EN BANC

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

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, Petitioners, v. THE HON. COURT OF APPEALS and BUEN
REALTY DEVELOPMENT CORPORATION, Respondents.

DECISION

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP
No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30
August 1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:jgc:chanrobles.com.ph

"On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ann Yu Asuncion and Keh
Tiong, Et Al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31,
Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and
commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of
the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are
offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked
the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant’s letter,
plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that
when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell
the property to them.

"Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of
lack of cause of action.

"After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court.
The trial court found that defendants’ offer to sell was never accepted by the plaintiffs for the reason that the parties
did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of
P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision
states:jgc:chanrobles.com.ph

"‘WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer
their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to
purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.

"‘SO ORDERED.’

"Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on
September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification the lower court’s judgment,
holding:jgc:chanrobles.com.ph

"‘In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie. Appellants’ demand for actual, moral and exemplary
damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was
properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law (Garcia v. Court of Appeals, 176 SCRA 815). All
1
requisites obtaining, the decision of the court a quo is legally justifiable.

‘WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to
the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first
refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the
mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first
refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos.
No pronouncement as to costs.

‘SO ORDERED.’

"The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court
denied the appeal on May 6, 1991 ‘for insufficiency in form and substances’ (Annex H, Petition).

"On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng
spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen
Realty and Development Corporation, subject to the following terms and conditions:jgc:chanrobles.com.ph

"‘1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is
hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs,
executors, administrators or assigns, the above-described property with all the improvements found therein including
all the rights and interest in the said property free from all liens and encumbrances of whatever nature, except the
pending ejectment proceeding;

‘2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and
other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate
taxes.’

"As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in
lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990.

"On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the
latter vacate the premises.

"On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the
notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu
Unjiengs.

"The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as
modified by the Court of Appeals in CA-G.R. CV No. 21123.

"On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:jgc:chanrobles.com.ph

"‘Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both
defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno
respectively were duly notified in today’s consideration of the motion as evidenced by the rubber stamp and signatures
upon the copy of the Motion for Execution.

‘The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals
in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the
same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become
final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991,
stating that the aforesaid modified decision had already become final and executory.

‘It is the observation of the Court that this property in dispute was the subject of the Notice of Lis Pendens and that the
modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should
the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial
and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the
event that the subject property is sold for a price in excess of Eleven Million pesos or more.

‘WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in
favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition
of plaintiffs’ right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer.

2
‘All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad faith.

‘SO ORDERED.’

"On September 22, 1991 respondent Judge issue another order, the dispositive portion of which
reads:jgc:chanrobles.com.ph

"‘WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to execute
the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur
Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set
aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter
and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur
Go.

‘SO ORDERED.’

"On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued." 1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force
and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution
by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time
of the latter’s purchase of the property on 15 November 1991 from the Cu Unjiengs.chanrobles.com : virtual law library

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of first
refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts
that may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted
upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b)
the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor)
subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305,
Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally,
its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon
a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or
commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities
prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed
form being thereby an essential element thereof. The stage of consummation begins when the parties perform their
respective undertakings under the contract culminating in the extinguishment thereof.chanrobles virtual lawlibrary

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In
sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to
another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:jgc:chanrobles.com.ph

"Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

"A contract of sale may be absolute or conditional.

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When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the
thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase
price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In
Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a
sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind
is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or
constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the
condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or
refuse to proceed with the sale (Art. 1545, Civil Code). 4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can
be obligatory on the parties, and compliance therewith may accordingly be exacted. 5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of
option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil
Code, viz:jgc:chanrobles.com.ph

"ART. 1479. . . . .

"An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if
the promise is supported by a consideration distinct from the price. (1451a) 6

Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation,
to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise
to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an
offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or
only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any
time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not
necessarily when the offeree learns of the withdrawal (Laudico v. Arias, 43 Phil. 270). Where a period is given to the
offeree within which to accept the offer, the following rules generally govern:chanrob1es virtual 1aw library

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to
withdrawal the offer before its acceptance, or, if an acceptance has been made, before the offeror’s coming to know of
such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. v.
Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the
previous decision in South Western Sugar v. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
Parañaque, Inc., v. Remolado, 135 SCRA 409; Sanchez v. Rigos, 45 SCRA 368). The right to withdraw, however,
must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the
Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith." chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of
that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to
be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option)
since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given,
for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in
a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first
refusal, understood in its normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an
offer would require, among other things, 10 a clear certainty on both the object and the cause or consideration of the
envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right,
4
however, would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best
be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the
essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws
of general application, the pertinent scattered provisions of the Civil Code on human conduct.cralawnad

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without thereby negating the indispensable element
of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in
favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In
fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right
of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot
be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution
varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of
Appeals, in this regard, has observed:chanrobles virtual lawlibrary

"Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As
already stated, there was nothing in said decision 13 that decreed the execution of a deed of sale between the Cu
Unjiengs and respondent lessees, or the fixing of the price of the sale, or the cancellation of title in the name of
petitioner (Limpin v. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila v. IAC, 143 SCRA 311; De Guzman v.
CA, 137 SCRA 730; Pastor v. CA, 122 SCRA 885)."cralaw virtua1aw library

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the
execution of any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August
1991 and 27 September 1991, of the court a quo. Costs against petitioners.

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza, JJ.,
concur.

Kapunan, J., took no part.

Feliciano, J., is on leave.

5
 SECOND DIVISION

[G.R. NO. 163512 : February 28, 2007]

DAISY B. TIU, Petitioner, v. PLATINUM PLANS PHIL., INC., Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari are the Decision1 dated January 20, 2004 of the Court of Appeals in CA-G.R. CV No. 74972,
and its Resolution2 dated May 4, 2004 denying reconsideration. The Court of Appeals had affirmed the decision 3 dated
February 28, 2002 of the Regional Trial Court (RTC) of Pasig City, Branch 261, in an action for damages, ordering
petitioner to pay respondent P100,000 as liquidated damages.

The relevant facts are as follows:

Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry. From 1987
to 1989, petitioner Daisy B. Tiu was its Division Marketing Director.

On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and Territorial Operations
Head in charge of its Hongkong and Asean operations. The parties executed a contract of employment valid for five
years.4

On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-President for
Sales of Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry.

Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch 261. Respondent
alleged, among others, that petitioner's employment with Professional Pension Plans, Inc. violated the non-
involvement clause in her contract of employment, to wit:

8. NON INVOLVEMENT PROVISION - The EMPLOYEE further undertakes that during his/her engagement with
EMPLOYER and in case of separation from the Company, whether voluntary or for cause, he/she shall not, for the
next TWO (2) years thereafter, engage in or be involved with any corporation, association or entity, whether directly or
indirectly, engaged in the same business or belonging to the same pre-need industry as the EMPLOYER. Any breach
of the foregoing provision shall render the EMPLOYEE liable to the EMPLOYER in the amount of One Hundred
Thousand Pesos (P100,000.00) for and as liquidated damages. 5

Respondent thus prayed for P100,000 as compensatory damages; P200,000 as moral damages; P100,000 as

exemplary damages; and 25% of the total amount due plus P1,000 per counsel's court appearance, as attorney's
fees.

Petitioner countered that the non-involvement clause was unenforceable for being against public order or public
policy: First, the restraint imposed was much greater than what was necessary to afford respondent a fair and
reasonable protection. Petitioner contended that the transfer to a rival company was an accepted practice in the pre-
need industry. Since the products sold by the companies were more or less the same, there was nothing peculiar or
unique to protect. Second, respondent did not invest in petitioner's training or improvement. At the time petitioner was
recruited, she already possessed the knowledge and expertise required in the pre-need industry and respondent
benefited tremendously from it. Third, a strict application of the non-involvement clause would amount to a deprivation
of petitioner's right to engage in the only work she knew.

In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of trade is valid
provided that there is a limitation upon either time or place. In the case of the pre-need industry, the trial court found
the two-year restriction to be valid and reasonable. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to
pay the following:

1. the amount of One Hundred Thousand Pesos (P100,000.00) for and as damages, for the breach of the non-
involvement provision (Item No. 8) of the contract of employment;

6
2. costs of suit.

There being no sufficient evidence presented to sustain the grant of attorney's fees, the Court deems it proper not to
award any.

SO ORDERED.6

On appeal, the Court of Appeals affirmed the trial court's ruling. It reasoned that petitioner entered into the contract on
her own will and volition. Thus, she bound herself to fulfill not only what was expressly stipulated in the contract, but
also all its consequences that were not against good faith, usage, and law. The appellate court also ruled that the
stipulation prohibiting non-employment for two years was valid and enforceable considering the nature of respondent's
business.

Petitioner moved for reconsideration but was denied. Hence, this appeal by certiorari where petitioner alleges that the
Court of Appeals erred when:

A.

'[IT SUSTAINED] THE VALIDITY OF THE NON-INVOLVEMENT CLAUSE IN PETITIONER'S CONTRACT

CONSIDERING THAT THE PERIOD FIXED THEREIN IS VOID FOR BEING OFFENSIVE TO PUBLIC POLICY

B.

'[IT SUSTAINED] THE AWARD OF LIQUIDATED DAMAGES CONSIDERING THAT IT BEING IN THE NATURE OF
A PENALTY THE SAME IS EXCESSIVE, INIQUITOUS OR UNCONSCIONABLE 7

Plainly stated, the core issue is whether the non-involvement clause is valid.

Petitioner avers that the non-involvement clause is offensive to public policy since the restraint imposed is much
greater than what is necessary to afford respondent a fair and reasonable protection. She adds that since the products
sold in the pre-need industry are more or less the same, the transfer to a rival company is acceptable. Petitioner also
points out that respondent did not invest in her training or improvement. At the time she joined respondent, she
already had the knowledge and expertise required in the pre-need industry. Finally, petitioner argues that a strict
application of the non-involvement clause would deprive her of the right to engage in the only work she knows.

Respondent counters that the validity of a non-involvement clause has been sustained by the Supreme Court in a long
line of cases. It contends that the inclusion of the two-year non-involvement clause in petitioner's contract of
employment was reasonable and needed since her job gave her access to the company's confidential marketing
strategies. Respondent adds that the non-involvement clause merely enjoined her from engaging in pre-need
business akin to respondent's within two years from petitioner's separation from respondent. She had not been
prohibited from marketing other service plans.

As early as 1916, we already had the occasion to discuss the validity of a non-involvement clause. In Ferrazzini v.
Gsell,8 we said that such clause was unreasonable restraint of trade and therefore against public policy. In Ferrazzini,
the employee was prohibited from engaging in any business or occupation in the Philippines for a period of five years
after the termination of his employment contract and must first get the written permission of his employer if he were to
do so. The Court ruled that while the stipulation was indeed limited as to time and space, it was not limited as to trade.
Such prohibition, in effect, forces an employee to leave the Philippines to work should his employer refuse to give a
written permission.

In G. Martini, Ltd. v. Glaiserman,9 we also declared a similar stipulation as void for being an unreasonable restraint of
trade. There, the employee was prohibited from engaging in any business similar to that of his employer for a period of
one year. Since the employee was employed only in connection with the purchase and export of abaca, among the
many businesses of the employer, the Court considered the restraint too broad since it effectively prevented the
employee from working in any other business similar to his employer even if his employment was limited only to one of
its multifarious business activities.

However, in Del Castillo v. Richmond,10 we upheld a similar stipulation as legal, reasonable, and not contrary to public
policy. In the said case, the employee was restricted from opening, owning or having any connection with any other
drugstore within a radius of four miles from the employer's place of business during the time the employer was

7
operating his drugstore. We said that a contract in restraint of trade is valid provided there is a limitation upon either
time or place and the restraint upon one party is not greater than the protection the other party requires.

Finally, in Consulta v. Court of Appeals,11 we considered a non-involvement clause in accordance with Article
130612 of the Civil Code. While the complainant in that case was an independent agent and not an employee, she was
prohibited for one year from engaging directly or indirectly in activities of other companies that compete with the
business of her principal. We noted therein that the restriction did not prohibit the agent from engaging in any other
business, or from being connected with any other company, for as long as the business or company did not compete
with the principal's business. Further, the prohibition applied only for one year after the termination of the agent's
contract and was therefore a reasonable restriction designed to prevent acts prejudicial to the employer.

Conformably then with the aforementioned pronouncements, a non-involvement clause is not necessarily void for
being in restraint of trade as long as there are reasonable limitations as to time, trade, and place.

In this case, the non-involvement clause has a time limit: two years from the time petitioner's employment with
respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business
akin to respondent's.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ

More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge
of respondent's Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing
strategies of respondent's business. To allow her to engage in a rival business soon after she leaves would make
respondent's trade secrets vulnerable especially in a highly competitive marketing environment. In sum, we find the
non-involvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable
protection to respondent.13

In any event, Article 1306 of the Civil Code provides that parties to a contract 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.

Article 115914 of the same Code also provides that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their
agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so
would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and
effect thereto.15 Not being contrary to public policy, the non-involvement clause, which petitioner and respondent freely
agreed upon, has the force of law between them, and thus, should be complied with in good faith. 16

Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay respondent P100,000 as liquidated
damages. While we have equitably reduced liquidated damages in certain cases, 17 we cannot do so in this case, since
it appears that even from the start, petitioner had not shown the least intention to fulfill the non-involvement clause in
good faith.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 20, 2004, and the Resolution
dated May 4, 2004, of the Court of Appeals in CA-G.R. CV No. 74972, are AFFIRMED. Costs against petitioner.

SO ORDERED.

8
AIR FRANCE, petitioner,
vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents.
SANCHEZ, J.:

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso P25,000.00 by way
of moral damages; P10,000.00 as exemplary damages; P393.20 representing the difference in fare between first class
and tourist class for the portion of the trip Bangkok-Rome, these various amounts with interest at the legal rate, from
the date of the filing of the complaint until paid; plus P3,000.00 for attorneys' fees; and the costs of suit.

On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket from P393.20 to
P383.10, and voted to affirm the appealed decision "in all other respects", with costs against petitioner.

The case is now before us for review on certiorari.

The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:

Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes on March
30, 1958.

On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc., issued
to plaintiff a "first class" round trip airplane ticket from Manila to Rome. From Manila to Bangkok, plaintiff
travelled in "first class", but at Bangkok, the Manager of the defendant airline forced plaintiff to vacate the "first
class" seat that he was occupying because, in the words of the witness Ernesto G. Cuento, there was a "white
man", who, the Manager alleged, had a "better right" to the seat. When asked to vacate his "first class" seat,
the plaintiff, as was to be expected, refused, and told defendant's Manager that his seat would be taken over
his dead body; a commotion ensued, and, according to said Ernesto G. Cuento, "many of the Filipino
passengers got nervous in the tourist class; when they found out that Mr. Carrascoso was having a hot
discussion with the white man [manager], they came all across to Mr. Carrascoso and pacified Mr. Carrascoso
to give his seat to the white man" (Transcript, p. 12, Hearing of May 26, 1959); and plaintiff reluctantly gave
his "first class" seat in the plane.3

1. The trust of the relief petitioner now seeks is that we review "all the findings"  4 of respondent Court of Appeals.
Petitioner charges that respondent court failed to make complete findings of fact on all the issues properly laid before
it. We are asked to consider facts favorable to petitioner, and then, to overturn the appellate court's decision.

Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of record without
expressing therein clearly and distinctly the facts and the law on which it is based".  5 This is echoed in the statutory
demand that a judgment determining the merits of the case shall state "clearly and distinctly the facts and the law on
which it is based"; 6 and that "Every decision of the Court of Appeals shall contain complete findings of fact on all
issues properly raised before it". 7

A decision with absolutely nothing to support it is a nullity. It is open to direct attack.  8 The law, however, solely insists
that a decision state the "essential ultimate facts" upon which the court's conclusion is drawn.  9 A court of justice is not
hidebound to write in its decision every bit and piece of evidence 10 presented by one party and the other upon the
issues raised. Neither is it to be burdened with the obligation "to specify in the sentence the facts" which a party
"considered as proved". 11 This is but a part of the mental process from which the Court draws the essential ultimate
facts. A decision is not to be so clogged with details such that prolixity, if not confusion, may result. So long as the
decision of the Court of Appeals contains the necessary facts to warrant its conclusions, it is no error for said court to
withhold therefrom "any specific finding of facts with respect to the evidence for the defense". Because as this Court
well observed, "There is no law that so requires". 12 Indeed, "the mere failure to specify (in the decision) the
contentions of the appellant and the reasons for refusing to believe them is not sufficient to hold the same contrary to
the requirements of the provisions of law and the Constitution". It is in this setting that in Manigque, it was held that the
mere fact that the findings "were based entirely on the evidence for the prosecution without taking into consideration
or even mentioning the appellant's side in the controversy as shown by his own testimony", would not vitiate the
judgment. 13 If the court did not recite in the decision the testimony of each witness for, or each item of evidence
presented by, the defeated party, it does not mean that the court has overlooked such testimony or such item of
evidence. 14 At any rate, the legal presumptions are that official duty has been regularly performed, and that all the
matters within an issue in a case were laid before the court and passed upon by it. 15

Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written statement of the
ultimate facts as found by the court ... and essential to support the decision and judgment rendered thereon". 16 They
9
consist of the court's "conclusions" with respect to the determinative facts in issue". 17 A question of law, upon the
other hand, has been declared as "one which does not call for an examination of the probative value of the evidence
presented by the parties." 18

2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the Court of
Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business of this Court to alter the
facts or to review the questions of fact. 20

With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals support its
judgment.

3. Was Carrascoso entitled to the first class seat he claims?

It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class ticket. But
petitioner asserts that said ticket did not represent the true and complete intent and agreement of the parties; that said
respondent knew that he did not have confirmed reservations for first class on any specific flight, although he had
tourist class protection; that, accordingly, the issuance of a first class ticket was no guarantee that he would have a
first class ride, but that such would depend upon the availability of first class seats.

These are matters which petitioner has thoroughly presented and discussed in its brief before the Court of Appeals
under its third assignment of error, which reads: "The trial court erred in finding that plaintiff had confirmed
reservations for, and a right to, first class seats on the "definite" segments of his journey, particularly that from Saigon
to Beirut". 21

And, the Court of Appeals disposed of this contention thus:

Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no guarantee that
the passenger to whom the same had been issued, would be accommodated in the first-class compartment,
for as in the case of plaintiff he had yet to make arrangements upon arrival at every station for the necessary
first-class reservation. We are not impressed by such a reasoning. We cannot understand how a reputable
firm like defendant airplane company could have the indiscretion to give out tickets it never meant to honor at
all. It received the corresponding amount in payment of first-class tickets and yet it allowed the passenger to
be at the mercy of its employees. It is more in keeping with the ordinary course of business that the company
should know whether or riot the tickets it issues are to be honored or not. 22

Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus:

On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question. Apart from his
testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's own witness, Rafael
Altonaga, confirmed plaintiff's testimony and testified as follows:

Q. In these tickets there are marks "O.K." From what you know, what does this OK mean?

A. That the space is confirmed.

Q. Confirmed for first class?

A. Yes, "first class". (Transcript, p. 169)

xxx     xxx     xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that although plaintiff
paid for, and was issued a "first class" airplane ticket, the ticket was subject to confirmation in Hongkong. The court
cannot give credit to the testimony of said witnesses. Oral evidence cannot prevail over written evidence, and
plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the testimony of said witnesses, and clearly show that the
plaintiff was issued, and paid for, a first class ticket without any reservation whatever.

Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the reservation for a "first
class" accommodation for the plaintiff was confirmed. The court cannot believe that after such confirmation defendant
had a verbal understanding with plaintiff that the "first class" ticket issued to him by defendant would be subject to
confirmation in Hongkong. 23
10
We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount refunded on
Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of Appeals in all other
respects. We hold the view that such a judgment of affirmance has merged the judgment of the lower court. 24 Implicit
in that affirmance is a determination by the Court of Appeals that the proceeding in the Court of First Instance was free
from prejudicial error and "all questions raised by the assignments of error and all questions that might have been
raised are to be regarded as finally adjudicated against the appellant". So also, the judgment affirmed "must be
regarded as free from all error". 25 We reached this policy construction because nothing in the decision of the Court of
Appeals on this point would suggest that its findings of fact are in any way at war with those of the trial court. Nor was
said affirmance by the Court of Appeals upon a ground or grounds different from those which were made the basis of
the conclusions of the trial court. 26

If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat, notwithstanding the fact that
seat availability in specific flights is therein confirmed, then an air passenger is placed in the hollow of the hands of an
airline. What security then can a passenger have? It will always be an easy matter for an airline aided by its
employees, to strike out the very stipulations in the ticket, and say that there was a verbal agreement to the contrary.
What if the passenger had a schedule to fulfill? We have long learned that, as a rule, a written document speaks a
uniform language; that spoken word could be notoriously unreliable. If only to achieve stability in the relations between
passenger and air carrier, adherence to the ticket so issued is desirable. Such is the case here. The lower courts
refused to believe the oral evidence intended to defeat the covenants in the ticket.

The foregoing are the considerations which point to the conclusion that there are facts upon which the Court of
Appeals predicated the finding that respondent Carrascoso had a first class ticket and was entitled to a first class seat
at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight. 27 We perceive no "welter of distortions by the
Court of Appeals of petitioner's statement of its position", as charged by petitioner. 28 Nor do we subscribe to
petitioner's accusation that respondent Carrascoso "surreptitiously took a first class seat to provoke an issue". 29 And
this because, as petitioner states, Carrascoso went to see the Manager at his office in Bangkok "to confirm my seat
and because from Saigon I was told again to see the Manager". 30 Why, then, was he allowed to take a first class seat
in the plane at Bangkok, if he had no seat? Or, if another had a better right to the seat?

4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that Carrascoso's
action is planted upon breach of contract; that to authorize an award for moral damages there must be an averment of
fraud or bad faith;31 and that the decision of the Court of Appeals fails to make a finding of bad faith. The pivotal
allegations in the complaint bearing on this issue are:

3. That ... plaintiff entered into a contract  of air carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for and in behalf of the defendant, under which said contract,
plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on defendant's plane
during the entire duration of plaintiff's tour of Europe with Hongkong as starting point up to and until plaintiff's
return trip to Manila, ... .

4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok, defendant
furnished to the plaintiff First Class accommodation but only after protestations, arguments and/or insistence
were made by the plaintiff with defendant's employees.

5. That finally, defendant failed to provide  First Class passage, but instead furnished plaintiff
only Tourist  Class accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff has
been compelled by defendant's employees to leave the First Class accommodation berths at Bangkok after
he was already seated.

6. That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments brought by
defendant's breach of contract was forced to take a Pan American World Airways plane on his return trip from
Madrid to Manila.32

xxx     xxx     xxx

2. That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid, plaintiff suffered
inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental anguish, serious anxiety,
wounded feelings, social humiliation, and the like injury, resulting in moral damages in the amount of P30,000.00. 33

xxx     xxx     xxx

11
The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a first class
passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was breached when
petitioner failed to furnish first class transportation at Bangkok; and Third, that there was bad faith when petitioner's
employee compelled Carrascoso to leave his first class accommodation berth "after he was already, seated" and to
take a seat in the tourist class, by reason of which he suffered inconvenience, embarrassments and humiliations,
thereby causing him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting in moral
damages. It is true that there is no specific mention of the term bad faith in the complaint. But, the inference of bad
faith is there, it may be drawn from the facts and circumstances set forth therein. 34 The contract was averred to
establish the relation between the parties. But the stress of the action is put on wrongful expulsion.

Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed petitioner on guard on
what Carrascoso intended to prove: That while sitting in the plane in Bangkok, Carrascoso was ousted by petitioner's
manager who gave his seat to a white man; 35 and (b) evidence of bad faith in the fulfillment of the contract was
presented without objection on the part of the petitioner. It is, therefore, unnecessary to inquire as to whether or not
there is sufficient averment in the complaint to justify an award for moral damages. Deficiency in the complaint, if any,
was cured by the evidence. An amendment thereof to conform to the evidence is not even required. 36 On the question
of bad faith, the Court of Appeals declared:

That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was transferred to the tourist class not only without his consent
but against his will, has been sufficiently established by plaintiff in his testimony before the court, corroborated
by the corresponding entry made by the purser of the plane in his notebook which notation reads as follows:

"First-class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene",

and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The captain of the
plane who was asked by the manager of defendant company at Bangkok to intervene even refused to do so. It
is noteworthy that no one on behalf of defendant ever contradicted or denied this evidence for the plaintiff. It
could have been easy for defendant to present its manager at Bangkok to testify at the trial of the case, or yet
to secure his disposition; but defendant did neither. 37

The Court of appeals further stated —

Neither is there evidence as to whether or not a prior reservation was made by the white man. Hence, if the
employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had already been
taken, surely the plaintiff should not have been picked out as the one to suffer the consequences and to be
subjected to the humiliation and indignity of being ejected from his seat in the presence of others. Instead of
explaining to the white man the improvidence committed by defendant's employees, the manager adopted the
more drastic step of ousting the plaintiff who was then safely ensconsced in his rightful seat. We are
strengthened in our belief that this probably was what happened there, by the testimony of defendant's
witness Rafael Altonaga who, when asked to explain the meaning of the letters "O.K." appearing on the tickets
of plaintiff, said "that the space is confirmed for first class. Likewise, Zenaida Faustino, another witness for
defendant, who was the chief of the Reservation Office of defendant, testified as follows:

"Q How does the person in the ticket-issuing office know what reservation the passenger has
arranged with you?

A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959)

In this connection, we quote with approval what the trial Judge has said on this point:

Why did the, using the words of witness Ernesto G. Cuento, "white man" have a "better right" to the
seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not prove "any
better", nay, any right on the part of the "white man" to the "First class" seat that the plaintiff was
occupying and for which he paid and was issued a corresponding "first class" ticket.

If there was a justified reason for the action of the defendant's Manager in Bangkok, the defendant
could have easily proven it by having taken the testimony of the said Manager by deposition, but
defendant did not do so; the presumption is that evidence willfully suppressed would be adverse if
produced [Sec. 69, par (e), Rules of Court]; and, under the circumstances, the Court is constrained to
find, as it does find, that the Manager of the defendant airline in Bangkok not merely asked but
12
 threatened the plaintiff to throw him out of the plane if he did not give up his "first class" seat because
the said Manager wanted to accommodate, using the words of the witness Ernesto G. Cuento, the
"white man".38

It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the term
"bad faith". But can it be doubted that the recital of facts therein points to bad faith? The manager not only
prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his arbitrary will; he
forcibly ejected him from his seat, made him suffer the humiliation of having to go to the tourist class
compartment - just to give way to another passenger whose right thereto has not been established. Certainly,
this is bad faith. Unless, of course, bad faith has assumed a meaning different from what is understood in law.
For, "bad faith" contemplates a "state of mind affirmatively operating with furtive design or with some motive of
self-interest or will or for ulterior purpose." 39

And if the foregoing were not yet sufficient, there is the express finding of bad faith  in the judgment of the
Court of First Instance, thus:

The evidence shows that the defendant violated its contract of transportation with plaintiff in bad faith,
with the aggravating circumstances that defendant's Manager in Bangkok went to the extent of
threatening the plaintiff in the presence of many passengers to have him thrown out of the airplane to
give the "first class" seat that he was occupying to, again using the words of the witness Ernesto G.
Cuento, a "white man" whom he (defendant's Manager) wished to accommodate, and the defendant
has not proven that this "white man" had any "better right" to occupy the "first class" seat that the
plaintiff was occupying, duly paid for, and for which the corresponding "first class" ticket was issued by
the defendant to him.40

5. The responsibility of an employer for the tortious act of its employees need not be essayed. It is well settled in
law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer, must answer. Article 21 of the
Civil Code says:

ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions of Article 2219
(10), Civil Code, moral damages are recoverable. 42

6. A contract to transport passengers is quite different in kind and degree from any other contractual relation. 43 And
this, because of the relation which an air-carrier sustains with the public. Its business is mainly with the travelling
public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore,
generates a relation attended with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could
give ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that any rule or discourteous conduct on the
part of employees towards a passenger gives the latter an action for damages against the carrier. 44

Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract and a tort,
giving a right of action for its agent in the presence of third persons to falsely notify her that the check was worthless
and demand payment under threat of ejection, though the language used was not insulting and she was not
ejected." 46 And this, because, although the relation of passenger and carrier is "contractual both in origin and nature"
nevertheless "the act that breaks the contract may be also a tort". 47 And in another case, "Where a passenger on a
railroad train, when the conductor came to collect his fare tendered him the cash fare to a point where the train was
scheduled not to stop, and told him that as soon as the train reached such point he would pay the cash fare from that
point to destination, there was nothing in the conduct of the passenger which justified the conductor in using insulting
language to him, as by calling him a lunatic," 48 and the Supreme Court of South Carolina there held the carrier liable
for the mental suffering of said passenger.1awphîl.nèt

Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action as we have
said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner air carrier — a case
of quasi-delict. Damages are proper.

7. Petitioner draws our attention to respondent Carrascoso's testimony, thus —

13
 Q You mentioned about an attendant. Who is that attendant and purser?

A When we left already — that was already in the trip — I could not help it. So one of the flight attendants
approached me and requested from me my ticket and I said, What for? and she said, "We will note that you
transferred to the tourist class". I said, "Nothing of that kind. That is tantamount to accepting my transfer." And
I also said, "You are not going to note anything there because I am protesting to this transfer".

Q Was she able to note it?

A No, because I did not give my ticket.

Q About that purser?

A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room, I stood
up and I went to the pantry that was next to me and the purser was there. He told me, "I have recorded the
incident in my notebook." He read it and translated it to me — because it was recorded in French — "First
class passenger was forced to go to the tourist class against his will, and that the captain refused to
intervene."

Mr. VALTE —

I move to strike out the last part of the testimony of the witness because the best evidence would be the
notes. Your Honor.

COURT —

I will allow that as part of his testimony. 49

Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his notebook reading "First
class passenger was forced to go to the tourist class against his will, and that the captain refused to intervene" is
predicated upon evidence [Carrascoso's testimony above] which is incompetent. We do not think so. The subject of
inquiry is not the entry, but the ouster incident. Testimony on the entry does not come within the proscription of the
best evidence rule. Such testimony is admissible. 49a

Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the startling
occurrence was still fresh and continued to be felt. The excitement had not as yet died down. Statements then, in this
environment, are admissible as part of the res gestae. 50 For, they grow "out of the nervous excitement and mental
and physical condition of the declarant". 51 The utterance of the purser regarding his entry in the notebook was
spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness has been guaranteed. 52 It
thus escapes the operation of the hearsay rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would have been an
easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really true that no such entry was
made, the deposition of the purser could have cleared up the matter.

We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.

8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant exemplary damages —
in contracts and quasi- contracts. The only condition is that defendant should have "acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner." 53 The manner of ejectment of respondent Carrascoso from his first class
seat fits into this legal precept. And this, in addition to moral damages. 54

9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a similar judgment for
attorneys' fees. The least that can be said is that the courts below felt that it is but just and equitable that attorneys'
fees be given. 55 We do not intend to break faith with the tradition that discretion well exercised — as it was here —
should not be disturbed.

10. Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals, thus:
P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys' fees. The
task of fixing these amounts is primarily with the trial court.  56 The Court of Appeals did not interfere with the same. The

14
dictates of good sense suggest that we give our imprimatur thereto. Because, the facts and circumstances point to the
reasonableness thereof.57

On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We accordingly
vote to affirm the same. Costs against petitioner. So ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro, JJ., concur.
Bengzon, J.P., J., took no part.

15
PRUDENTIAL BANK (NOW BANK OF THE PHILIPPINE ISLANDS), PETITIONER, VS. RONALD RAPANOT AND
HOUSING & LAND USE REGULATORY BOARD, RESPONDENTS.

DECISION
CAGUIOA, J:
Only questions of law may be raised in petitions for review on certiorari brought before this Court under Rule 45, since
this Court is not a trier of facts. While there are recognized exceptions which warrant review of factual findings, mere
assertion of these exceptions does not suffice. It is incumbent upon the party seeking review to overcome the burden
of demonstrating that review is justified under the circumstances prevailing in his case.

The Case

Before the Court is an Appeal by Certiorari[1] under Rule 45 of the Rules of Court (Petition) of the Decision [2] dated
November 18, 2009 (questioned Decision) rendered by the Court of Appeals - Seventh Division (CA). The questioned
Decision stems from a complaint filed by herein private respondent Ronald Rapanot (Rapanot) against Golden Dragon
Real Estate Corporation (Golden Dragon), Golden Dragon's President Ma. Victoria M. Vazquez [3] and herein
petitioner, Bank of the Philippine Islands, formerly known as Prudential Bank [4] (Bank) for Specific Performance and
Damages (Complaint) before the Housing and Land Use Regulatory Board (HLURB). [5]

The Petition seeks to reverse the questioned Decision insofar as it found that the Bank (i) was not deprived of due
process when the Housing and Land Use Arbiter (Arbiter) issued his Decision dated July 3, 2002 without awaiting
submission of the Bank's position paper and draft decision, and (ii) cannot be deemed a mortgagee in good faith with
respect to Unit 2308-B2 mortgaged by Golden Dragon in its favor as collateral. [5-a]

The Facts

Golden Dragon is the developer of Wack-Wack Twin Towers Condominium, located in Mandaluyong City. On May 9,
1995, Rapanot paid Golden Dragon the amount ofP453,329.64 as reservation fee for a 41.1050-square meter unit in
said condominium, particularly designated as Unit 2308-B2,[6] and covered by Condominium Certificate of Title (CCT)
No. 2383 in the name of Golden Dragon.[7]

On September 13, 1995, the Bank extended a loan to Golden Dragon amounting to P50,000,000.00 [8] to be utilized by
the latter as additional working capital.[9] To secure the loan, Golden Dragon executed a Mortgage Agreement in favor
of the Bank, which had the effect of constituting a real estate mortgage over several condominium units owned and
registered under Golden Dragon's name. Among the units subject of the Mortgage Agreement was Unit 2308-B2.
[10]
 The mortgage was annotated on CCT No. 2383 on September 13, 1995. [11]

On May 21, 1996, Rapanot and Golden Dragon entered into a Contract to Sell covering Unit 2308-B2. On April 23,
1997, Rapanot completed payment of the full purchase price of said unit amounting to P1,511,098.97. [12] Golden
Dragon executed a Deed of Absolute Sale in favor of Rapanot of the same date. [13] Thereafter, Rapanot made several
verbal demands for the delivery of Unit 2308-B2.[14]

Prompted by Rapanot's verbal demands, Golden Dragon sent a letter to the Bank dated March 17, 1998, requesting
for a substitution of collateral for the purpose of replacing Unit 2308-B2 with another unit with the same area.
However, the Bank denied Golden Dragon's request due to the latter's unpaid accounts. [15] Because of this, Golden
Dragon failed to comply with Rapanot's verbal demands.

Thereafter, Rapanot, through his counsel, sent several demand letters to Golden Dragon and the Bank, formally
demanding the delivery of Unit 2308-B2 and its corresponding CCT No. 2383, free from all liens and encumbrances.
[16]
 Neither Golden Dragon nor the Bank complied with Rapanot's written demands. [17]

Proceedings before the HLURB

On April 27, 2001, Rapanot filed a Complaint with the Expanded National Capital Region Field Office of the HLURB.
[18]
 The Field Office then scheduled the preliminary hearing and held several conferences with a view of arriving at an
amicable settlement. However, no settlement was reached. [19]

Despite service of summons to all the defendants named in the Complaint, only the Bank filed its Answer. [20] Thus, on
April 5, 2002, the Arbiter issued an order declaring Golden Dragon and its President Maria Victoria Vazquez in default,
and directing Rapanot and the Bank to submit their respective position papers and draft decisions (April 2002 Order).
[21]
 Copies of the April 2002 Order were served on Rapanot and the Bank via registered mail. [22] However, the envelope
bearing the copy sent to the Bank was returned to the Arbiter, bearing the notation "refused to receive". [23]

Rapanot complied with the April 2002 Order and personally served copies of its position paper and draft decision on
16
the Bank on May 22, 2002 and May 24, 2002, respectively. [24] In the opening statement of Rapanot's position paper,
Rapanot made reference to the April 2002 Order. [25]

On July 3, 2002, the Arbiter rendered a decision (Arbiter's Decision) in favor of Rapanot, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring the mortgage over the condominium unit No. 2308-B2 covered by Condominium Certificate of
Title No. 2383 in favor of respondent Bank as null and void for violation of Section 18 of Presidential
Decree No. 957[;]

2. Ordering respondent Bank to cancel the mortgage on the subject condominium unit, and accordingly,
release the title thereof to the complainant;

3. Ordering respondents to pay jointly and severally the complainant the following sums:

a. P100,000.00 as moral damages,

b. P100,000.00 as exemplary damages,

c. P50,000.00 as attorney's fees,

d. The costs of litigations (sic), and

e. An administrative fine of TEN THOUSAND PESOS (P10,000.00) payable to this Office fifteen
(15) days upon receipt of this decision, for violation of Section 18 in relation to Section 38 of PD
957;

4. Directing the Register of Deeds of Mandaluyong City to cancel the aforesaid mortgage on the title of the
subject condominium unit; and

5. Immediate[ly] upon receipt by the complainant of the owner's duplicate Condominium Certificate of Title of
Unit 2308-B2, delivery of CCT No. 2383 over Unit 2308-B2 in favor of the complainant free from all liens
and encumbrances.
SO ORDERED.[26]
On July 25, 2002, the Bank received a copy of Rapanot's Manifestation dated July 24, 2002, stating that he had
received a copy of the Arbiter's Decision.[27] On July 29, 2002, the Bank filed a Manifestation and Motion for
Clarification,[28] requesting for the opportunity to file its position paper and draft decision, and seeking confirmation as
to whether a decision had indeed been rendered notwithstanding the fact that it had yet to file such submissions.

Subsequently, the Bank received a copy of Rapanot's Motion for Execution dated September 2, 2002, [29] to which it
filed an Opposition dated September 4, 2002.[30]

Meanwhile, the Bank's Manifestation and Motion for Clarification remained unresolved despite the lapse of five (5)
months from the date of filing. This prompted the Bank to secure a certified true copy of the Arbiter's Decision from the
HLURB.[31]

On January 16, 2003, the Bank filed a Petition for Review with the HLURB Board of Commissioners (HLURB Board)
alleging, among others, that it had been deprived of due process when the Arbiter rendered a decision without
affording the Bank the opportunity to submit its position paper and draft decision.

