIAL LAW; CIVIL ACTIONS; ACTION INVOLVING SUMS OF MONEY EARN LEGAL INTEREST FROM
DATE OF FILING. — The pronouncement of the lower court for the payment of interests on both the unredeemed
shares and unpaid dividends is also in order. Per stipulation of facts, petitioners did not deny the fact of non-payment
of dividends nor their failure to purchase the preferred shares. Since these involve sums of money which are overdue,
they are bound to earn legal interest from the time of demand, in this case, judicial, i.e., the time of filing the action.

7. CIVIL LAW; ESTOPPEL; PARTY PRECLUDED FROM DENYING HIS FIRM REPRESENTATION TO PAY
IMMEDIATELY THE AMOUNTS THEN OUTSTANDING. — Petitioner Basilio L. Lirag is precluded from denying his
liability under the Purchase Agreement. After his firm representation to "pay immediately to the VENDEE the amounts
then outstanding" evidencing his commitment as SURETY, he is estopped from denying the same. His signature in the
agreement carries with it the official imprimatur as petitioner corporation’s president, in his personal capacity as
majority stockholder, as surety and as solidary obligor. The essence of his obligation as surety is to pay immediately
without qualification whatsoever if petitioner corporation does not pay. To have another interpretation of petitioner
Lirag’s liability as surety would violate the integrity of the Purchase Agreement as well as the clear and unmistakable
intent of the parties to the same.

DECISION

FERNAN, J.:

This is an appeal by certiorari involving purely questions of law from the decision rendered by respondent judge in Civil
Case No. Q-12275 entitled "Social Security System versus Lirag Textile Mills, Inc. and Basilio L. Lirag."cralaw
virtua1aw library

The antecedent facts, as stipulated by the parties during the trial, are as follows:jgc:chanrobles.com.ph

"1. That on September 4, 1961, the plaintiff [herein respondent Social Security System] and the defendants [herein
petitioners] Lirag Textile Mills, Inc. and Basilio Lirag entered into a Purchase Agreement under which the plaintiff
agreed to purchase from the said defendant preferred shares of stock worth ONE MILLION PESOS [P1,000,000.00]
subject to the conditions set forth in such agreement; . . .

"2. That pursuant to the Purchase Agreement of September 4, 1961, the plaintiff, on January 31, 1962, paid the
defendant Lirag Textile Mills, Inc. the sum of FIVE HUNDRED THOUSAND PESOS [P500,000.00] for which the said
defendant issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos [P100.00] per share as
evidenced by stock Certificate No. 128; . . .

"3. That further in pursuance of the Purchase Agreement of September 4, 1961, the plaintiff paid to the Lirag Textile
Mills, Inc. the sum of FIVE HUNDRED THOUSAND PESOS [P500,000.00] for which the said defendant issued to
plaintiff 5,000 preferred shares with a par value of one hundred pesos [P100.00] per share as evidenced by Stock
Certificate No. 139; . . .

"4. That in accordance with paragraph 3 of the Purchase Agreement of September 4, 1961 which provides for the
repurchase by the Lirag Textile Mills, Inc. of the shares of stock at regular intervals of one year beginning with the 4th
year following the date of issue, Stock Certificates Nos. 128 and 139 were to be repurchased by the Lirag Textile Mills,
Inc. thus:chanrob1es virtual 1aw library

CERT. NO. AMOUNT DATE OF REDEMPTION

128 P100,000.00 February 14, 1965

100,000.00 February 14, 1966

100,000.00 February 14, 1967

100,000.00 February 14, 1968

100,000.00 February 14, 1969

139 P 100,000.00 July 3, 1966

100,000.00 July 3, 1967

100,000.00 July 3, 1968

100,000.00 July 3, 1969

100,000.00 July 3, 1970

"5. That to guarantee the redemption of the stocks purchased by the plaintiff, the payment of dividends, as well as the
other obligations of the Lirag Textile Mills, Inc., defendants Basilio L. Lirag signed the Purchase Agreement of
September 4, 1961 not only as president of the defendant corporation, but also as surety so that should the Lirag
Textile Mills, Inc. fail to perform any of its obligations in the said Purchase Agreement, the surety shall immediately pay
to the vendee the amounts then outstanding pursuant to Condition No. 4, to wit:chanrob1es virtual 1aw library

‘To guarantee the redemption of the stocks herein purchased, the payment of the dividends, as well as other
obligations of the VENDOR herein, the SURETY hereby binds himself jointly and severally liable with the VENDOR so
that should the VENDOR fail to perform any of its obligations hereunder, the SURETY shall immediately pay to the
VENDEE the amounts then outstanding.’