The HLURB Board modified the Arbiter's Decision by: (i) reducing the award for moral damages from P100,000.00 to
P50,000.00, (ii) deleting the award for exemplary damages, (iii) reducing the award for attorney's fees from
P50,000.00 to P20,000.00, and (iv) directing Golden Dragon to pay the Bank all the damages the latter is directed to
pay thereunder, and settle the mortgage obligation corresponding to Unit 2308-B2. [32]

Anent the issue of due process, the HLURB Board held, as follows:
x x x          x x x          x x x

With respect to the first issue, we find the same untenable. Records show that prior to the rendition of its decision, the
office below has issued and duly sent an Order to the parties declaring respondent GDREC in default and directing
respondent Bank to submit its position paper. x x x[33] (Underscoring omitted)
Proceedings before the Office of the President

The Bank appealed the decision of the HLURB Board to the Office of the President (OP). On October 10, 2005, the
17
OP issued a resolution denying the Bank's appeal. In so doing, the OP adopted the BLURB's findings. [34] The Bank
filed a Motion for Reconsideration, which was denied by the OP in an Order dated March 3, 2006. [35]

Proceedings before the CA

The Bank filed a Petition for Review with the CA on April 17, 2006 assailing the resolution and subsequent order of the
OP. The Bank argued, among others, that the OP erred when it found that the Bank (i) was not denied due process
before the HLURB, and (ii) is jointly and severally liable with Golden Dragon for damages due Rapanot. [36]

After submission of the parties' respective memoranda, the CA rendered the questioned Decision dismissing the
Bank's Petition for Review. On the issue of due process, the CA held:
Petitioner asserts that it was denied due process because it did not receive any notice to file its position paper nor a
copy of the Housing Arbiter's Decision. Rapanot, meanwhile, contends that the Housing Arbiter sent petitioner a copy
of the April 5, 2002 Order to file position paper by registered mail, as evidenced by the list of persons furnished with a
copy thereof. However, according to Rapanot, petitioner "refused to receive" it.

x x x          x x x          x x x

In the instant case, there is no denial of due process. Petitioner filed its Answer where it was able to explain its side
through its special and affirmative defenses. Furthermore, it participated in the preliminary hearing and attended
scheduled conferences held to resolve differences between the parties. Petitioner was also served with respondent's
position paper and draft decision. Having received said pleadings of respondent, petitioner could have manifested
before the Housing Arbiter that it did not receive, if correct, its order requiring the submission of its pleadings and
therefore prayed that it be given time to do so. Or, it could have filed its position paper and draft decision without
awaiting the order to file the same. Under the circumstances, petitioner was thus afforded and availed of the
opportunity to present its side. It cannot make capital of the defense of denial of due process as a screen for
neglecting to avail of opportunities to file other pleadings. [37]
With respect to the Bank's liability for damages, the CA held thus:
Section 18 of PD 957, requires prior written authority of the HLURB before the owner or developer of a subdivision lot
or condominium unit may enter into a contract of mortgage. Hence, the jurisdiction of the HLURB is broad enough to
include complaints for annulment of mortgage involving violations of PD 957.

Petitioner argues that, as a mortgagee in good faith and for value, it must be accorded protection and should not be
held jointly and severally liable with Golden Dragon and its President, Victoria Vasquez.

It is true that a mortgagee in good faith and for value is entitled to protection, as held in Rural Bank of Compostela
vs. Court of Appeals but petitioner's dependence on this ruling is misplaced as it cannot be considered a mortgagee
in good faith.

The doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property covered by a
certificate of title, as mortgagees, are not required to go beyond what appears on the face of the title.

However, while a mortgagee is not under obligation to look beyond the certificate of title, the nature of petitioner's
business requires it to take further steps to assure that there are no encumbrances or liens on the mortgaged
property, especially since it knew that it was dealing with a condominium developer. It should have inquired deeper
into the status of the properties offered as collateral and verified if the HLURB's authority to mortgage was in fact
previously obtained. This it failed to do.

It has been ruled that a bank, like petitioner, cannot argue that simply because the titles offered as security were clean
of any encumbrances or lien, it was relieved of taking any other step to verify the implications should the same be sold
by the developer. While it is not expected to conduct an exhaustive investigation of the mortgagor's title, it cannot be
excused from the duty of exercising the due diligence required of banking institutions, for banks are expected to
exercise more care and prudence than private individuals in their dealings, even those involving registered property,
for their business is affected with public interest.

As aforesaid, petitioner should have ascertained that the required authority to mortgage the condominium units was
obtained from the HLURB before it approved Golden Dragon's loan. It cannot feign lack of knowledge of the sales
activities of Golden Dragon since, as an extender of credit, it is aware of the practices, both good or bad, of
condominium developers. Since petitioner was negligent in its duty to investigate the status of the properties offered to
it as collateral, it cannot claim that it was a mortgagee in good faith. [38]
The Bank filed a Motion for Reconsideration, which was denied by the CA in a Resolution dated March 17,2010.
[39]
 The Bank received a copy of the resolution on March 22, 2010. [39-a]

On April 6, 2010, the Bank filed with the Court a motion praying for an additional period of 30 days within which to file
18
its petition for review on certiorari.[39-b]

On May 6, 2010, the Bank filed the instant Petition.

Rapanot filed his Comment to the Petition on September 7, 2010. [40] Accordingly, the Bank filed its Reply on January
28, 2011.[41]

Issues

Essentially, the Bank requests this Court to resolve the following issues:
1. Whether or not the CA erred when it affirmed the resolution of the OP finding that the Bank had been
afforded due process before the HLURB; and

2. Whether or not the CA erred when it affirmed the resolution of the OP holding that the Bank cannot be
considered a mortgagee in good faith.
The Court's Ruling

In the instant Petition, the Bank avers that the CA misappreciated material facts when it affirmed the OP's resolution
which denied its appeal. The Bank contends that the CA committed reversible error when it concluded that the Bank
was properly afforded due process before the HLURB, and when it failed to recognize the Bank as a mortgagee in
good faith. The Bank concludes that these alleged errors justify the reversal of the questioned Decision, and ultimately
call for the dismissal of the Complaint against it.

The Court disagrees.

Time and again, the Court has emphasized that review of appeals under Rule 45 is "not a matter of right, but of sound
judicial discretion."[42] Thus, a petition for review on certiorari shall only be granted on the basis of special and
important reasons.[43]

As a general rule, only questions of law may be raised in petitions filed under Rule 45. [44] However, there are
recognized exceptions to this general rule, namely:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings
the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion. x x x[45] (Emphasis supplied)
The Bank avers that the second, fourth and eleventh exceptions above are present in this case. However, after a
judicious examination of the records of this case and the respective submissions of the parties, the Court finds that
none of these exceptions apply.

The Bank was not deprived of due process before the HLURB.

The Bank asserts that it never received the April 2002 Order. It claims that it was taken by surprise on July 25, 2002,
when it received a copy of Rapanot's Manifestation alluding to the issuance of the Arbiter's Decision on July 3, 2002.
Hence, the Bank claims that it was deprived of due process, since it was not able to set forth its "valid and meritorious"
defenses for the Arbiter's consideration through its position paper and draft decision. [46]

The Court finds these submissions untenable.

"The essence of due process is to be heard."[47] In administrative proceedings, due process entails "a fair and
reasonable opportunity to explain one's side, or an opportunity to seek a reconsideration of the action or ruling
complained of. Administrative due process cannot be fully equated with due process in its strict judicial sense, for in
the former a formal or trial-type hearing is not always necessary, and technical rules of procedure are not strictly
applied."[48]

As correctly pointed out by the CA in the questioned Decision, the Bank was able to set out its position by participating
in the preliminary hearing and the scheduled conferences before the Arbiter. [49] The Bank was likewise able to assert
its special and affirmative defenses in its Answer to Rapanot's Complaint. [50]

19
The fact that the Arbiter's Decision was rendered without having considered the Bank's position paper and draft
decision is of no moment. An examination of the 1996 Rules of Procedure of the HLURB [51] then prevailing shows that
the Arbiter merely acted in accordance therewith when he rendered his decision on the basis of the pleadings and
records submitted by the parties thus far. The relevant rules provide:
RULE VI - PRELIMINARY CONFERENCE AND RESOLUTION

x x x          x x x          x x x

Section 4. Position Papers. - If the parties fail to settle within the period of preliminary conference, then they will be
given a period of not more than thirty (30) calendar days to file their respective verified position papers,
attaching thereto the affidavits of their witnesses and documentary evidence.

In addition, as provided for by Executive Order No. 26, Series of 1992, the parties shall be required to submit
their respective draft decisions within the same thirty (30)-day period.

Said draft decision shall state clearly and distinctly the findings of facts, the issues and the applicable law and
jurisprudence on which it is based. The arbiter may adopt in whole or in part either of the parties' draft decision, or
reject both and prepare his own decision.

The party who fails to submit a draft decision shall be fined P2,000.00.

Section 5. Summary Resolution - With or without the position paper and draft decision[,] the Arbiter shall
summarily resolve the case on the basis of the verified pleadings and pertinent records of the
Board. (Emphasis and underscoring supplied)
Clearly, the Arbiter cannot be faulted for rendering his Decision, since the rules then prevailing required him to do so.

The Bank cannot likewise rely on the absence of proof of service to further its cause. Notably, while the Bank firmly
contends that it did not receive the copy of the April 2002 Order, it did not assail the veracity of the notation "refused to
receive" inscribed on the envelope bearing said order. In fact, the Bank only offered the following explanation
respecting said notation:
9. The claim that the Bank "refused to receive" the envelope that bore the Order cannot be given credence and is
belied by the Bank's act of immediately manifesting before the Housing Arbiter that it had not yet received an order for
filing the position paper and draft decision.[52]
This is specious, at best. More importantly, the records show that the Bank gained actual notice of the Arbiter's
directive to file their position papers and draft decisions as early as May 22, 2002, when it was personally served a
copy of Rapanot's position paper which made reference to the April 2002 Order. [53] This shows as mere pretense the
Bank's assertion that it learned of the Arbiter's Decision only through Rapanot's Manifestation. [54] Worse, the Bank
waited until the lapse of five (5) months before it took steps to secure a copy of the Arbiter's Decision directly from the
HLURB for the purpose of assailing the same before the OP.

The Mortgage Agreement is null and void as against Rapanot, and thus cannot be enforced against him.

The Bank avers that contrary to the CA's conclusion in the questioned Decision, it exercised due diligence before it
entered into the Mortgage Agreement with Golden Dragon and accepted Unit 2308-B2, among other properties, as
collateral.[55] The Bank stressed that prior to the approval of Golden Dragon's loan, it deployed representatives to
ascertain that the properties being offered as collateral were in order. Moreover, it confirmed that the titles
corresponding to the properties offered as collateral were free from existing liens, mortgages and other
encumbrances.[56] Proceeding from this, the Bank claims that the CA overlooked these facts when it failed to recognize
the Bank as a mortgagee in good faith.

The Court finds the Bank's assertions indefensible.

First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may be constituted by
a developer without prior written approval of the National Housing Authority, now HLURB. [57] PD 957 further requires
developers to notify buyers of the loan value of their corresponding mortgaged properties before the proceeds of the
secured loan are released. The relevant provision states:
Section 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or developer without prior written
approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage
loan shall be used for the development of the condominium or subdivision project and effective measures have been
provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined
and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his
installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage
indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over
the lot or unit promptly after full payment thereof.
20
In Far East Bank & Trust Co. v. Marquez,[58] the Court clarified the legal effect of a mortgage constituted in violation of
the foregoing provision, thus:
The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of the property, was not
notified of the mortgage before the release of the loan proceeds by petitioner. Acts executed against the provisions of
mandatory or prohibitory laws shall be void. Hence, the mortgage over the lot is null and void insofar as private
respondent is concerned.[59] (Emphasis supplied)
The Court reiterated the foregoing pronouncement in the recent case of Philippine National Bank v. Lim[60] and again
in United Overseas Bank of the Philippines, Inc. v. Board of Commissioners-HLURB.[61]

Thus, the Mortgage Agreement cannot have the effect of curtailing Rapanot's right as buyer of Unit 2308-B2, precisely
because of the Bank's failure to comply with PD 957.

Moreover, contrary to the Bank's assertions, it cannot be considered a mortgagee in good faith. The Bank failed to
ascertain whether Golden Dragon secured HLURB's prior written approval as required by PD 957 before it accepted
Golden Dragon's properties as collateral. It also failed to ascertain whether any of the properties offered as collateral
already had corresponding buyers at the time the Mortgage Agreement was executed.

The Bank cannot harp on the fact that the Mortgage Agreement was executed before the Contract to Sell and Deed of
Absolute Sale between Rapanot and Golden Dragon were executed, such that no amount of verification could have
revealed Rapanot's right over Unit 2308-B2.[62] The Court particularly notes that Rapanot made his initial payment for
Unit 2308-B2 as early as May 9, 1995, four (4) months prior to the execution of the Mortgage Agreement. Surely, the
Bank could have easily verified such fact if it had simply requested Golden Dragon to confirm if Unit 2308-B2 already
had a buyer, given that the nature of the latter's business inherently involves the sale of condominium units on a
commercial scale.

It bears stressing that banks are required to exercise the highest degree of diligence in the conduct of their affairs. The
Court explained this exacting requirement in the recent case of Philippine National Bank v. Vila,[63] thus:
In Land Bank of the Philippines v. Belle Corporation, the Court exhorted banks to exercise the highest degree of
diligence in its dealing with properties offered as securities for the loan obligation:
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied
more strictly. Being in the business of extending loans secured by real estate mortgage, banks are presumed to be
familiar with the rules on land registration. Since the banking business is impressed with public interest, they are
expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in
their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title.
Hence, they cannot assume that, x x x the title offered as security is on its face free of any encumbrances or lien, they
are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As
expected, the ascertainment of the status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of the bank's operations. x x x (Citations omitted)
We never fail to stress the remarkable significance of a banking institution to commercial transactions, in
particular, and to the country's economy in general. The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as active instruments of business and commerce, banks
have become an ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are even required, of it.[64] (Emphasis and underscoring supplied)
In loan transactions, banks have the particular obligation of ensuring that clients comply with all the documentary
requirements pertaining to the approval of their loan applications and the subsequent release of their proceeds. [65]

If only the Bank exercised the highest degree of diligence required by the nature of its business as a financial
institution, it would have discovered that (i) Golden Dragon did not comply with the approval requirement imposed by
Section 18 of PD 957, and (ii) that Rapanot already paid a reservation fee and had made several installment
payments in favor of Golden Dragon, with a view of acquiring Unit 2308-B2. [66]

The Bank's failure to exercise the diligence required of it constitutes negligence, and negates its assertion that it is a
mortgagee in good faith. On this point, this Court's ruling in the case of Far East Bank & Trust Co. v. Marquez[67] is
instructive:
Petitioner argues that it is an innocent mortgagee whose lien must be respected and protected, since the title offered
as security was clean of any encumbrance or lien. We do not agree.
"x x x As a general rule, where there is nothing on the certificate of title to indicate any cloud or vice in the ownership
of the property, or any encumbrance thereon, the purchaser is not required to explore further than what
the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat
his right thereto. This rule, however, admits of an exception as where the purchaser or mortgagee has knowledge of a
defect or lack of title in the vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to
inquire into the status of the property in litigation."
21
Petitioner bank should have considered that it was dealing with a town house project that was already in progress. A
reasonable person should have been aware that, to finance the project, sources of funds could have been used other
than the loan, which was intended to serve the purpose only partially. Hence, there was need to verity whether any
part of the property was already the subject of any other contract involving buyers or potential buyers. In granting the
loan, petitioner bank should not have been content merely with a clean title, considering the presence of
circumstances indicating the need for a thorough investigation of the existence of buyers like
respondent. Having been wanting in care and prudence, the latter cannot be deemed to be an innocent mortgagee.

Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as found by the Office of the
President and by the CA. Petitioner should not have relied only on the representation of the mortgagor that
the latter had secured all requisite permits and licenses from the government agencies concerned. The
former should have required the submission of certified true copies of those documents and verified their
authenticity through its own independent effort.

Having been negligent in finding out what respondent's rights were over the lot, petitioner must be deemed to
possess constructive knowledge of those rights. (Emphasis supplied)
The Court can surely take judicial notice of the fact that commercial banks extend credit accommodations to real
estate developers on a regular basis. In the course of its everyday dealings, the Bank has surely been made aware of
the approval and notice requirements under Section 18 of PD 957. At this juncture, this Court deems it necessary to
stress that a person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable
person cannot be deemed a mortgagee in good faith. [68] The nature of the Bank's business precludes it from feigning
ignorance of the need to confirm that such requirements are complied with prior to the release of the loan in favor of
Golden Dragon, in view of the exacting standard of diligence it is required to exert in the conduct of its affairs.

Proceeding from the foregoing, we find that neither mistake nor misapprehension of facts can be ascribed to the CA in
rendering the questioned Decision. The Court likewise finds that contrary to the Bank's claim, the CA did not overlook
material facts, since the questioned Decision proceeded from a thorough deliberation of the facts established by the
submissions of the parties and the evidence on record.

For these reasons, we resolve to deny the instant Petition for lack of merit.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Decision dated November
18, 2009 and Resolution dated March 17, 2010 of the Court of Appeals in CA-G.R. SP No. 93862 are
hereby AFFIRMED.

SO ORDERED.

Sereno, C.J. (Chairperson), Leonardo-de Castro, Del Castillo, and Perlas-Bernabe, JJ., concur.

22
 FIRST DIVISION

G.R. No. L-30056 August 30, 1988

MARCELO AGCAOILI, plaintiff-appellee
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.

Artemio L. Agcaoili for plaintiff-appellee.

Office of the Government Corporate Counsel for defendant-appellant.

NARVASA, J.:

The appellant Government Service Insurance System, (GSIS, for short) having approved the application of the
appellee Agcaoili for the purchase of a house and lot in the GSIS Housing Project at Nangka Marikina, Rizal, subject
to the condition that the latter should forthwith occupy the house, a condition that Agacoili tried to fulfill but could not
for the reason that the house was absolutely uninhabitable; Agcaoili, after paying the first installment and other fees,
having thereafter refused to make further payment of other stipulated installments until GSIS had made the house
habitable; and appellant having refused to do so, opting instead to cancel the award and demand the vacation by
Agcaoili of the premises; and Agcaoili having sued the GSIS in the Court of First Instance of Manila for specific
performance with damages and having obtained a favorable judgment, the case was appealled to this Court by the
GSIS. Its appeal must fail.

The essential facts are not in dispute. Approval of Agcaoili's aforementioned application for purchase 1 was contained
in a letter 2 addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-
General Manager, reading as follows:

Please be informed that your application to purchase a house and lot in our GSIS Housing Project at
Nangka, Marikina, Rizal, has been approved by this Office. Lot No. 26, Block No. (48) 2, together with
the housing unit constructed thereon, has been allocated to you.

You are, therefore, advised to occupy the said house immediately.

If you fail to occupy the same within three (3) days from receipt of this notice, your application shall be
considered automatically disapproved and the said house and lot will be awarded to another
applicant.

Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave the very next day,
because the house was nothing more than a shell, in such a state of incompleteness that civilized occupation was not
possible: ceiling, stairs, double walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage, were
inexistent. Agcaoili did however ask a homeless friend, a certain Villanueva, to stay in the premises as some sort of
watchman, pending completion of the construction of the house. Agcaoili thereafter complained to the GSIS, to no
avail.

The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly installment
and the incidental fees, 3 but refused to make further payments until and unless the GSIS completed the housing unit.
What the GSIS did was to cancel the award and require Agcaoili to vacate the premises. 4 Agcaoili reacted by
instituting suit in the Court of First Instance of Manila for specific performance and damages. 5 Pending the action, a
written protest was lodged by other awardees of housing units in the same subdivision, regarding the failure of the
System to complete construction of their own houses. 6 Judgment was in due course rendered ,7 on the basis of the
evidence adduced by Agcaoili only, the GSIS having opted to dispense with presentation of its own proofs. The
judgment was in Agcaoili's favor and contained the following dispositions, 8 to wit:

1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano Agcaoili)
illegal and void;

2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff relative to
Lot No. 26, Block No. (48) 2 of the Government Service Insurance System (GSIS) low cost housing
project at Nangka Marikina, Rizal;

23
 3) Ordering the defendant to complete the house in question so as to make the same habitable and
authorizing it (defendant) to collect the monthly amortization thereon only after said house shall have
been completed under the terms and conditions mentioned in Exhibit A ;and

4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for attorney's fees, and
costs.