"6. That defendant corporation failed to redeem certificates of Stock Nos. 128 and 139 by payment of the amounts
mentioned in paragraph 4 above;

"7. That the Lirag Textile Mills, Inc. has not paid dividends in the amounts and within the period set forth in paragraph
10 of the complaint; *

"8. That letters of demands have been sent by the plaintiff to the defendant to redeem the foregoing stock certificates
and pay the dividends set forth in paragraph 10 of the complaint, but the Lirag Textile Mills, Inc. has not made such
redemption nor made such dividend payments;

"9. That defendant Basilio L. Lirag likewise received letters of demand from the plaintiff requiring him to make good his
obligation as surety;

"10. That notwithstanding such letters of demand to the defendant Basilio L. Lirag, Stock Certificates Nos. 128 and 139
issued to plaintiff are still unredeemed and no dividends have been paid on said stock certificates;

"11. That paragraph 5 of the Purchase Agreement provides that should the Lirag Textile Mills, Inc. fail to effect any of
the redemptions stipulated therein, the entire obligation shall immediately become due and demandable and the Lirag
Textile Mills, Inc., shall, furthermore, be liable to the plaintiff in an amount equivalent to twelve per cent [12%] of the
amount then outstanding as liquidated damages;

"12. That the failure of the Lirag Textile Mills, Inc. to redeem the foregoing certificates of stock and pay dividends
thereon were due to financial reverses, to wit:chanrob1es virtual 1aw library

[a] Unrestrained smuggling into the country of textiles from the United States and other countries;

[b] Unrestricted entry of supposed remnants which competed with textiles of domestic produce to the disadvantage and
economic prejudice of the latter;

[c] Scarcity of money and the unavailability of financing facilities;

[d] Payment of interest on matured loans extended to defendant corporation:chanrob1es virtual 1aw library

[e] Construction of the Montalban plant of the defendant corporation financed largely through reparation benefits;

[f] Labor problems occasioned by the fact that the defendant company is financial (sic) unable to improve, in a
substantial way, the economic plight of its workers as a result of which two costly strikes had occurred, one in 1965
and another in 1968; and

[g] The occurrence of a fire which destroyed more than P1 million worth of raw cotton, paralyzed operations partially,
increased overhead costs and wiped out any expected profits that year;

"13. That it has been the policy of the plaintiff to be represented in the board of directors of the corporation or entity
which has obtained financial assistance from the System be it in terms of loans, mortgages or equity investments.
Thus, pursuant to paragraph 6 of the Purchase Agreement of September 4, 1961 which provides as
follows:chanrob1es virtual 1aw library

‘The VENDEE shall be allowed to have a representative in the Board of Directors of the VENDOR with the right to
participate in the discussions and to vote therein;’

"14. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan were each issued one common share of stock as
a qualifying share to their election to the Board of Directors of the Lirag Textiles Mills, Inc.;

"15. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan, during their respective tenure as member of the
Board of Directors of the Lirag Textile Mills, Inc. attended the meetings of the said Board, received per diems for their
attendance therein in the same manner and in the same amount as any other member of the Board of Directors,
participated in the deliberations therein and freely exercised their right to vote in such meetings. However, the per
diems received by the SSS representative do not go to the coffers of the System but personally to the representative in
the said board of directors." 1

For failure of Lirag Textile Mills, Inc. and Basilio L. Lirag to comply with the terms of the Purchase Agreement, the SSS
filed an action for specific performance and damages before the then Court of First Instance of Rizal, Quezon City,
praying that therein defendants Lirag Textile Mills, Inc. and Basilio L. Lirag be adjudged liable for [1] the entire
obligation of P1M which became due and demandable upon defendants’ failure to repurchase the stocks as scheduled;
[2] dividends in the amount of P220,000.00; [3] liquidated damages in an amount equivalent to twelve percent (12%) of
the amount then outstanding; [4] exemplary damages in the amount of P100,000.00 and [5] attorney’s fees of
P20,000.00.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of the complaint, but were denied the relief sought.
Thus, they filed their answer with counterclaim, denying the existence of any obligation on their part to redeem the
preferred stocks, on the ground that the SSS became and still is a preferred stockholder of the corporation so that
redemption of the shares purchased depended upon the financial ability of said corporation. Insofar as defendant
Basilio Lirag is concerned, it was alleged that his liability arises only if the corporation is liable and does not perform its
obligations under the Purchase Agreement. They further contended that no liability on their part has arisen because of
the financial condition of the corporation upon which such liability was made to depend, particularly the non-realization
of any profit or earned surplus. Thus, the other claims for dividends, liquidated damages and exemplary damages are
allegedly without basis.