Appellant GSIS would have this Court reverse this judgment on the argument that—

1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit,
since said unit had been sold "in the condition and state of completion then existing ... (and) he is deemed to have
accepted the same in the condition he found it when he accepted the award;" and assuming indefiniteness of the
contract in this regard, such circumstance precludes a judgment for specific performance. 9

2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate occupancy
of the house subject thereof, and the latter having failed to comply with the condition, no contract ever came into
existence between them ;10

3) Agcaoili's act of placing his homeless friend, Villanueva, in possession, "without the prior or subsequent knowledge
or consent of the defendant (GSIS)" operated as a repudiation by Agcaoili of the award and a deprivation of the GSIS
at the same time of the reasonable rental value of the property. 11

Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter, entitled "Application to
Purchase a House and/or Lot." Agcaoili filled up the form, signed it, and submitted it. 12 The acceptance of the
application was also set out in a form (mimeographed) also prepared by the GSIS. As already mentioned, this form
sent to Agcaoili, duly filled up, advised him of the approval of his "application to purchase a house and lot in our GSIS
Housing Project at NANGKA, MARIKINA, RIZAL," and that "Lot No. 26, Block No. (48) 2, together with the housing
unit constructed thereon, has been allocated to you." Neither the application form nor the acceptance or approval form
of the GSIS — nor the notice to commence payment of a monthly amortizations, which again refers to "the house and
lot awarded" — contained any hint that the house was incomplete, and was being sold "as is," i.e., in whatever state of
completion it might be at the time. On the other hand, the condition explicitly imposed on Agcaoili — "to occupy the
said house immediately," or in any case within three (3) days from notice, otherwise his "application shall be
considered automatically disapproved and the said house and lot will be awarded to another applicant" — would imply
that construction of the house was more or less complete, and it was by reasonable standards, habitable, and that
indeed, the awardee should stay and live in it; it could not be interpreted as meaning that the awardee would occupy it
in the sense of a pioneer or settler in a rude wilderness, making do with whatever he found available in the
envirornment.

There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the
purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina, Rizal at a
definite price payable in amortizations at P31.56 per month, and from that moment the parties acquired the right to
reciprocally demand performance. 13 It was, to be sure, the duty of the GSIS, as seller, to deliver the thing sold in a
condition suitable for its enjoyment by the buyer for the purpose contemplated , 14 in other words, to deliver the house
subject of the contract in a reasonably livable state. This it failed to do.

It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of the sale. Under the
circumstances there can hardly be any doubt that the house contemplated was one that could be occupied for
purposes of residence in reasonable comfort and convenience. There would be no sense to require the awardee to
immediately occupy and live in a shell of a house, a structure consisting only of four walls with openings, and a roof,
and to theorize, as the GSIS does, that this was what was intended by the parties, since the contract did not clearly
impose upon it the obligation to deliver a habitable house, is to advocate an absurdity, the creation of an unfair
situation. By any objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an
obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price.
Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke
Agcaoili's suspension of payment of amortizations as cause to cancel the contract between them. It is axiomatic that
"(i)n reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him."15

Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had not
complied with the condition of occupying the house within three (3) days. The record shows that Agcaoili did try to
fulfill the condition; he did try to occupy the house but found it to be so uninhabitable that he had to leave it the
following day. He did however leave a friend in the structure, who being homeless and hence willing to accept shelter

24
even of the most rudimentary sort, agreed to stay therein and look after it. Thus the argument that Agcaoili breached
the agreement by failing to occupy the house, and by allowing another person to stay in it without the consent of the
GSIS, must be rejected as devoid of merit.

Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili is silent, or imprecise as to its
exact prestation Blame for the imprecision cannot be imputed to Agcaoili; it was after all the GSIS which caused the
contract to come into being by its written acceptance of Agcaoili's offer to purchase, that offer being contained in a
printed form supplied by the GSIS. Said appellant having caused the ambiguity of which it would now make capital,
the question of interpretation arising therefrom, should be resolved against it.

It will not do, however, to dispose of the controversy by simply declaring that the contract between the parties had not
been validly cancelled and was therefore still in force, and that Agcaoili could not be compelled by the GSIS to pay the
stipulated price of the house and lot subject of the contract until and unless it had first completed construction of the
house. This would leave the contract hanging or in suspended animation, as it were, Agcaoili unwilling to pay unless
the house were first completed, and the GSIS averse to completing construction, which is precisely what has been the
state of affairs between the parties for more than twenty (20) years now. On the other hand, assuming it to be feasible
to still finish the construction of the house at this time, to compel the GSIS to do so so that Agcaoili's prestation to pay
the price might in turn be demanded, without modifying the price therefor, would not be quite fair. The cost to the GSIS
of completion of construction at present prices would make the stipulated price disproportionate, unrealistic.

The situation calls for the exercise by this Court of its equity jurisdiction, to the end that it may render complete
justice to both parties.

As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83 SCRA 579, 589 [1978]).
"(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts
of law, through the inflexibility of their rules and want of power to adapt their judgments to the special
circumstances of cases, are incompetent so to do. Equity regards the spirit of and not the letter, the
intent and not the form, the substance rather than the circumstance, as it is variously expressed by
different courts... " 16

In this case, the Court can not require specific performance of the contract in question according to its literal terms, as
this would result in inequity. The prevailing rule is that in decreeing specific performance equity requires 17 —

... not only that the contract be just and equitable in its provisions, but that the consequences of
specific performance likewise be equitable and just. The general rule is that this equitable relief will
not be granted if, under the circumstances of the case, the result of the specific enforcement of the
contract would be harsh, inequitable, oppressive, or result in an unconscionable advantage to the
plaintiff . .

In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in accordance with the circumstances
obtaining at the time of rendition of judgment, when these are significantly different from those existing at the time of
generation of those rights.

The Court is not restricted to an adjustment of the rights of the parties as they existed when suit was
brought, but will give relief appropriate to events occuring ending the suit. 18

While equitable jurisdiction is generally to be determined with reference to the situation existing at the
time the suit is filed, the relief to be accorded by the decree is governed by the conditions which are
shown to exist at the time of making thereof, and not by the circumstances attending the inception of
the litigation. In making up the final decree in an equity suit the judge may rightly consider matters
arising after suit was brought. Therefore, as a general rule, equity will administer such relief as the
nature, rights, facts and exigencies of the case demand at the close of the trial or at the time of the
making of the decree. 19

That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person must act with
justice, give everyone his due, and observe honesty and good faith. 20 Adjustment of rights has been held to be
particularly applicable when there has been a depreciation of currency.

Depreciation of the currency or other medium of payment contracted for has frequently been held to
justify the court in withholding specific performance or at least conditioning it upon payment of the
actual value of the property contracted for. Thus, in an action for the specific performance of a real
estate contract, it has been held that where the currency in which the plaintiff had contracted to pay
25
 had greatly depreciated before enforcement was sought, the relief would be denied unless the
complaint would undertake to pay the equitable value of the land. (Willard & Tayloe [U.S.] 8 Wall
557,19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21

In determining the precise relief to give, the Court will "balance the equities" or the respective interests of the parties,
and take account of the relative hardship that one relief or another may occasion to them .22

The completion of the unfinished house so that it may be put into habitable condition, as one form of relief to the
plaintiff Agcaoili, no longer appears to be a feasible option in view of the not inconsiderable time that has already
elapsed. That would require an adjustment of the price of the subject of the sale to conform to present prices of
construction materials and labor. It is more in keeping with the realities of the situation, and with equitable norms, to
simply require payment for the land on which the house stands, and for the house itself, in its unfinished state, as of
the time of the contract. In fact, this is an alternative relief proposed by Agcaoili himself, i.e., "that judgment issue . .
(o)rdering the defendant (GSIS) to execute a deed of sale that would embody and provide for a reasonable
amortization of payment on the basis of the present actual unfinished and uncompleted condition, worth and value of
the said house. 23

WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets aside the cancellation by respondent
GSIS of the award in favor of petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low cost housing project at
Nangka, Marikina, Rizal, and orders the former to respect the aforesaid award and to pay damages in the amounts
specified, is AFFIRMED as being in accord with the facts and the law. Said judgments is however modified by deleting
the requirement for respondent GSIS "to complete the house in question so as to make the same habitable," and
instead it is hereby ORDERED that the contract between the parties relative to the property above described be
modified by adding to the cost of the land, as of the time of perfection of the contract, the cost of the house in its
unfinished state also as of the time of perfection of the contract, and correspondingly adjusting the amortizations to be
paid by petitioner Agcaoili, the modification to be effected after determination by the Court a quo of the value of said
house on the basis of the agreement of the parties, or if this is not possible by such commissioner or commissioners
as the Court may appoint. No pronouncement as to costs.

SO ORDERED.

Cruz, Gancayco, Aquino and Medialdea, JJ., concur.

26
 EN BANC

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

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD BEFORE
FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for compliance had expired
and there was breach of contract by non-performance, it was academic for the plaintiff to have first petitioned the court
to fix a period for the performance of the contract before filing his complaint.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES.—
Where the defendant virtually admitted non-performance of the contract by returning the typewriter that he was
obliged to repair in a non-working condition, with essential parts missing, Article 1197 of the Civil Code of the
Philippines cannot be invoked. The fixing of a period would thus be a mere formality and would serve no purpose than
to delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened the tenor
of his obligation because he not only did not repair the typewriter but returned it "in shambles,’’ he is liable for the cost
of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75, because the
obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170 of the Code, for the cost of the
missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.

4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED OR
PROVED IN INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and the existence of the
actual basis thereof must be proved. As no findings of fact were made on the claims for damages and attorney’s fees,
there is no factual basis upon which to make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY
QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision of the trial court to
the Supreme Court on questions of law, he is bound by the judgment of the court a quo on its findings of fact.

DECISION

REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages but
was unsatisfied with the decision rendered by the Court of First Instance of Manila, in its Civil Case No. 65138,
because it awarded him only P31.10 out of his total claim of P690 00 for actual, temperate and moral damages and
attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable
typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite
repeated reminders made by the plaintiff. The defendant merely gave assurances, but failed to comply with the same.
In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the purchase of spare parts, which
amount the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of the repair
of the typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined the typewriter
returned to him by the defendant and found out that the same was in shambles, with the interior cover and some parts
27
and screws missing. On October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the return of
the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the
plaintiff some of the missing parts, the interior cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost
him a total of P89.85, including labor and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the
defendant the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00
for moral damages, and P500.00 as attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant made no denials of the facts narrated
above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a certain Julio
Bocalin, which the defendant denied allegedly because the typewriter was delivered to him personally by the plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however, be
fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total value of
only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the
costs of suit.

"SO ORDERED."cralaw virtua1aw library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the value
of the missing parts of the typewriter, instead of the whole cost of labor and materials that went into the repair of the
machine, as provided for in Article 1167 of the Civil Code, reading as follows:jgc:chanrobles.com.ph

"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be
decreed that what has been poorly done he undone."cralaw virtua1aw library

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even
for the sum of P31.10, because his contract with plaintiff-appellant did not contain a period, so that plaintiff-appellant
should have first filed a petition for the court to fix the period, under Article 1197 of the Civil Code, within which the
defendant appellee was to comply with the contract before said defendant-appellee could be held liable for breach of
contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts,
as found by the trial court, are now conclusive and non-reviewable. 1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine
cleaning and servicing" ; that the defendant was not able to finish the job after some time despite repeated reminders
made by the plaintiff" ; that the "defendant merely gave assurances, but failed to comply with the same" ; and that
"after getting exasperated with the delay of the repair of the typewriter", the plaintiff went to the house of the defendant
and asked for its return, which was done. The inferences derivable from these findings of fact are that the appellant
and the appellee had a perfected contract for cleaning and servicing a typewriter; that they intended that the
defendant was to finish it at some future time although such time was not specified; and that such time had passed
without the work having been accomplished, far the defendant returned the typewriter cannibalized and unrepaired,
which in itself is a breach of his obligation, without demanding that he should be given more time to finish the job, or
compensation for the work he had already done. The time for compliance having evidently expired, and there being a
breach of contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period
for the performance of the contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of the
Civil Code for he virtually admitted non-performance by returning the typewriter that he was obliged to repair in a non-
working condition, with essential parts missing. The fixing of a period would thus be a mere formality and would serve
no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).

It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not repair the
typewriter but returned it "in shambles", according to the appealed decision. For such contravention, as appellant
contends, he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this case should be the cost of the labor or service expended in
the repair of the typewriter, which is in the amount of P58.75. because the obligation or contract was to repair it.

28
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing parts,
in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it
in the same condition it was when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly rejected by the trial
court, for these were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages and attorney’s
fees must be pleaded, and the existence of the actual basis thereof must be proved. 2 The appealed judgment thus
made no findings on these claims, nor on the fraud or malice charged to the appellee. As no findings of fact were
made on the claims for damages and attorney’s fees, there is no factual basis upon which to make an award therefor.
Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly to the Supreme
Court on questions of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendant-
appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate
from the filing of the complaint. Costs in all instances against appellee Fructuoso Gonzales.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur.

Barredo, J., did not take part.

29
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings
Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.

I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.

Antonio R. Tupaz for private respondent.

MAKASIAR, CJ.:

This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R.
No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance
of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.

On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other
property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within
3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial
release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after
being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47,
rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p.
113, rec.).

On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity
problems, issued Resolution No. 1049, which provides:

In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the
Board, by unanimous vote, decided as follows:

1) To prohibit the bank from making new loans and investments [except investments in government
securities] excluding extensions or renewals of already approved loans, provided that such extensions
or renewals shall be subject to review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;

x x x           x x x          x x x

(p. 46, rec.).

On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to
restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank
(pp. 48-49, rec).

On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note,
filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of
Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.

On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank
failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering
30
Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance
cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).

On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order
enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).

On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of
Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting
Superintendent of Banks (pp. 65-76, rec.).

On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of
Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal
charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-
136. rec.

On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island
Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).

Hence, this instant petition by the central Bank.

The issues are:

1. Can the action of Sulpicio M. Tolentino for specific performance prosper?

2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?

3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be
foreclosed to satisfy said amount?

When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965,
they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1
[1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise
of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the
P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his
willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the
P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for
a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968,
which prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for
Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to
take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took
effect on June 15, 1948, the validity of which is not in question.

The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank
from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance
of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not
discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance
(Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never
an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A,
1974 ed., CJS p. 650)

The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to
P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to
collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the
supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released.
A person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the
pre-deducted interest was an exercise of his right to it, which right exist independently of his right to demand the
completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the
other.
31
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank
officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank
of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before
they approve the loan application of their customers, they must investigate the existence and evaluation of the
properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be
non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank
officials and employees on their customer's representation regarding the loan collateral being offered as loan security
is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the
representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the
collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino,
had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same
in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.

Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages
in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board
Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.

Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of
the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt
that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation
to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note
made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay.

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island
Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio
M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the
interest thereon.

WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P
17,000.00 debt.

The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract
(Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the
existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052,
of the Civil Code).

The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence,
as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real
estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only
when the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in
the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974
32
ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in
the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs.
Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage
of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to
secure a P17,000.00 debt.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the
facts of this case.

Article 2089 provides:

A pledge or mortgage is indivisible even though the debt may be divided among the successors in
interest of the debtor or creditor.

Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.

Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not been paid.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the
debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply

WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND

1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM
MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST
22, 1985 UNTIL PAID;

2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25
HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE
AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.

NO COSTS. SO ORDERED.

Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.

Aquino (Chairman) and Abad Santos, JJ., took no part.

33
 BIBLIA T. BANAGA, PETITIONER, VS. HON. JOSE S. MAJADUCON, PRESIDING JUDGE REGIONAL TRIAL
COURT, COURT, BRANCH XXIII, 11TH JUDICIAL REGION, GENERAL SANTOS CITY AND CANDELARIO S.
DAMALERIO, RESPONDENTS.

DECISION
TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, praying for the reversal of
the Court of Appeals' Decision in CA-G.R. SP No. 63375 promulgated on July 4, 2001. [1] The Court of Appeals'
Decision dismissed Biblia T. Banaga's petition for certiorari, prohibition and mandamus, which sought to nullify three
orders issued by the Regional Trial Court (RTC), Branch 23 of General Santos City, in connection with the execution
of the final judgment in G.R. No. 127941.

The instant petition had its genesis from an action for redemption of a parcel of land situated in General Santos City
filed by petitioner Banaga against private respondent Candelario Damalerio before the RTC, Branch 23, General
Santos City. The trial court dismissed petitioner's complaint, prompting her to elevate the matter to the Court of
Appeals which reversed the trial court and upheld petitioner's right to redeem the property. [2] Private respondent's
appeal from said decision via a petition for review on certiorari docketed as G.R. No. 103204 was denied in this
Court's resolution dated February 19, 1992.[3]

However, petitioner failed to exercise her right to redeem within the given period. Private respondent moved to declare
the termination of the 30-day redemption period, but the trial court denied the same in an Order issued on May 29,
1992.[4]  Thus, private respondent filed a petition for certiorari praying for the nullification of said order. The Court of
Appeals granted private respondent's petition, prompting petitioner to appeal to this Court.  In the Court's resolution in
G.R. No. 113534,[5] the Court denied petitioner's appeal for lack of merit. The decision became final and executory and
a writ of execution issued as a consequence. However, the Register of Deeds refused to issue a certificate of title in
the name of private respondent.

Litigation commenced once again when private respondent elevated the case to the Court of Appeals via a petition for
certiorari and mandamus.[6]  The Court of Appeals' Decision,[7] which was affirmed by this Court in its decision in G.R.
No. 127941[8] promulgated on January 28, 1999, directed the Register of Deeds to issue certificates of title in the name
of private respondent and the trial court to issue a writ of execution and a writ of possession in favor of respondent.
The dispositive portion of the Court of Appeals' decision, as affirmed by this Court, reads:
WHEREFORE, in view of all the foregoing considerations, the petition is GRANTED. Judgment is hereby rendered:    
1) setting aside the orders of the respondent judge dated January11, 1995 and March 29, 1996;

2) declaring the title issued to Biblia Toledo-Banaga, Jovita Tan and to those other subsequent transferee or
transferees, if any, as null and void;
 

3) ordering the Register of Deeds of General Santos City to issue new certificates of title to Candelario Damalerio
over the parcels of land in question;
 

4) ordering the respondent court to issue writ of execution for the enforcement of this decision and of the decision
in CA-G.R. SP No. 29868 (sic), as well as a writ of possession for the delivery to petitioner Damalerio of the
physical possession of the parcels of land subject matter of this case.
   

  SO ORDERED.[9]

The records of the case were subsequently remanded to the trial court for execution of judgment. Thus, on May 10,
1999, upon motion by private respondent, the trial court issued a writ of execution and a writ of possession for the
delivery of the subject property, denominated as Lot 2-G-2, to private respondent. The corresponding certificate of title
was also issued to private respondent in consonance with the final decision. Private respondent was placed in
possession of Lot 2-G-2, which he fenced with galvanized iron sheets.

Controversy arose anew when private respondent moved for the issuance of a special order for demolition of a
structure alleged to be erected within Lot 2-G-2. Petitioner objected, claiming that the structure is situated within Lot 2-
G-1, the adjacent property retained and still owned by petitioner. The two lots were previously part of a bigger parcel
of land before its subdivision sometime in the 1960's. To resolve the issue, the trial court directed both parties to
conduct a joint survey of the two lots. As the reports submitted by the two surveyors revealed conflicting results,
petitioner and private respondent jointly manifested that a relocation survey be made by the survey team from the

34
Department of Environment and Natural Resources (DENR). They further agreed before the trial court that they will
abide and honor the findings and recommendations of the survey team. [10]  Upon the trial court's order, Engr. Gerardo
Dida of the DENR conducted a relocation survey on January 13 and 14, 2000. The report submitted by Engr. Dida
indicated that Lot 2-G-1 had encroached on private respondent's Lot 2-G-2 by some 136 square meters.

On March 13, 2000, petitioner filed an Urgent Omnibus Motion for the conduct of a verification survey. In her motion,
petitioner alleged that the survey conducted was incomplete and prayed that a verification survey be conducted first
before Engr. Dida is called to testify on the survey report. Without ruling on the petitioner's motion, on March 30, 2000,
the trial court proceeded ex-parte in taking the testimony of Engr. Dida and directed both parties to submit their
respective memoranda.[11]

The trial court issued the first assailed order on August 4, 2000, approving the report submitted by Engr. Dida.
Petitioner filed a notice of appeal on the August 4, 2000 Order of the trial court but the same was denied when the trial
court issued the second assailed order on October 2, 2000. Petitioner moved for the reconsideration of the October 2,
2000 Order but the trial court denied the motion through the third assailed order of February 9, 2001.

Thereafter, petitioner instituted a special civil action for certiorari, prohibition and mandamus with a prayer for the
issuance of a writ of preliminary injunction with the Court of Appeals, seeking the nullification of the aforesaid subject
orders of the trial court and the approval of petitioner's notice of appeal. Petitioner questioned the trial court's
dismissal of its notice of appeal on the ground that the trial court has the ministerial duty to approve the notice of
appeal duly filed on time and to transmit the records of the case to the appellate court. On March 13, 2001, the Court
of Appeals issued a temporary restraining order to prevent the execution of the assailed orders and the demolition of
the structures alleged to be encroaching upon private respondent's property.

On July 4, 2001, the Court of Appeals dismissed the petition on the ground that petitioner failed to show that the trial
court committed grave abuse of discretion in approving the survey report submitted by Engr. Dida. Moreover, it ruled
that the resolution of the boundary dispute was an incident of the execution proceedings; thus, no appeal may be
taken from the trial court's order approving the survey report in accordance with Section 1(f), Rule 41 [12] of the Rules of
Court. The appellate court also declared petitioner to be bound by her manifestation to respect the survey report. In
any case, petitioner should have first moved for the reconsideration of the order approving the survey report instead of
immediately filing a notice of appeal, said the appellate court.

Not satisfied with the Court of Appeals' Decision, petitioner comes to this Court, imputing the following errors:
1. The Honorable Court of Appeals seriously erred when It ruled that the trial judge did not commit any grave
abuse of discretion in issuing the challenged Order dated 04 August 2001 and when it denied due course
to petitioner's petition and upheld the denial by the trial court of petitioner's Notice of Appeal from its
assailed Order.

2. The Honorable Court of Appeals seriously erred when it held that petitioner had acquiesced to the
execution of the assailed Order, hence, he is no longer allowed to appeal from such order.

3. The Honorable Court of Appeals seriously erred when it held that petitioner was estopped from assailing
the challenged Order.[13]
The instant petition poses the fundamental issue of whether or not the trial court correctly denied petitioner's notice of
appeal notwithstanding petitioner's allegation that the Order dated August 4, 2000 varied the terms of the final
judgment in G.R. No. 127941.

The Court of Appeals ruled that the determination of the boundary limits of Lot 2-G-2 was a matter incidental to the
execution of the decision in the main case; hence, the trial court's order of August 4, 2000, which approved the survey
report submitted by Engr. Dida, was not appealable in view of the proscription against appeal from an order of
execution. In like manner, private respondent contends that with the adoption of the 1997 Rules of Civil Procedure,
only the remedy of a special civil action of certiorari is available to a party prejudiced by an improper or irregular
execution.

The Court does not agree.

Even prior to the promulgation of the 1997 Rules of Civil Procedure, the rule that no appeal lies from an order or writ
directing the execution of a final judgment, for otherwise a case will not attain finality, is not absolute since a party
aggrieved by an improper or irregular execution of a judgment is not without a remedy. Thus, in  Limpin v. Intermediate
Appellate Court,[14] the Court enumerated the exceptional circumstances where a party may elevate the matter of an
improper execution for appeal, to wit:
There may, to be sure, be instances when an error may be committed in the course of execution proceedings
prejudicial to the rights of a party. These instances, rare though they may be, do call for correction by a superior court,
as where –                                                                                                                                    
35
1) the writ of execution varies the judgment;

2) there has been a change in the situation of the parties making execution inequitable or unjust;

3) execution is sought to be enforced against property exempt from execution;

4) it appears that the controversy has never been subject to the judgment of the court;

5) the terms of the judgment are not clear enough and there remains room for interpretation thereof; or

6) it appears that the writ of execution has been improvidently issued, or that it is defective in substance, or is
issued against the wrong party, or that the judgment debt has been paid or otherwise satisfied, or the writ was
issued without authority;[15]
In these exceptional circumstances, considerations of justice and equity dictate that there be some mode available to
the party aggrieved of elevating the question to a higher court. That mode of elevation may be either by appeal (writ of
error or certiorari), or by a special civil action of certiorari, prohibition, or mandamus. [16]

The aforementioned pronouncement has been reiterated in cases subsequent to the adoption of the 1997 Rules of
Civil Procedure.[17] The Court finds no sound justification to abandon the aforequoted pronouncement insofar as it
recognizes the filing of an ordinary appeal as a proper remedy to assail a writ or order issued in connection with the
execution of a final judgment, where a factual review in the manner of execution is called for to determine whether the
challenged writ or order has indeed varied the tenor of the final judgment.

To rule that a special civil action for certiorari constitutes the sole and exclusive remedy to assail a writ or order of
execution would unduly restrict the remedy available to a party prejudiced by an improper or illegal execution. A
special civil action for certiorari is not a mode of appeal where the appellate court reviews the errors of fact or law
committed by the lower court. The issue in a special civil action for certiorari is whether the lower court acted without
or in excess of jurisdiction or with grave abuse of discretion. [18]

In the instant case, an ordinary appeal is the more proper and adequate remedy to address the factual allegations
raised by petitioner. Petitioner's vigorous objection to the survey report centered on her position that it would alter the
present boundaries and result to awarding to private respondent a portion of Lot 2-G-1 belonging to her. In particular,
petitioner stressed that the survey conducted was inadequate as it was limited only to the properties registered in the
name of private respondent and it did not indicate the relative positions of the corners of the other adjacent lots in
relation to the corners of Lot 2-G-2.

From a perusal of the survey report it appears that the relocation of the boundaries of Lot 2-G-2 would reposition said
lot to the east by a few meters, resulting in the overlapping of its eastern boundaries with that of Lot 2-G-1, the
adjacent lot belonging to petitioner. Thus, petitioner is assailing the accuracy of the survey report as it would result in
either diminishing the area of Lot 2-G-1 or moving the area of said lot eastward so as to occupy the adjoining street.
The survey report appears to relocate also the boundary limit of private respondent's Lot 2-G-2 also eastward from the
direction of the other street. The determination of the correctness of the survey findings in relation to the boundary
limits of Lot 2-G-2 and Lot 2-G-1 is ultimately a factual question. Not only that, the effect of the survey findings on the
boundaries of the other adjacent lots not subject of the main case becomes an issue. The technical findings of the
surveyor as well as the trial court's appreciation thereof must undergo the scrutiny of the appellate process. The trial
court's order adopting and approving the survey report cannot be regarded as final and unappealable.

In addition, allegations of fraud, involving alterations in the technical descriptions used as basis of the survey, were
raised by petitioner. The question of whether or not the trial court committed an error in judgment insofar as it upheld
the accuracy of the survey report in light of petitioner's allegations can be resolved only by way of ordinary appeal.

Therefore, the more appropriate remedy is an ordinary appeal instead of a petition for certiorari, contrary to the stance
of private respondent. Raised by petitioner is the factual issue of discrepancy or alterations in the lot data
computations used as basis for the survey. This calls for a review of the case records.

36
It was also error for the appellate court to rule as it did that petitioner should have first sought clarification with the trial
court or moved for the reconsideration of the August 4, 2000 Order before filing the notice of appeal in order to clarify
the import of the court's approval of the survey report in relation to the writ of execution issued. From a reading of the
August 4, 2000 Order, there is no question that the trial court found the survey report accurate despite petitioner's
allegation that it was incomplete and not based on authentic survey records with the DENR. Besides, petitioner had
already raised her objections in the Urgent Omnibus Motion and extensively discussed them in her memorandum. The
trial court's failure to rule on petitioner's Urgent Omnibus Motion and its approval of the survey report only indicate that
the trial court found petitioner's arguments to be without merit. A motion for reconsideration or clarification would only
be repetitious of petitioner's allegations and arguments and come out as useless in the trial court's reckoning.
Moreover, a motion for reconsideration is not required before appealing a judgment or final order.

While it is correct that petitioner bound herself to abide by the findings of the survey team, the waiver does not include
future fraud. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud
is void.[19] Petitioner brought up allegations of discrepancy and alterations in the lot data computations used in the
survey when compared to data found in DENR records. Petitioner's waiver cannot be taken to cover allegations of
fraud.

All given, the Court of Appeals erred in ruling that the trial court did not commit grave abuse of discretion in dismissing
petitioner's notice of appeal.

Private respondent contends that the petition should be dismissed for violating Section 11, Rule 13 of the Rules of
Court. In his affidavit of service, petitioner's counsel stated that copies of the petition were furnished the
parties/counsel via registered mail due to the distance of the offices of petitioner and private respondent's counsels.
According to private respondent, said statement is false because the distance between the offices is only about 15
meters.

In adjudging the plausibility of an explanation, a court shall likewise consider the importance of the subject matter of
the case or the issues involved therein, and the prima facie merit of the pleading sought to be expunged for violation
of Section 11.[20] The basis of allowing the appellate review of the trial court's order approving the survey is to afford
petitioner the opportunity to prove her claim that she bears the risk of being illegally deprived of a property belonging
to her. Thus, the dismissal of this petition on a mere technicality will ignore the constitutional provision against
depriving a person of his property without due process of law. Besides, the proximity between the offices of opposing
counsel had not been clearly established. The Rules shall be liberally construed in order to promote their objective of
securing a just, speedy and inexpensive disposition of every action and proceeding. [21]

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 63375 is
REVERSED and SET ASIDE. A new judgment is entered NULLIFYING the orders dated February 9, 2001 and
October 2, 2000 of the Regional Trial Court, Branch 23, General Santos City.

The trial court is directed to give due course to petitioner's appeal of its Order dated August 4, 2000 and transmit the
records of the case to the Court of Appeals after payment of appellate docket and other lawful fees with deliberate
dispatch.

SO ORDERED.

Quisumbing, (Chairperson), Carpio, Carpio Morales, and Velasco, Jr., JJ., concur.

37
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.

Office of the Solicitor General for plaintiff-appellee.

H. San Luis and L.V. Simbulan for defendant-appellant.

REYES, J.B.L., J.:

The present case comes by direct appeal from a decision of the Court of First Instance of Manila (Case No. 44572)
adjudging the defendant-appellant, Luzon Stevedoring Corporation, liable in damages to the plaintiff-appellee
Republic of the Philippines.

In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation was being
towed down the Pasig river by tugboats "Bangus" and "Barbero" 1 also belonging to the same corporation, when the
barge rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the posts and causing the
bridge to list. The river, at the time, was swollen and the current swift, on account of the heavy downpour of Manila
and the surrounding provinces on August 15 and 16, 1960.

Sued by the Republic of the Philippines for actual and consequential damage caused by its employees, amounting to
P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon Stevedoring Corporation disclaimed liability
therefor, on the grounds that it had exercised due diligence in the selection and supervision of its employees; that the
damages to the bridge were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan
bailey bridge is an obstruction to navigation.

After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the damage caused by
its employees and ordering it to pay to plaintiff the actual cost of the repair of the Nagtahan bailey bridge which
amounted to P192,561.72, with legal interest thereon from the date of the filing of the complaint.

Defendant appealed directly to this Court assigning the following errors allegedly committed by the court a quo, to wit:

I — The lower court erred in not holding that the herein defendant-appellant had exercised the diligence
required of it in the selection and supervision of its personnel to prevent damage or injury to
others.1awphîl.nèt

II — The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by barge L-1892 was
caused by force majeure.

III — The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction, if not a menace, to
navigation in the Pasig river.

IV — The lower court erred in not blaming the damage sustained by the Nagtahan bailey bridge to the
improper placement of the dolphins.

V — The lower court erred in granting plaintiff's motion to adduce further evidence in chief after it has rested
its case.

VI — The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for damages which is
clearly exorbitant and without any factual basis.

However, it must be recalled that the established rule in this jurisdiction is that when a party appeals directly to the
Supreme Court, and submits his case there for decision, he is deemed to have waived the right to dispute any finding
of fact made by the trial Court. The only questions that may be raised are those of law (Savellano vs. Diaz, L-17441,
July 31, 1963; Aballe vs. Santiago, L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A
converso, a party who resorts to the Court of Appeals, and submits his case for decision there, is barred from
contending later that his claim was beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule
would encourage the undesirable practice of appellants' submitting their cases for decision to either court in
expectation of favorable judgment, but with intent of attacking its jurisdiction should the decision be unfavorable
(Tyson Tan, et al. vs. Filipinas Compañia de Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23,
1966). Consequently, we are limited in this appeal to the issues of law raised in the appellant's brief.

38
Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal are reduced to
two:

1) Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan bridge was in
law caused by fortuitous event or force majeure, and

2) Whether or not it was error for the Court to have permitted the plaintiff-appellee to introduce additional
evidence of damages after said party had rested its case.

As to the first question, considering that the Nagtahan bridge was an immovable and stationary object and
uncontrovertedly provided with adequate openings for the passage of water craft, including barges like of appellant's,
it is undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed the bridge supports
raises a presumption of negligence on the part of appellant or its employees manning the barge or the tugs that towed
it. For in the ordinary course of events, such a thing does not happen if proper care is used. In Anglo American
Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H
& C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529,
149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W.
2d 719).

The appellant strongly stresses the precautions taken by it on the day in question: that it assigned two of its most
powerful tugboats to tow down river its barge L-1892; that it assigned to the task the more competent and experienced
among its patrons, had the towlines, engines and equipment double-checked and inspected; that it instructed
its  patrons to take extra precautions; and concludes that it had done all it was called to do, and that the accident,
therefore, should be held due to force majeure or fortuitous event.

These very precautions, however, completely destroy the appellant's defense. For caso fortuito or  force
majeure (which in law are identical in so far as they exempt an obligor from liability) 2 by definition, are extraordinary
events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable"
(Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso fortuito por la sola
circunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente del presento ofensor" (Peirano
Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The very
measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen,
and was not caso fortuito.

Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the
swollen stream and its swift current, voluntarily entered into a situation involving obvious danger; it therefore assured
the risk, and can not shed responsibility merely because the precautions it adopted turned out to be insufficient.
Hence, the lower Court committed no error in holding it negligent in not suspending operations and in holding it liable
for the damages caused.

It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located. Even if true, these
circumstances would merely emphasize the need of even higher degree of care on appellant's part in the situation
involved in the present case. The appellant, whose barges and tugs travel up and down the river everyday, could not
safely ignore the danger posed by these allegedly improper constructions that had been erected, and in place, for
years.

On the second point: appellant charges the lower court with having abused its discretion in the admission of plaintiff's
additional evidence after the latter had rested its case. There is an insinuation that the delay was deliberate to enable
the manipulation of evidence to prejudice defendant-appellant.

We find no merit in the contention. Whether or not further evidence will be allowed after a party offering the evidence
has rested his case, lies within the sound discretion of the trial Judge, and this discretion will not be reviewed except in
clear case of abuse.3

In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after plaintiff had rested
its evidence in chief, were vouchers and papers to support an item of P1,558.00 allegedly spent for the reinforcement
of the panel of the bailey bridge, and which item already appeared in Exhibit GG. Appellant, in fact, has no reason to
charge the trial court of being unfair, because it was also able to secure, upon written motion, a similar order dated
November 24, 1962, allowing reception of additional evidence for the said defendant-appellant. 4

39
WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby affirmed. Costs
against the defendant-appellant.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.

40
JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and ANTHONY C.
SYQUIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY, INC., respondents.

Pacis & Reyes Law Offices for petitioners.

Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents.

CAMPOS, JR., J.:

Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and Anthony Syquia,
were the parents and siblings, respectively, of the deceased Vicente Juan Syquia. On March 5, 1979, they filed a
complaint1 in the then Court of First Instance against herein private respondent, Manila Memorial Park Cemetery, Inc.
for recovery of damages arising from breach of contract and/or quasi-delict. The trial court dismissed the complaint.

The antecedent facts, as gathered by the respondent Court, are as follows:

On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiff-appellants
herein, filed a complaint for damages against defendant-appellee, Manila Memorial Park Cemetery,
Inc.

The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated
August 27, 1969 and Interment Order No. 7106 dated July 21, 1978 executed between plaintiff-
appellant Juan J. Syquia and defendant-appellee, the former, father of deceased Vicente Juan J.
Syquia authorized and instructed defendant-appellee to inter the remains of deceased in the Manila
Memorial Park Cemetery in the morning of July 25, 1978 conformably and in accordance with
defendant-appellant's (sic) interment procedures; that on September 4, 1978, preparatory to
transferring the said remains to a newly purchased family plot also at the Manila Memorial Park
Cemetery, the concrete vault encasing the coffin of the deceased was removed from its niche
underground with the assistance of certain employees of defendant-appellant (sic); that as the
concrete vault was being raised to the surface, plaintiffs-appellants discovered that the concrete vault
had a hole approximately three (3) inches in diameter near the bottom of one of the walls closing out
the width of the vault on one end and that for a certain length of time (one hour, more or less), water
drained out of the hole; that because of the aforesaid discovery, plaintiffs-appellants became agitated
and upset with concern that the water which had collected inside the vault might have risen as it in
fact did rise, to the level of the coffin and flooded the same as well as the remains of the deceased
with ill effects thereto; that pursuant to an authority granted by the Municipal Court of Parañaque,
Metro Manila on September 14, 1978, plaintiffs-appellants with the assistance of licensed morticians
and certain personnel of defendant-appellant (sic) caused the opening of the concrete vault on
September 15, 1978; that upon opening the vault, the following became apparent to the plaintiffs-
appellants: (a) the interior walls of the concrete vault showed evidence of total flooding; (b) the coffin
was entirely damaged by water, filth and silt causing the wooden parts to warp and separate and to
crack the viewing glass panel located directly above the head and torso of the deceased; (c) the entire
lining of the coffin, the clothing of the deceased, and the exposed parts of the deceased's remains
were damaged and soiled by the action of the water and silt and were also coated with filth.

Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver
a defect-free concrete vault designed to protect the remains of the deceased and the coffin against
the elements which resulted in the desecration of deceased's grave and in the alternative, because of
defendant-appellee's gross negligence conformably to Article 2176 of the New Civil Code in failing to
seal the concrete vault, the complaint prayed that judgment be rendered ordering defendant-appellee
to pay plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for moral damages,
exemplary damages in the amount determined by the court, 20% of defendant-appellee's total liability
as attorney's fees, and expenses of litigation and costs of suit. 2

In dismissing the complaint, the trial court held that the contract between the parties did not guarantee that the cement
vault would be waterproof; that there could be no quasi-delict because the defendant was not guilty of any fault or
negligence, and because there was a pre-existing contractual relation between the Syquias and defendant Manila
Memorial Park Cemetery, Inc.. The trial court also noted that the father himself, Juan Syquia, chose the gravesite
despite knowing that said area had to be constantly sprinkled with water to keep the grass green and that water would
eventually seep through the vault. The trial court also accepted the explanation given by defendant for boring a hole at

41
the bottom side of the vault: "The hole had to be bored through the concrete vault because if it has no hole the vault
will (sic) float and the grave would be filled with water and the digging would caved (sic) in the earth, the earth would
caved (sic) in the (sic) fill up the grave."3

From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the contract allowed
the flooding of the vault; that there was no desecration; that the boring of the hole was justifiable; and in not awarding
damages.