After entering into the Stipulation of Facts above-quoted, the parties filed their respective memoranda and submitted
the case for decision.

The lower court, ruling that the purchase agreement was a debt instrument, decided in favor of SSS and sentenced
Lirag Textile Mills, Inc. and Basilio L. Lirag to pay SSS jointly and severally P1,000,000.00 plus legal interest until the
said amount is fully paid; P220,000.00 representing the 8% per annum dividends on the preferred shares plus legal
interest up to the time of actual payment; P146,400.00 as liquidated damages; and P10,000.00 as attorney’s fees. The
counterclaim of Lirag Textile Mills, Inc. and Basilio L. Lirag was dismissed.

Hence, this petition.

Petitioners assign the following errors:chanrob1es virtual 1aw library

1. The trial court erred in deciding that the Purchase Agreement is a debt instrument;

2. Respondent judge erred in holding petitioner corporation liable for the payment of the 8% preferred and cumulative
dividends on the preferred shares since the purchase agreement provides that said dividends shall be paid from the
net profits and earned surplus of petitioner corporation and respondent SSS has admitted that due to losses sustained
since 1964, no dividends had been and can be declared by petitioner corporation;

3. Respondent judge erred in sentencing petitioners to pay P146,400.00 in liquidated damages;

4. Respondent judge erred in sentencing petitioners to pay P10,000.00 by way of attorney’s fees;

5. Respondent judge erred in sentencing petitioners to pay interest from the time of filing the complaint up to the time
of full payment both on the P1,000,000.00 invested by respondent SSS in petitioner’s corporation and on the
P220,000.00 which the SSS claims as dividends due on its investments;

6. Respondent judge erred in holding that petitioner Lirag is liable to redeem the P1,000,000.00 worth of preferred
shares purchased by respondent SSS from petitioner corporation and the 8% cumulative dividend, it appearing that
Lirag was merely a surety and not an insurer of the obligation;

7. Respondent judge erred in dismissing the counterclaim of petitioners.

The fundamental issue in this case is whether or not the Purchase Agreement entered into by petitioners and
respondent SSS is a debt instrument.

Petitioners claim that respondent SSS merely became and still is a preferred stockholder of the petitioner corporation,
the redemption of the shares purchased by said respondent being dependent upon the financial ability of petitioner
corporation. Petitioner corporation, thus, has no obligation to redeem the preferred stocks.

On the other hand, respondent SSS claims that the Purchase Agreement is a debt instrument, imposing upon the
petitioners the obligation to pay the amount owed, and creating as between them the relation of creditor and debtor,
not that of a stockholder and a corporation.chanroblesvirtualawlibrary

We uphold the lower court’s finding that the Purchase Agreement is, indeed, a debt instrument. Its terms and
conditions unmistakably show that the parties intended the repurchase of the preferred shares on the respective
scheduled dates to be an absolute obligation which does not depend upon the financial ability of petitioner corporation.
This absolute obligation on the part of petitioner corporation is made manifest by the fact that a surety was required to
see to it that the obligation is fulfilled in the event of the principal debtor’s inability to do so. The unconditional
undertaking of petitioner corporation to redeem the preferred shares at the specified dates constitutes a debt which is
defined "as an obligation to pay money at some fixed future time, or at a time which becomes definite and fixed by acts
of either party and which they expressly or impliedly, agree to perform in the contract. 2
A stockholder sinks or swims with the corporation and there is no obligation to return the value of his shares by means
of repurchase if the corporation incurs losses and financial reverses, much less guarantee such repurchase through a
surety.

As private respondent rightly contends, if the parties intended it [SSS] to be merely a stockholder of petitioner
corporation, it would have been sufficient that Preferred Certificates Nos. 128 and 139 were issued in its name as the
preferred certificates contained all the rights of a stockholder as well as certain obligations on the part of petitioner
corporation. However, the parties did in fact execute the Purchase Agreement, at the same time that the petitioner
corporation issued its preferred stock to the respondent SSS. The Purchase Agreement serves to define the rights and
obligations of the parties and to establish firmly the liability of petitioners in case of breach of contract. The Certificates
of Preferred Stock serve as additional evidence of the agreement between the parties, though the precise terms and
conditions thereof must be read together with, and regarded as qualified by the terms and conditions of the Purchase
Agreement.