The Court of Appeals in the Decision4 dated December 7, 1990 however, affirmed the judgment of dismissal.
Petitioner's motion for reconsideration was denied in a Resolution dated April 25, 1991. 5

Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein that the
Court of Appeals committed the following errors when it:

1. held that the contract and the Rules and Resolutions of private respondent allowed the flooding of
the vault and the entrance thereto of filth and silt;

2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of
desecration was committed;

3. overlooked and refused to consider relevant, undisputed facts, such as those which have been
stipulated upon by the parties, testified to by private respondent's witnesses, and admitted in the
answer, which could have justified a different conclusion;

4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence;
and

5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and
exemplary damages, and attorney's fees.

At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of the deceased
kin of the bereaved petitioners. The latter allege that such act was either a breach of private respondent's contractual
obligation to provide a sealed vault, or, in the alternative, a negligent act which constituted a quasi-delict. Nonetheless,
petitioners claim that whatever kind of negligence private respondent has committed, the latter is liable for desecrating
the grave of petitioners' dead.

In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc., breached its
contract with petitioners; or, alternatively, whether private respondent was guilty of a tort.

We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more inclined to
answer the foregoing questions in the negative. There is not enough ground, both in fact and in law, to justify a
reversal of the decision of the respondent Court and to uphold the pleas of the petitioners.

With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the Court of
Appeals found no negligent act on the part of private respondent to justify an award of damages against it. Although a
pre-existing contractual relation between the parties does not preclude the existence of a culpa aquiliana, We find no
reason to disregard the respondent's Court finding that there was no negligence.

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict . . . . (Emphasis supplied).

In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered
into a contract entitled "Deed of Sale and Certificate of Perpetual Care" 6 on August 27, 1969. That agreement
governed the relations of the parties and defined their respective rights and obligations. Hence, had there
been actual negligence on the part of the Manila Memorial Park Cemetery, Inc., it would be held liable not for
a quasi-delict or culpa aquiliana, but for culpa contractual  as provided by Article 1170 of the Civil Code, to wit:

Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.

42
The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the interment. Rule 17
of the Rules and Regulations of private respondent provides that:

Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone,
brick or concrete, the actual installment of which shall be made by the employees of the Association. 7

Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before the interment,
and was, on the same day, installed by private respondent's employees in the grave which was dug earlier. After the
burial, the vault was covered by a cement lid.

Petitioners however claim that private respondent breached its contract with them as the latter held out in the brochure
it distributed that the . . . lot may hold single or double internment (sic) underground in sealed concrete
vault."8 Petitioners claim that the vault provided by private respondent was not sealed, that is, not waterproof.
Consequently, water seeped through the cement enclosure and damaged everything inside it.

We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in the Rules and
Regulations of the Manila Memorial Park Cemetery, Inc. that the vault would be waterproof. Private respondent's
witness, Mr. Dexter Heuschkel, explained that the term "sealed" meant "closed." 9 On the other hand, the word "seal" is
defined as . . . any of various closures or fastenings . . . that cannot be opened without rupture and that serve as a
check against tampering or unauthorized opening." 10 The meaning that has been given by private respondent to the
word conforms with the cited dictionary definition. Moreover, it is also quite clear that "sealed" cannot be equated with
"waterproof". Well settled is the rule that when the terms of the contract are clear and leave no doubt as to the
intention of the contracting parties, then the literal meaning of the stipulation shall control. 11 Contracts should be
interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. 12 As
ruled by the respondent Court:

When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the
attached Rules and Regulations (Exhibit "1"), it can be assumed that he has accepted defendant-
appellee's undertaking to merely provide a concrete vault. He can not now claim that said concrete
vault must in addition, also be waterproofed (sic). It is basic that the parties are bound by the terms of
their contract, which is the law between them (Rizal Commercial Banking Corporation vs. Court of
Appeals, et al. 178 SCRA 739). Where there is nothing in the contract which is contrary to law,
morals, good customs, public order, or public policy, the validity of the contract must be sustained
(Phil. American Insurance Co. vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a
contracting party cannot incur a liability more than what is expressly specified in his undertaking. It
cannot be extended by implication, beyond the terms of the contract (Rizal Commercial Banking
Corporation vs. Court of Appeals, supra). And as a rule of 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, is the only instrument of evidence in respect of that agreement which the law will
recognize, so long as its (sic) exists for the purpose of evidence (Starkie, Ev., pp. 648, 655,
Kasheenath vs. Chundy, 5 W.R. 68 cited in Francisco, Revised Rules of Court in the Phil. p. 153,
1973 Ed.). And if the terms of the contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control (Santos vs. CA, et al., G. R. No.
83664, Nov. 13, 1989; Prudential Bank & Trust Co. vs. Community Builders Co., Inc., 165 SCRA 285;
Balatero vs. IAC, 154 SCRA 530). 13

We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While this may be
so, can private respondent be liable for culpa aquiliana for boring the hole on the vault? It cannot be denied that the
hole made possible the entry of more water and soil than was natural had there been no hole.

The law defines negligence as the "omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place." 14 In the absence of stipulation or
legal provision providing the contrary, the diligence to be observed in the performance of the obligation is that which is
expected of a good father of a family.

The circumstances surrounding the commission of the assailed act — boring of the hole — negate the allegation of
negligence. The reason for the act was explained by Henry Flores, Interment Foreman, who said that:

Q It has been established in this particular case that a certain Vicente Juan Syquia
was interred on July 25, 1978 at the Parañaque Cemetery of the Manila Memorial
Park Cemetery, Inc., will you please tell the Hon. Court what or whether you have
participation in connection with said internment (sic)?

43
 A A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging
the next morning a vault was taken and placed in the grave and when the vault was
placed on the grave a hole was placed on the vault so that water could come into the
vault because it was raining heavily then because the vault has no hole the vault will
float and the grave would be filled with water and the digging would caved (sic) in and
the earth, the earth would (sic) caved in and fill up the grave. 15 (Emphasis ours)

Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from the above-
mentioned explanation, private respondent has exercised the diligence of a good father of a family in preventing the
accumulation of water inside the vault which would have resulted in the caving in of earth around the grave filling the
same with earth.

Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award damages in
favor of petitioners.

In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence, We are
constrained to AFFIRM in toto the decision of the respondent Court of Appeals dated December 7, 1990. No costs.

SO ORDERED.

Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.

44
PHILIPPINE NATIONAL BANK, PETITIONER, VS. COURT OF APPEALS AND LILY S. PUJOL, RESPONDENTS.

DECISION
BELLOSILLO, J.:
PHILIPPINE NATIONAL BANK filed this petition for review on certiorari under Rule 45 of the Rules of Court assailing
the Decision of the Court of Appeals[1] which affirmed the award of damages by the Regional Trial Court, Branch 154,
Pasig City in favor of private respondent Lily S. Pujol. [2]

Sometime prior to 23 October 1990 private respondent Lily S. Pujol opened with petitioner Philippine National Bank,
Mandaluyong Branch (PNB for brevity), an account denominated as "Combo Account," a combination of Savings
Account and Current Account in private respondent's business name "Pujol Trading," under which checks drawn
against private respondent’s checking account could be charged against her Savings Account should the funds in her
Current Account be insufficient to cover the value of her checks. Hence, private respondent was issued by petitioner a
passbook on the front cover of which was typewritten the words "Combo Deposit Plan."

On 23 October 1990, private respondent issued a check in the amount of P30,000.00 in favor of her daughter-in-law,
Dr. Charisse M. Pujol. When issued and presented for payment, private respondent had sufficient funds in her
Savings Account. However, petitioner dishonored her check allegedly for insufficiency of funds and debited her
account with P250.00 as penalty charge.

On 24 October 1990 private respondent issued another check in the amount of P30,000.00 in favor of her daughter,
Ms. Venus P. De Ocampo. When issued and presented for payment petitioner had sufficient funds in her Savings
Account. But, this notwithstanding, petitioner dishonored her check for insufficiency of funds and debited her account
with P250.00 as penalty charge. On 4 November 1990, after realizing its mistake, petitioner accepted and honored the
second check for P30,000.00 and re-credited to private respondent’s account the P250.00 previously debited as
penalty.

Private respondent Lily S. Pujol filed with the Regional Trial Court of Pasig City a complaint for moral and exemplary
damages against petitioner for dishonoring her checks despite sufficiency of her funds in the bank.

Petitioner admitted in its answer that private respondent Pujol opened a "Combo Account," a combination of Savings
Account and Current Account, with its Mandaluyong branch. It however justified the dishonor of the two (2) checks by
claiming that at the time of their issuance private respondent Pujol’s account was not yet operational due to lack of
documentary requirements, to wit: (a) Certificate of Business Registration; (b) Permit to Operate Business; (c) ID
Card; and, (d) Combination Agreement. Petitioner further alleged that despite the non-compliance with such
requirements petitioner placed the sign "Combo Flag" on respondent Pujol’s account out of courtesy and generosity.
Petitioner also admitted that it later honored private respondent's second check, debited the amount stated therein
from her account and re-credited the amount of P250.00 initially charged as penalty.

On 27 September 1994 the trial court rendered a decision ordering petitioner to pay private respondent Pujol moral
damages of P100,000.00 and attorney’s fees of P20,000.00. It found that private respondent suffered mental anguish
and besmirched reputation as a result of the dishonor of her checks, and that being a former member of the judiciary
who was expected to be the embodiment of integrity and good behavior, she was subjected to embarrassment due to
the erroneous dishonor of her checks by petitioner.

The Court of Appeals affirmed in toto the decision of the trial court. Hence, petitioner comes to this Court alleging that
the appellate court erred (a) in holding that petitioner was estopped from denying the existence of a "Combo Account"
and the fact that it was operational at the time of the issuance of the checks because respondent Pujol was issued a
Savings Account passbook bearing the printed words "Combo Deposit Plan;" and, (b) in not holding that the award by
the trial court of moral damages of P100,000.00 and attorney’s fees of P20,000.00 was inordinately disproportionate
and unconscionable.

We cannot sustain petitioner. Findings of fact and conclusions of the lower courts are entitled to great weight on
appeal and will not be disturbed except for strong and cogent reasons, and for that matter, the findings of the Court of
Appeals especially when they affirm the trial court, and which are supported by substantial evidence, are almost
beyond the power of review by the Supreme Court.[3]

Petitioner does not dispute the fact that private respondent Pujol maintained a Savings Account as well as a Current
Account with its Mandaluyong Branch and that private respondent applied for a "Combination Deposit Plan" where
checks issued against the Current Account of the drawer shall be charged automatically against the latter’s Savings
45
Account if her funds in the Current Account be insufficient to cover her checks. There was also no question that the
Savings Account passbook of respondent Pujol contained the printed words "Combo Deposit Plan" without
qualification or condition that it would take effect only after submission of certain requirements. Although petitioner
presented evidence before the trial court to prove that the arrangement was not yet operational at the time respondent
Pujol issued the two (2) checks, it failed to prove that she had actual knowledge that it was not yet operational at the
time she issued the checks considering that the passbook in her Savings Account already indicated the words
"Combo Deposit Plan." Hence, respondent Pujol had justifiable reason to believe, based on the description in her
passbook, that her accounts were effectively covered by the arrangement during the issuance of the checks. Either by
its own deliberate act, or its negligence in causing the "Combo Deposit Plan" to be placed in the passbook, petitioner
is considered estopped to deny the existence of and perfection of the combination deposit agreement with respondent
Pujol. Estoppel in pais or equitable estoppel arises when one, by his acts, representations or admissions, or by his
silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain
facts to exist and such other rightfully relies and acts on such belief so that he will be prejudiced if the former is
permitted to deny the existence of such facts.[4]

As found by the Court of Appeals, petitioner knew it committed a mistake in dishonoring the checks of respondent
Pujol. This was based on the testimony of Pedro Lopez, petitioner’s employee, that after the second check was
dishonored, petitioner examined respondent Pujol’s account and learned that there was sufficient funds in the Savings
Account, and that only after the second check was dishonored did petitioner rectify its error. [5] The appellate court also
found that respondent Pujol, who is a retired judge and community leader, issued the first check dated 23 October
1990 to her daughter-in-law, Dr. Charisse Pujol, who in turn indorsed the check to her mother. The latter needed the
money to refloat two (2) of their vessels which sank during a typhoon. When the check was dishonored for insufficient
funds, private respondent’s daughter-in-law confronted the former which subjected her to embarrassment and
humiliation. Petitioner issued the second check dated 24 October 1990 to daughter Venus de Ocampo as payment for
the expenses of her round trip ticket to the United States which were shouldered by her son-in-law, husband of Venus
de Ocampo. When the second check was initially dishonored for insufficiency of funds, she again suffered serious
anxiety and mental anguish that her son-in-law would no longer hold her in high esteem. [6]

This Court has ruled that a bank is under obligation to treat the accounts of its depositors with meticulous care
whether such account consists only of a few hundred pesos or of millions of pesos. Responsibility arising from
negligence in the performance of every kind of obligation is demandable. While petitioner’s negligence in this case
may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and
humiliation to private respondent Lily S. Pujol for which she is entitled to recover reasonable moral damages. [7] In the
case of Leopoldo Araneta v. Bank of America [8] we held that it can hardly be possible that a customer’s check can be
wrongfully refused payment without some impeachment of his credit which must in fact be an actual injury, although
he cannot, from the nature of the case, furnish independent and distinct proof thereof.

Damages are not intended to enrich the complainant at the expense of the defendant, and there is no hard-and-fast
rule in the determination of what would be a fair amount of moral damages since each case must be governed by its
own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive. In this case, the award
of P100,000.00 is reasonable considering the reputation and social standing of private respondent Pujol and applying
our rulings in similar cases involving banks’ negligence with regard to the accounts of their depositors. [9] The award of
attorney’s fees in the amount of P20,000.00 is proper for respondent Pujol was compelled to litigate to protect her
interest.[10]

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals which affirmed the award by the
Regional Trial Court of Pasig City of moral damages of P100,000.00 and attorney’s fees of P20,000.00 in favor of
private respondent Lily S. Pujol is AFFIRMED. Costs against petitioner.

SO ORDERED.

Mendoza, Quisumbing, and Buena, JJ., concur.

46
MANOLO P. SAMSON, petitioner,
vs.
COURT OF APPEALS, SANTOS & SONS, INC., and ANGEL SANTOS, respondents.

Clara Dumandan-Singh for petitioner.

Paterno A. Catacutan for private respondents.

PUNO, J.:

Petitioner MANOLO P. SAMSON prays for the reversal of the Decision of the Court of Appeals, dated November 27,
1992,1 modifying the decision of the Regional Trial Court of Pasig, Branch 157, dated November 29, 1990, and
absolving private respondent Angel Santos from liability for the damages sustained by petitioner.

The antecedent facts, as borne by the records, are as follows:

The subject matter of this case is a commercial unit at the Madrigal Building, located at Claro M. Recto Avenue, Sta.
Cruz, Manila. The building is owned by Susana Realty Corporation and the subject premises was leased to private
respondent Angel Santos. The lessee's haberdashery store, Santos & Sons, Inc., occupied the premises for almost
twenty (20) years on a yearly basis.2 Thus, the lease contract in force between the parties in the year 1983 provided
that the term of the lease shall be one (1) year, starting on August 1, 1983 until July 31, 1984. 3

On June 28, 1984, the lessor Susana Realty Corporation, through its representative Mr. Jes Gal R. Sarmiento, Jr.,
informed respondents that the lease contract which was to expire on July 31, 1984 would not be renewed. 4

Nonetheless, private respondent's lease contract was extended until December 31, 1984. 5 Private respondent also
continued to occupy the leased premises beyond the extended term.

On February 5, 1985, private respondent received a letter6 from the lessor, through its Real Estate Accountant Jane F.
Bartolome, informing him of the increase in rentals, retroactive to January 1985,  pending renewal of his contract until
the arrival of Ms. Ma. Rosa Madrigal (one of the owners of Susana Realty).

Four days later or on February 9, 1985, petitioner Manolo Samson saw private respondent in the latter's house and
offered to buy the store of Santos & Sons and his right to lease the subject premises. 7 Petitioner was advised to return
after a week.

On February 15, 1985, petitioner returned to private respondent's house to confirm his offer. On said occasion, private
respondent presented petitioner with a letter containing his counter proposal, thus:

MANOLO SAMSON
Marikina, Metro Manila

Sir:

In line with our negotiation to sell our rights in the Madrigal building at Recto, Rizal
Avenue, I propose the following:

1. The lease contract between Santos and Sons, Inc. and Madrigal was impliedly
renewed. It will be formally renewed this monthly (sic) when Tanya Madrigal arrives.

2. To avoid breach of contract with Madrigal, I suggest that you acquire all our shares
in Santos and Sons, Inc.

3. I will answer and pay all obligations of Santos and Sons, Inc. as of February 28,
1985.

Very truly yours,

Angel C. Santos

47
Petitioner affixed his signature on the letter-proposal signifying his acceptance. 8 They agreed that the consideration for
the sale of the store and leasehold right of Santos & Sons, Inc. shall be P300,000.00.

On February 20, 1985, petitioner paid P150,000.00 to private respondent representing the value of existing
improvements in the Santos & Sons store. The parties agreed that the balance of P150,000.00 shall be paid upon the
formal renewal of the lease contract between private respondent and Susana Realty. It was also a condition precedent
to the transfer of the leasehold right of private respondent to petitioner. 9

In March 1985, petitioner began to occupy the Santos & Sons store. He utilized the store for the sale of his own
goods.10

All went well for a few months. In July 1985, however, petitioner received a notice from Susana Realty, addressed to
Santos & Sons, Inc., directing the latter to vacate the leased premises on or before July 15, 1985. 11 Private
respondent failed to renew his lease over the premises and petitioner was forced to vacate the same on July 16, 1985.

Petitioner then filed an action for damages against private respondent. He imputed fraud and bad faith against private
respondent when the latter stated in his letter-proposal that his lease contract with Susana Realty has been impliedly
renewed. Petitioner claimed that this misrepresentation induced him to purchase the store of Santos & Sons and the
leasehold right of private respondent.

In defense, respondent alleged that their agreement was to the effect that the consideration for the sale was
P300,000.00, broken down as follows: P150,000.00 shall be for the improvements in the store, and the balance of
P150,000.00 shall be for the sale of the leasehold right of Santos & Sons over the subject premises. The balance shall
be paid only after the formal renewal of the lease contract and its actual transfer to petitioner.

Trial on the merits ensued. On November 29, 1990, the trial court rendered a decision 12 in favor of petitioner. The
dispositive portion reads:

WHEREFORE, AND IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of
plaintiff Manolo P. Samson and against defendants Santos and Sons, Inc., and Angel C. Santos,
ordering the said defendants to pay jointly and severally unto the plaintiff:

1. The sum of P150,000.00, representing the cash advance payment for the store
and the right to occupy its leased premises subject matter of the sale involved, with
interest thereon at the legal rate from the filing of the complaint on November 5, 1985
until the same is fully paid;

2. The sum of P70,000.00 representing the cost of additional improvements of the

store sold, also with legal interest from November 5, 1985 until the full payment
thereof;

3. The sum of P150,000.00, representing the loss that the plaintiff suffered from the
sale at bargain prices of the goods taken out of the store, with legal interest thereon
from the (d)ate of this decision until the same is fully paid;

4. The sum of P100,000.00 representing the profits which plaintiff failed to realize
from the sale of the goods referred to above, with legal interest thereon from the date
of the decision until said amount is fully paid;

5. The amounts of P100,000.00 and P50,000.00 as moral and exemplary damages,

respectively, also with legal interest thereon, from the date of this judgment until fully
paid; and

6. The sum of P45,000.00 as and for attorney's fees and expenses of litigation, in
addition to judicial costs.

On the defendants' counterclaim, the plaintiff is ordered to return to the defendants the latter's steel
filing cabinet, adding machine, typewriter and all its unused sales invoices, receipts and blank checks,
if the plaintiff still has any of the said papers or documents.

SO ORDERED.13
48
Private respondent appealed to the Court of Appeals. In a Decision dated November 27, 1992, 14 the appellate court
modified the decision of the trial court after finding that private respondent did not exercise fraud or bad faith in its
dealings with petitioner. The dispositive portion of the impugned decision reads:

WHEREFORE, the appealed decision is hereby MODIFIED by reducing the amounts the trial court
awarded to appellee Manolo P. Samson in that appellants Santos & Sons, Inc. and Angel C. Santos
are ordered to pay appellee, by way of reimbursement, the P150,000.00 which the latter gave
appellants as advance payment for their store and lease right with legal interest to be reckoned from
the promulgation date of this decision; and AFFIRMED with respect to the trial court's judgment
ordering appellee to return to appellants the latter's filing cabinet, adding machine, typewriter, and all
their unused sales invoices, receipts and blank checks, if appellee still has any of these documents.
No costs.

SO ORDERED.15

Hence this petition for review with the following assigned errors:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DISREGARDING THE FOLLOWING

FACTUAL FINDINGS OF THE TRIAL COURT:

1. THAT RESPONDENTS DELIBERATELY AND FRAUDULENTLY CONCEALED

FROM THE PETITIONER THE FACT THAT THE LEASE ON THE SUBJECT
STORE PREMISES HAD ALREADY EXPIRED AND WOULD NO LONGER BE
RENEWED BY THE LESSOR.

2. THAT SOLELY BY REASON OF RESPONDENTS' FRAUDULENT CONDUCT

AND BAD FAITH, PETITIONER EXERCISING THE DILIGENCE REQUIRED
UNDER THE CIRCUMSTANCES, THE LATTER INCURRED DAMAGES AND
LOSSES.

II

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING RESPONDENTS FREE

FROM LIABILITY TO PETITIONER FOR THE DAMAGES THE LATTER HAD INCURRED ON
ACCOUNT OF THE RESPONDENTS' BAD FAITH.

The pivotal issue in the case at bench is whether or not private respondent Angel Santos committed fraud or bad faith
in representing to petitioner that his contract of lease over the subject premises has been impliedly renewed by
Susana Realty. Undoubtedly, it was this representation which induced petitioner to enter into the subject contract with
private respondent.

We find the petition devoid of merit.

Bad faith is essentially a state of mind affirmatively operating with furtive design or with some motive of ill-will. 16 It does
not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious
doing of wrong.17 Bad faith is thus synonymous with  fraud and involves a design to mislead or deceive another, not
prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive. 18

In contracts, the kind of fraud that will vitiate consent is one where, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed
to.19 This is known as dolo causante or causal fraud which is basically a deception employed by one party prior to or
simultaneous to the contract in order to secure the consent of the other.

Petitioner claims that their agreement was that the amount of P300,000.00 is the consideration for the transfer of
private respondent's leasehold right to him and he paid P150,000.00 as downpayment therefor. He insists that private
respondent acted in bad faith in assuring him that his lease contract with Susana Realty has been impliedly renewed
and would be formally renewed upon the arrival of Tanya Madrigal (representative of Susana Realty). As evidence of
private respondent's bad faith, petitioner stresses that private respondent himself admitted that prior to February 15,

49
1985, he was informed by his lawyer that he could not yet sell his lease right to petitioner for his lease over the
premises has not been renewed by Susana Realty Corporation.

After carefully examining the records, we sustain the finding of public respondent Court of Appeals that private
respondent was neither guilty of fraud nor bad faith in claiming that there was implied renewal of his contract of lease
with Susana Realty. The records will bear that the original contract of lease between the lessor Susana Realty and the
lessee private respondent was for a period of one year, commencing on August 1, 1983 until July 31, 1984.
Subsequently, however, private respondent's lease was extended until December 31, 1984. At this point, it was clear
that the lessor had no intention to renew the lease contract of private respondent for another year. However, on
February 5, 1985, the lessor, thru its Real Estate Accountant, sent petitioner a letter 20 of even date, worded as follows:

February 5, 1985

Mr. Angel Santos

1609-1613 C.M. Recto Avenue
Sta. Cruz, Manila

Dear Mr. Santos:

This is to notify you that the rentals for the 1609-1613 C.M. Recto Avenue, Sta. Cruz,
Manila, which you are leasing with (sic) us has been increased from P77.81 to
P100.00 per square meter retroactive January 1985 (as you have not vacated the
place) pending renewal of your contract until the arrival of Miss Ma. Rosa
A.S.  Madrigal.

Thus, your new rate will be PESOS: FOURTEEN THOUSAND TWO HUNDRED
FIFTY ONLY (P14,250.00) since you are occupying One Hundred Forty-Two and
50/100 square meters.

Please note that we are charging the same for everybody and they all agreed to pay
the new rate.

We do expect your full cooperation with regards (sic) to this matter.

Very truly yours,

(Sgd.) JANE F. BARTOLOME

Accountant-Real Estate

Clearly, this letter led private respondent to believe and conclude that his lease contract was impliedly renewed and
that formal renewal thereof would be made upon the arrival of Tanya Madrigal. This much was admitted by petitioner
himself when he testified during cross-examination that private respondent initially told him of the fact that his lease
contract with Susana Realty has already expired but he was anticipating its formal renewal upon the arrival of
Madrigal. 21 Thus, from the start, it was known to both parties that, insofar as the agreement regarding the transfer of
private respondent's leasehold right to petitioner was concerned, the object thereof relates to a future right. 22 It is a
conditional contract recognized in civil law,23 the efficacy of which depends upon an expectancy — the formal renewal
of the lease contract between private respondent and Susana Realty.

The records would also reveal that private respondent's lawyer informed him that he could sell the improvements
within the store for he already owned them but the sale of his leasehold right over the store could not as yet be made
for his lease contract had not been actually renewed by Susana Realty. Indeed, it was precisely pursuant to this
advice that private respondent and petitioner agreed that the improvements in the store shall be sold to petitioner for
P150,000.00 24 while the leasehold right shall be sold for the same amount of P150,000.00, payable only upon the
formal renewal of the lease contract and the actual transfer of the leasehold right to petitioner. 25 The efficacy of the
contract between the parties was thus made dependent upon the happening of this suspensive condition.

Moreover, public respondent Court of Appeals was correct when it faulted petitioner for failing to exercise sufficient
diligence in verifying first the status of private respondent's lease. We thus quote with approval the decision of the
Court of Appeals when it ruled, thus:

50
 When appellant Angel C. Santos said that the lease contract had expired but that it was impliedly
renewed, that representation should have put appellee on guard. To protect his interest, appellee
should have checked with the lessor whether that was so, and this he failed to do; or he would have
simply deferred his decision on the proposed sale until Miss Madrigal's arrival, and this appellee also
failed to do. In short, as a buyer of the store and lease right in question — or as a buyer of any object
of commerce for that matter — appellee was charged with the obligation of caution aptly expressed in
the universal maxim caveat emptor. 26

Indeed, petitioner had every opportunity to verify the status of the lease contract of private respondent with Susana
Realty. As held by this Court in the case of Caram, Jr. v. Laureta, 27 the rule caveat emptor requires the purchaser to
be aware of the supposed title of the vendor and he who buys without checking the vendor's title takes all the risks
and losses consequent to such failure. In the case at bench, the means of verifying for himself the status of private
respondent's lease contract with Susana Realty was open to petitioner. Nonetheless, no effort was exerted by
petitioner to confirm the status of the subject lease right. 28 He cannot now claim that he has been deceived.

In sum, we hold that under the facts proved, private respondent cannot be held guilty of fraud or bad faith when he
entered into the subject contract with petitioner. Causal fraud or bad faith on the part of one of the contracting parties
which allegedly induced the other to enter into a contract must be proved by clear and convincing evidence. This
petitioner failed to do.

IN VIEW WHEREOF, the appealed decision is hereby AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., Regalado and Mendoza, JJ., concur.

51
FRANCISCO CHAVEZ, petitioner,
vs.
RAUL M. GONZALES, in his capacity as the Secretary of the Department of Justice; and NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC), respondents.

SEPARATE CONCURRING OPINION

CARPIO, J.:

The Case

This is a petition for the writs of certiorari and prohibition to set aside "acts, issuances, and orders" of respondents
Secretary of Justice Raul M. Gonzalez (respondent Gonzales) and the National Telecommunications Commission
(NTC), particularly an NTC "press release" dated 11 June 2005, warning radio and television stations against airing
taped conversations allegedly between President Gloria Macapagal-Arroyo and Commission on Elections
(COMELEC) Commissioner Virgilio Garcillano (Garcillano)1 under pain of suspension or revocation of their airwave
licenses.

The Facts

On 24 June 2004, Congress, acting as national board of canvassers, proclaimed President Arroyo winner in the 2004
presidential elections.2 President Arroyo received a total of 12,905,808 votes, 1,123,576 more than the votes of her
nearest rival, Fernando Poe, Jr. Sometime before 6 June 2005, the radio station dzMM aired the Garci Tapes where
the parties to the conversation discussed "rigging" the results of the 2004 elections to favor President Arroyo. On 6
June 2005, Presidential spokesperson Ignacio Bunye (Bunye) held a press conference in Malacañang Palace, where
he played before the presidential press corps two compact disc recordings of conversations between a woman and a
man. Bunye identified the woman in both recordings as President Arroyo but claimed that the contents of the second
compact disc had been "spliced" to make it appear that President Arroyo was talking to Garcillano.

However, on 9 June 2005, Bunye backtracked and stated that the woman's voice in the compact discs was not
President Arroyo’s after all.3 Meanwhile, other individuals went public, claiming possession of the genuine copy of the
Garci Tapes.4 Respondent Gonzalez ordered the National Bureau of Investigation to investigate media organizations
which aired the Garci Tapes for possible violation of Republic Act No. 4200 or the Anti-Wiretapping Law.

On 11 June 2005, the NTC issued a press release warning radio and television stations that airing the Garci Tapes is
a "cause for the suspension, revocation and/or cancellation of the licenses or authorizations" issued to them. 5 On 14
June 2005, NTC officers met with officers of the broadcasters group, Kapisanan ng mga Broadcasters sa
Pilipinas (KBP), to dispel fears of censorship. The NTC and KBP issued a joint press statement expressing
commitment to press freedom.6

On 21 June 2005, petitioner Francisco I. Chavez (petitioner), as citizen, filed this petition to nullify the "acts, issuances,
and orders" of the NTC and respondent Gonzalez (respondents) on the following grounds: (1) respondents’ conduct
violated freedom of expression and the right of the people to information on matters of public concern under Section 7,
Article III of the Constitution, and (2) the NTC acted ultra vires when it warned radio and television stations against
airing the Garci Tapes.

In their Comment to the petition, respondents raised threshold objections that (1) petitioner has no standing to litigate
and (2) the petition fails to meet the case or controversy requirement in constitutional adjudication. On the merits,
respondents claim that (1) the NTC's press release of 11 June 2005 is a mere "fair warning," not censorship,
cautioning radio and television networks on the lack of authentication of the Garci Tapes and of the consequences of
airing false or fraudulent material, and (2) the NTC did not act ultra vires in issuing the warning to radio and television
stations.

In his Reply, petitioner belied respondents' claim on his lack of standing to litigate, contending that his status as a
citizen asserting the enforcement of a public right vested him with sufficient interest to maintain this suit. Petitioner
also contests respondents' claim that the NTC press release of 11 June 2005 is a mere warning as it already
prejudged the Garci Tapes as inauthentic and violative of the Anti-Wiretapping Law, making it a "cleverly disguised x x
x gag order."

ISSUE

52
The principal issue for resolution is whether the NTC warning embodied in the press release of 11 June 2005
constitutes an impermissible prior restraint on freedom of expression.

I vote to (1) grant the petition, (2) declare the NTC warning, embodied in its press release dated 11 June 2005, an
unconstitutional prior restraint on protected expression, and (3) enjoin the NTC from enforcing the same.

1. Standing to File Petition

Petitioner has standing to file this petition. When the issue involves freedom of expression, as in the present case, any
citizen has the right to bring suit to question the constitutionality of a government action in violation of freedom of
expression, whether or not the government action is directed at such citizen. The government action may chill into
silence those to whom the action is directed. Any citizen must be allowed to take up the cudgels for those who have
been cowed into inaction because freedom of expression is a vital public right that must be defended by everyone and
anyone.

Freedom of expression, being fundamental to the preservation of a free, open and democratic society, is
of transcendental importance that must be defended by every patriotic citizen at the earliest opportunity. We have held
that any concerned citizen has standing to raise an issue of transcendental importance to the nation,7 and petitioner in
this present petition raises such issue.

2. Overview of Freedom of Expression, Prior Restraint and Subsequent Punishment

Freedom of expression is the foundation of a free, open and democratic society. Freedom of expression is an
indispensable condition8 to the exercise of almost all other civil and political rights. No society can remain free, open
and democratic without freedom of expression. Freedom of expression guarantees full, spirited, and even contentious
discussion of all social, economic and political issues. To survive, a free and democratic society must zealously
safeguard freedom of expression.

Freedom of expression allows citizens to expose and check abuses of public officials. Freedom of expression allows
citizens to make informed choices of candidates for public office. Freedom of expression crystallizes important public
policy issues, and allows citizens to participate in the discussion and resolution of such issues. Freedom of expression
allows the competition of ideas, the clash of claims and counterclaims, from which the truth will likely emerge.
Freedom of expression allows the airing of social grievances, mitigating sudden eruptions of violence from
marginalized groups who otherwise would not be heard by government. Freedom of expression provides a civilized
way of engagement among political, ideological, religious or ethnic opponents for if one cannot use his tongue to
argue, he might use his fist instead.

Freedom of expression is the freedom to disseminate ideas and beliefs, whether competing, conforming or otherwise.
It is the freedom to express to others what one likes or dislikes, as it is the freedom of others to express to one and all
what they favor or disfavor. It is the free expression for the ideas we love, as well as the free expression for the ideas
we hate.9 Indeed, the function of freedom of expression is to stir disputes:

[I]t may indeed best serve its high purpose when it induces a condition of unrest, creates dissatisfaction with
conditions as they are, or even stirs people to anger. Speech is often provocative and challenging. It may
strike at prejudices and preconceptions and have profound unsettling effects as it presses for acceptance of
an idea.10

Section 4, Article III of the Constitution prohibits the enactment of any law curtailing freedom of expression:

No law shall be passed abridging the freedom of speech, of expression, or the press, or the right of the people
peaceably to assemble and petition the government for redress of grievances.

Thus, the rule is that expression is not subject to any prior restraint or censorship because the Constitution
commands that freedom of expression shall not be abridged. Over time, however, courts have carved out narrow and
well defined exceptions to this rule out of necessity.

The exceptions, when expression may be subject to prior restraint, apply in this jurisdiction to only four categories
of expression, namely: pornography,11 false or misleading advertisement,12 advocacy of imminent lawless action,13 and
danger to national security.14 All other expression is not subject to prior restraint. As stated in Turner
Broadcasting System v. Federal Communication Commission, "[T]he First Amendment (Free Speech Clause), subject

53
only to narrow and well understood exceptions, does not countenance governmental control over the content of
messages expressed by private individuals."15

Expression not subject to prior restraint is protected expression or high-value expression. Any content-based prior
restraint on protected expression is unconstitutional without exception. A protected expression means what it
says – it is absolutely protected from censorship. Thus, there can be no prior restraint on public debates on the
amendment or repeal of existing laws, on the ratification of treaties, on the imposition of new tax measures, or on
proposed amendments to the Constitution.

Prior restraint on expression is content-based if the restraint is aimed at the message or idea of the expression. Courts
will subject to strict scrutiny content-based restraint. If the content-based prior restraint is directed at protected
expression, courts will strike down the restraint as unconstitutional because there can be no content-based prior
restraint on protected expression. The analysis thus turns on whether the prior restraint is content-based, and if so,
whether such restraint is directed at protected expression, that is, those not falling under any of the recognized
categories of unprotected expression.

If the prior restraint is not aimed at the message or idea of the expression, it is content-neutral even if it burdens
expression. A content-neutral restraint is a restraint which regulates the time, place or manner of the expression in
public places16 without any restraint on the content of the expression. Courts will subject content-neutral restraints to
intermediate scrutiny.17

An example of a content-neutral restraint is a permit specifying the date, time and route of a rally passing through
busy public streets. A content-neutral prior restraint on protected expression which does not touch on the content of
the expression enjoys the presumption of validity and is thus enforceable subject to appeal to the courts. 18 Courts will
uphold time, place or manner restraints if they are content-neutral, narrowly tailored to serve a significant government
interest, and leave open ample alternative channels of expression. 19

In content-neutral prior restraint on protected speech, there should be no prior restraint on the content of the
expression itself. Thus, submission of movies or pre-taped television programs to a government review board is
constitutional only if the review is for classification and not for censoring any part of the content of the submitted
materials.20 However, failure to submit such materials to the review board may be penalized without regard to the
content of the materials.21 The review board has no power to reject the airing of the submitted materials. The review
board’s power is only to classify the materials, whether for general patronage, for adults only, or for some other
classification. The power to classify expressions applies only to movies and pre-taped television programs 22 but not to
live television programs. Any classification of live television programs necessarily entails prior restraint on expression.

Expression that may be subject to prior restraint is unprotected expression or low-value expression. By definition,
prior restraint on unprotected expression is content-based 23 since the restraint is imposed because of the content
itself. In this jurisdiction, there are currently only four categories of unprotected expression that may be subject to prior
restraint. This Court recognized false or misleading advertisement as unprotected expression only in October 2007. 24

Only unprotected expression may be subject to prior restraint. However, any such prior restraint on unprotected
expression must hurdle a high barrier. First, such prior restraint is presumed unconstitutional. Second, the
government bears a heavy burden of proving the constitutionality of the prior restraint. 25

Courts will subject to strict scrutiny any government action imposing prior restraint on unprotected expression. 26 The
government action will be sustained if there is a compelling State interest, and prior restraint is necessary to protect
such State interest. In such a case, the prior restraint shall be narrowly drawn - only to the extent necessary to
protect or attain the compelling State interest.

Prior restraint is a more severe restriction on freedom of expression than subsequent punishment. Although
subsequent punishment also deters expression, still the ideas are disseminated to the public. Prior restraint prevents
even the dissemination of ideas to the public.

While there can be no prior restraint on protected expression, such expression may be subject to subsequent
punishment,27 either civilly or criminally. Thus, the publication of election surveys cannot be subject to prior
restraint,28 but an aggrieved person can sue for redress of injury if the survey turns out to be fabricated. Also, while
Article 201 (2)(b)(3) of the Revised Penal Code punishing "shows which offend any race or religion" cannot be used to
justify prior restraint on religious expression, this provision can be invoked to justify subsequent punishment of the
perpetrator of such offensive shows.29

54
Similarly, if the unprotected expression does not warrant prior restraint, the same expression may still be subject to
subsequent punishment, civilly or criminally. Libel falls under this class of unprotected expression. However, if the
expression cannot be subject to the lesser restriction of subsequent punishment, logically it cannot also be subject to
the more severe restriction of prior restraint. Thus, since profane language or "hate speech" against a religious
minority is not subject to subsequent punishment in this jurisdiction, 30 such expression cannot be subject to prior
restraint.