The rights given by the Purchase Agreement to respondent SSS are rights not enjoyed by ordinary stockholders. This
fact could only lead to the conclusion made by the trial court that:jgc:chanrobles.com.ph

"The aforementioned rights specially stipulated for the benefit of the plaintiff [respondent SSS] suggest eloquently an
intention on the part of the plaintiff [respondent SSS] to facilitate a loan to the defendant corporation upon the latter’s
request. In order to afford protection to the plaintiff which otherwise is provided by means of collaterals, as the plaintiff
exacts in its grants of loans in its ordinary transactions of this kind, as it is looked upon more as a lending institution
rather than as in investing agency, the purchase agreement supplied these protective rights which would otherwise be
furnished by collaterals to the loan. Thus, the membership in the board is to have a watchdog in the operation of the
business of the corporation, so as to insure against mismanagement which may result in losses not entirely
unavoidable since payment for purposes of redemption as well as the dividends is expressly stipulated to come from
profits and or surplus. Such a right is never exacted by an ordinary stockholder merely investing in the corporation." 3

Moreover, the Purchase Agreement provided that failure on the part of petitioner to repurchase the preferred shares on
the scheduled due dates renders the entire obligation due and demandable, with petitioner in such eventuality liable to
pay 12% of the then outstanding obligation as liquidated damages. These features of the Purchase Agreement, taken
collectively, clearly show the intent of the parties to be bound therein as debtor and creditor, and not as corporation
and stockholder.

Petitioners’ contention that it is beyond the power and competence of petitioner corporation to redeem the preferred
shares or pay the accrued dividends due to financial reverses can not serve as legal justification for their failure to
perform under the Purchase Agreement. The Purchase Agreement constitutes the law between the parties and
obligations arising ex contractu must be fulfilled in accordance with the stipulations. 4 Besides, it was precisely this
eventuality that was sought to be avoided when respondent SSS required a surety for the
obligation.chanrobles.com:cralaw:red

Thus, it follows that petitioner Basilio L. Lirag cannot deny liability for petitioner corporation’s default. As surety, Basilio
L. Lirag is bound immediately to pay respondent SSS the amount then outstanding.

"The obligation of a surety differs from that of a guarantor in that the surety insures the debt, whereas the guarantor
merely insures solvency of the debtor; and the surety undertakes to pay if the principal does not pay, whereas a
guarantor merely binds itself to pay if the principal is unable to pay." 5

On the liability of petitioners to pay 8% cumulative dividend, We agree with the observation of the lower court that the
dividends stipulated by the parties served evidently as interests. 6 The amount thereof was fixed at 8% per annum and
was not made to depend upon or to fluctuate with the amount of profits or surplus realized, a clear indication that the
parties intended to give a sure and fixed earnings on the principal loan. The fact that the dividends were supposed to
be paid out of net profits and earned surplus, of which there were none, does not excuse petitioners from the payment
thereof, again for the reason that the undertaking of petitioner Basilio L. Lirag as surety, included the payment of
dividends and other obligations then outstanding.
The award of the sum of P146,400.00 in liquidated damages representing 12% of the amount then outstanding is
correct, considering that petitioners in the stipulation of facts admitted having failed to fulfill their obligations under the
Purchase Agreement. The grant of liquidated damages in the amount stated is expressly provided for in the Purchase
Agreement in case of contractual breach.

The pronouncement of the lower court for the payment of interests on both the unredeemed shares and unpaid
dividends is also in order. Per stipulation of facts, petitioners did not deny the fact of non-payment of dividends nor their
failure to purchase the preferred shares. Since these involve sums of money which are overdue, they are bound to
earn legal interest from the time of demand, in this case, judicial, i.e., the time of filing the action.

Petitioner Basilio L. Lirag is precluded from denying his liability under the Purchase Agreement. After his firm
representation to "pay immediately to the VENDEE the amounts then outstanding" evidencing his commitment as
SURETY, he is estopped from denying the same. His signature in the agreement carries with it the official imprimatur
as petitioner corporation’s president, in his personal capacity as majority stockholder, as surety and as solidary obligor.
The essence of his obligation as surety is to pay immediately without qualification whatsoever if petitioner corporation
does not pay. To have another interpretation of petitioner Lirag’s liability as surety would violate the integrity of the
Purchase Agreement as well as the clear and unmistakable intent of the parties to the same.chanrobles law library :
red

WHEREFORE, the decision in Civil Case No. Q-12275 entitled "Social Security System v. Lirag Textile Mills, Inc. and
Basilio L. Lirag" is hereby affirmed in toto. Costs against petitioners.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.