If the unprotected expression warrants prior restraint, necessarily the same expression is subject to subsequent
punishment. There must be a law punishing criminally the unprotected expression before prior restraint on such
expression can be justified. The legislature must punish the unprotected expression because it creates a substantive
evil that the State must prevent. Otherwise, there will be no legal basis for imposing a prior restraint on such
expression.

The prevailing test in this jurisdiction to determine the constitutionality of government action imposing prior restraint on
three categories of unprotected expression – pornography, 31 advocacy of imminent lawless action, and danger to
national security - is the clear and present danger test. 32 The expression restrained must present a clear and present
danger of bringing about a substantive evil that the State has a right and duty to prevent, and such danger must be
grave and imminent.33

Prior restraint on unprotected expression takes many forms - it may be a law, administrative regulation, or
impermissible pressures like threats of revoking licenses or withholding of benefits. 34 The impermissible pressures
need not be embodied in a government agency regulation, but may emanate from policies, advisories or conduct of
officials of government agencies.

3. Government Action in the Present Case

The government action in the present case is a warning by the NTC that the airing or broadcasting of the Garci
Tapes by radio and television stations is a "cause for the suspension, revocation and/or cancellation of the
licenses or authorizations" issued to radio and television stations. The NTC warning, embodied in a press release,
relies on two grounds. First, the airing of the Garci Tapes "is a continuing violation of the Anti-Wiretapping Law and the
conditions of the Provisional Authority and/or Certificate of Authority issued to radio and TV stations." Second, the
Garci Tapes have not been authenticated, and subsequent investigation may establish that the tapes contain false
information or willful misrepresentation.

Specifically, the NTC press release contains the following categorical warning:

Taking into consideration the country’s unusual situation, and in order not to unnecessarily aggravate the
same, the NTC warns all radio stations and television networks owners/operators that the conditions of the
authorizations and permits issued to them by Government like the Provisional Authority and/or Certificate of
Authority explicitly provides that said companies shall not use its stations for the broadcasting or telecasting of
false information or willful misrepresentation. Relative thereto, it has come to the attention of the Commission
that certain personalities are in possession of alleged taped conversation which they claim, (sic) involve the
President of the Philippines and a Commissioner of the COMELEC regarding their supposed violation of
election laws. These personalities have admitted that the taped conversations are product of illegal
wiretapping operations.

Considering that these taped conversations have not been duly authenticated nor could it be said at this time
that the tapes contain an accurate or truthful representation of what was recorded therein, (sic) it is the
position of the Commission that the continuous airing or broadcast of the said taped conversations
by radio and television stations is a continuing violation of the Anti-Wiretapping Law and the
conditions of the Provisional Authority and/or Certificate of Authority issued to these radio and
television stations. If it has been (sic) subsequently established that the said tapes are false and/or
fraudulent after a prosecution or appropriate investigation, the concerned radio and television
companies are hereby warned that their broadcast/airing of such false information and/or willful
misrepresentation shall be just cause for the suspension, revocation and/or cancellation of the
licenses or authorizations issued to the said companies. (Boldfacing and underscoring supplied)

The NTC does not claim that the public airing of the Garci Tapes constitutes unprotected expression that may be
subject to prior restraint. The NTC does not specify what substantive evil the State seeks to prevent in imposing prior
restraint on the airing of the Garci Tapes. The NTC does not claim that the public airing of the Garci Tapes constitutes
a clear and present danger of a substantive evil, of grave and imminent character, that the State has a right and duty
to prevent.

55
The NTC did not conduct any hearing in reaching its conclusion that the airing of the Garci Tapes constitutes a
continuing violation of the Anti-Wiretapping Law. At the time of issuance of the NTC press release, and even up to
now, the parties to the conversations in the Garci Tapes have not complained that the wire-tapping was without their
consent, an essential element for violation of the Anti-Wiretapping Law. 35 It was even the Office of the President,
through the Press Secretary, that played and released to media the Garci Tapes containing the alleged "spliced"
conversation between President Arroyo and Commissioner Garcillano. There is also the issue of whether
a wireless cellular phone conversation is covered by the Anti-Wiretapping Law.

Clearly, the NTC has no factual or legal basis in claiming that the airing of the Garci Tapes constitutes a violation of
the Anti-Wiretapping Law. The radio and television stations were not even given an opportunity to be heard by the
NTC. The NTC did not observe basic due process as mandated in Ang Tibay v. Court of Industrial Relations.36

The NTC claims that the Garci Tapes, "after a prosecution or the appropriate investigation," may constitute "false
information and/or willful misrepresentation." However, the NTC does not claim that such possible false information or
willful misrepresentation constitutes misleading commercial advertisement. In the United States, false or deceptive
commercial speech is categorized as unprotected expression that may be subject to prior restraint. Recently, this
Court upheld the constitutionality of Section 6 of the Milk Code requiring the submission to a government screening
committee of advertising materials for infant formula milk to prevent false or deceptive claims to the public. 37 There is,
however, no claim here by respondents that the Garci Tapes constitute false or misleading commercial advertisement.

The NTC concedes that the Garci Tapes have not been authenticated as accurate or truthful. The NTC also concedes
that only "after a prosecution or appropriate investigation" can it be established that the Garci Tapes constitute "false
information and/or willful misrepresentation." Clearly, the NTC admits that it does not even know if the Garci
Tapes contain false information or willful misrepresentation.

4. Nature of Prior Restraint in the Present Case

The NTC action restraining the airing of the Garci Tapes is a content-based prior restraint because it is directed at the
message of the Garci Tapes. The NTC’s claim that the Garci Tapes might contain "false information and/or willful
misrepresentation," and thus should not be publicly aired, is an admission that the restraint is content-based.

5. Nature of Expression in the Present Case

The public airing of the Garci Tapes is a protected expression because it does not fall under any of the four existing
categories of unprotected expression recognized in this jurisdiction. The airing of the Garci Tapes is essentially a
political expression because it exposes that a presidential candidate had allegedly improper conversations with a
COMELEC Commissioner right after the close of voting in the last presidential elections.

Obviously, the content of the Garci Tapes affects gravely the sanctity of the ballot. Public discussion on the
sanctity of the ballot is indisputably a protected expression that cannot be subject to prior restraint. Public discussion
on the credibility of the electoral process is one of the highest political expressions of any electorate, and thus
deserves the utmost protection. If ever there is a hierarchy of protected expressions, political expression would occupy
the highest rank,38 and among different kinds of political expression, the subject of fair and honest elections would be
at the top. In any event, public discussion on all political issues should always remain uninhibited, robust and wide
open.

The rule, which recognizes no exception, is that there can be no content-based prior restraint on protected
expression. On this ground alone, the NTC press release is unconstitutional. Of course, if the courts determine
that the subject matter of a wiretapping, illegal or not, endangers the security of the State, the public airing of the tape
becomes unprotected expression that may be subject to prior restraint. However, there is no claim here by
respondents that the subject matter of the Garci Tapes involves national security and publicly airing the tapes would
endanger the security of the State.39

The alleged violation of the Anti-Wiretapping Law is not in itself a ground to impose a prior restraint on the airing of the
Garci Tapes because the Constitution expressly prohibits the enactment of any law, and that includes anti-wiretapping
laws, curtailing freedom of expression.40 The only exceptions to this rule are the four recognized categories of
unprotected expression. However, the content of the Garci Tapes does not fall under any of these categories of
unprotected expression.

The airing of the Garci Tapes does not violate the right to privacy because the content of the Garci Tapes is a matter
of important public concern. The Constitution guarantees the people’s right to information on matters of public
concern.41 The remedy of any person aggrieved by the public airing of the Garci Tapes is to file a complaint for
56
violation of the Anti-Wiretapping Law after the commission of the crime. Subsequent punishment, absent a lawful
defense, is the remedy available in case of violation of the Anti-Wiretapping Law.

The present case involves a prior restraint on protected expression. Prior restraint on protected expression differs
significantly from subsequent punishment of protected expression. While there can be no prior restraint on protected
expression, there can be subsequent punishment for protected expression under libel, tort or other laws. In the
present case, the NTC action seeks prior restraint on the airing of the Garci Tapes, not punishment of personnel of
radio and television stations for actual violation of the Anti-Wiretapping Law.

6. Only the Courts May Impose Content-Based Prior Restraint

The NTC has no power to impose content-based prior restraint on expression. The charter of the NTC does not vest
NTC with any content-based censorship power over radio and television stations.

In the present case, the airing of the Garci Tapes is a protected expression that can never be subject to prior restraint.
However, even assuming for the sake of argument that the airing of the Garci Tapes constitutes unprotected
expression, only the courts have the power to adjudicate on the factual and legal issue of whether the airing of the
Garci Tapes presents a clear and present danger of bringing about a substantive evil that the State has a right and
duty to prevent, so as to justify the prior restraint.

Any order imposing prior restraint on unprotected expression requires prior adjudication by the courts on whether
the prior restraint is constitutional. This is a necessary consequence from the presumption of invalidity of any prior
restraint on unprotected expression. Unless ruled by the courts as a valid prior restraint, government agencies cannot
implement outright such prior restraint because such restraint is presumed unconstitutional at inception.

As an agency that allocates frequencies or airwaves, the NTC may regulate the bandwidth position, transmitter
wattage, and location of radio and television stations, but not the content of the broadcasts. Such content-neutral prior
restraint may make operating radio and television stations more costly. However, such content-neutral restraint does
not restrict the content of the broadcast.

7. Government Failed to Overcome Presumption of Invalidity

Assuming that the airing of the Garci Tapes constitutes unprotected expression, the NTC action imposing prior
restraint on the airing is presumed unconstitutional. The Government bears a heavy burden to prove that the NTC
action is constitutional. The Government has failed to meet this burden.

In their Comment, respondents did not invoke any compelling State interest to impose prior restraint on the public
airing of the Garci Tapes. The respondents claim that they merely "fairly warned" radio and television stations to
observe the Anti-Wiretapping Law and pertinent NTC circulars on program standards. Respondents have not
explained how and why the observance by radio and television stations of the Anti-Wiretapping Law and pertinent
NTC circulars constitutes a compelling State interest justifying prior restraint on the public airing of the Garci Tapes.

Violation of the Anti-Wiretapping Law, like the violation of any criminal statute, can always be subject to criminal
prosecution after the violation is committed. Respondents have not explained why there is a need in the present case
to impose prior restraint just to prevent a possible future violation of the Anti-Wiretapping Law. Respondents have not
explained how the violation of the Anti-Wiretapping Law, or of the pertinent NTC circulars, can incite imminent lawless
behavior or endanger the security of the State. To allow such restraint is to allow prior restraint on all future
broadcasts that may possibly violate any of the existing criminal statutes. That would be the dawn of sweeping and
endless censorship on broadcast media.

8. The NTC Warning is a Classic Form of Prior Restraint

The NTC press release threatening to suspend or cancel the airwave permits of radio and television stations
constitutes impermissible pressure amounting to prior restraint on protected expression. Whether the threat is made in
an order, regulation, advisory or press release, the chilling effect is the same: the threat freezes radio and television
stations into deafening silence. Radio and television stations that have invested substantial sums in capital equipment
and market development suddenly face suspension or cancellation of their permits. The NTC threat is thus real and
potent.

In Burgos v. Chief of Staff,42 this Court ruled that the closure of the We Forum newspapers under a general warrant "is
in the nature of a previous restraint or censorship abhorrent to the freedom of the press guaranteed under the

57
fundamental law." The NTC warning to radio and television stations not to air the Garci Tapes or else their permits will
be suspended or cancelled has the same effect – a prior restraint on constitutionally protected expression.

In the recent case of David v. Macapagal-Arroyo,43 this Court declared unconstitutional government threats to close
down mass media establishments that refused to comply with government prescribed "standards" on news reporting
following the declaration of a State of National Emergency by President Arroyo on 24 February 2006. The Court
described these threats in this manner:

Thereafter, a wave of warning[s] came from government officials. Presidential Chief of Staff Michael
Defensor was quoted as saying that such raid was "meant to show a 'strong presence,' to tell media outlets
not to connive or do anything that would help the rebels in bringing down this government." Director General
Lomibao further stated that "if they do not follow the standards — and the standards are if they would
contribute to instability in the government, or if they do not subscribe to what is in General Order No. 5 and
Proc. No. 1017 — we will recommend a 'takeover.'" National Telecommunications Commissioner Ronald
Solis urged television and radio networks to "cooperate" with the government for the duration of the
state of national emergency. He warned that his agency will not hesitate to recommend the closure of
any broadcast outfit that violates rules set out for media coverage during times when the national
security is threatened.44 (Emphasis supplied)

The Court struck down this "wave of warning[s]" as impermissible restraint on freedom of expression. The Court
ruled that "the imposition of standards on media or any form of prior restraint on the press, as well as the warrantless
search of the Tribune offices and whimsical seizure of its articles for publication and other materials, are declared
UNCONSTITUTIONAL."45

The history of press freedom has been a constant struggle against the censor whose weapon is the suspension or
cancellation of licenses to publish or broadcast. The NTC warning resurrects the weapon of the censor. The NTC
warning is a classic form of prior restraint on protected expression, which in the words of Near v. Minnesota is "the
essence of censorship."46 Long before the American Declaration of Independence in 1776, William Blackstone had
already written in his Commentaries on the Law of England, "The liberty of the press x x x consists in laying no
previous restraints upon publication x x x."47

Although couched in a press release and not in an administrative regulation, the NTC threat to suspend or cancel
permits remains real and effective, for without airwaves or frequencies, radio and television stations will fall silent and
die. The NTC press release does not seek to advance a legitimate regulatory objective, but to suppress through
coercion information on a matter of vital public concern.

9. Conclusion

In sum, the NTC press release constitutes an unconstitutional prior restraint on protected expression. There can be no
content-based prior restraint on protected expression. This rule has no exception.

I therefore vote to (1) grant the petition, (2) declare the NTC warning, embodied in its press release dated 11 June
2005, an unconstitutional prior restraint on protected expression, and (3) enjoin the NTC from enforcing the same.

ANTONIO T. CARPIO
Associate Justice

58
Telefast Communications /Philippine Wireless, Inc. vs. Castro, Sr., 158 SCRA 445 , No. L-73867, February 29,
1988

Telefast vs. Castro, 158 SCRA 445

G.R. No. 73867 February 29, 1988

TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,

vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA CASTRO, SALVADOR CASTRO,
MARIO CASTRO, CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO,
VIRGILIO CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE COURT,
respondents.

PADILLA, J.:

Petition for review on certiorari of the decision * of the Intermediate Appellate Court, dated 11 February 1986, in AC-
G.R. No. CV-70245, entitled "Ignacio Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast Communication/Philippine
Wireless, Inc., Defendant-Appellant."

The facts of the case are as follows:

On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and mother of the other plaintiffs,
passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then vacationing in
the Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170
announcing Consolacion's death. The telegram was accepted by the defendant in its Dagupan office, for transmission,
after payment of the required fees or charges.

The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in attendance.
Neither the husband nor any of the other children of the deceased, then all residing in the United States, returned for
the burial.

When Sofia returned to the United States, she discovered that the wire she had caused the defendant to send, had
not been received. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach
of contract. The case was filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No.
15356. The only defense of the defendant was that it was unable to transmit the telegram because of "technical and
atmospheric factors beyond its control." 1 No evidence appears on record that defendant ever made any attempt to
advise the plaintiff Sofia C. Crouch as to why it could not transmit the telegram.

The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay the plaintiffs (now
private respondents) damages, as follows, with interest at 6% per annum:

1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and P20,000.00 as moral damages.

2. Ignacio Castro Sr., P20,000.00 as moral damages.

3. Ignacio Castro Jr., P20,000.00 as moral damages.

4. Aurora Castro, P10,000.00 moral damages.

5. Salvador Castro, P10,000.00 moral damages.

6. Mario Castro, P10,000.00 moral damages.

7. Conrado Castro, P10,000 moral damages.

8. Esmeralda C. Floro, P20,000.00 moral damages.

9. Agerico Castro, P10,000.00 moral damages.

10. Rolando Castro, P10,000.00 moral damages.

11. Virgilio Castro, P10,000.00 moral damages.

59
12. Gloria Castro, P10,000.00 moral damages.

Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of P1,000.00 to each
of the plaintiffs and costs. 2

On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award of
P16,000.00 as compensatory damages to Sofia C. Crouch and the award of P1,000.00 to each of the private
respondents as exemplary damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch, Ignacio
Castro, Jr. and Esmeralda C. Floro was also reduced to P120,000. 00 for each. 3

Petitioner appeals from the judgment of the appellate court, contending that the award of moral damages should be
eliminated as defendant's negligent act was not motivated by "fraud, malice or recklessness."

In other words, under petitioner's theory, it can only be held liable for P 31.92, the fee or charges paid by Sofia C.
Crouch for the telegram that was never sent to the addressee thereof.

Petitioner's contention is without merit.

Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176
also provides that "whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done."

In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee,
petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did not do,
despite performance by said private respondent of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private respondent and is thus liable for damages.

This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard would
result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30)
years ago.

We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate
results of the defendant's wrongful act or omission." (Emphasis supplied).

Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering
private respondents had to undergo.

As the appellate court properly observed:

[Who] can seriously dispute the shock, the mental anguish and the sorrow that the overseas children must have
suffered upon learning of the death of their mother after she had already been interred, without being given the
opportunity to even make a choice on whether they wanted to pay her their last respects? There is no doubt that these
emotional sufferings were proximately caused by appellant's omission and substantive law provides for the justification
for the award of moral damages. 4

We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the
expenses she incurred when she came to the Philippines from the United States to testify before the trial court. Had
petitioner not been remiss in performing its obligation, there would have been no need for this suit or for Mrs. Crouch's
testimony.

The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of
P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due diligence in
transmitting the messages of their customers.

WHEREFORE, the petition is DENIED. The decision appealed from is modified so that petitioner is held liable to
private respondents in the following amounts:

(1) P10,000.00 as moral damages, to each of private respondents;

(2) P1,000.00 as exemplary damages, to each of private respondents;

60
(3) P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;

(4) P5,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED.

Yap (Chairman), Paras and Sarmiento, JJ., concur.

61
SALVADOR ADORABLE and LIGAYA ADORABLE, petitioners,
vs.
COURT OF APPEALS, HON. JOSE O. RAMOS, FRANCISCO BARENG and SATURNINO BARENG, respondents.

MENDOZA, J.:

This is a petition for review under Rule 45 of the decision 1 of the Court of Appeals, dated January 6, 1995, sustaining
the dismissal by Branch 24 of the Regional Trial Court, Echague, Isabela, of the complaint filed by petitioners,
spouses Salvador and Ligaya Adorable, for lack of cause of action.

The facts are as follows:

Private respondent Saturnino Bareng was the registered owner of two parcels of land, one identified as Lot No. 661-D-
5-A, with an area of 20,000 sq. m., covered by TCT No. T-162837, and the other known as Lot No. 661-E, with an
area of 4.0628 hectares, covered by TCT No. T-60814, both of which are in San Fabian, Echague, Isabela. Petitioners
were lessees of a 200 sq. m. portion of Lot No. 661-D-5-A.

On April 29, 1985, Saturnino Bareng and his son, private respondent Francisco Bareng, obtained a loan from
petitioners amounting to twenty six thousand pesos (P26,000), in consideration of which they promised to transfer the
possession and enjoyment of the fruits of Lot No. 661-E.

On August 3, 1986, Saturnino sold to his son Francisco 18,500 sq. m. of Lot No. 661-D-5-A. The conveyance was
annotated on the back of TCT No.
T-162873. In turn, Francisco sold on August 27, 1986 to private respondent Jose Ramos 3,000 sq. m. of the lot. The
portion of land being rented to petitioners was included in the portion sold to Jose Ramos. The deeds of sale
evidencing the conveyances were not registered in the office of the register of deeds.

As the Barengs failed to pay their loan, petitioners complained to Police Captain Rodolfo Saet of the Integrated
National Police (INP) of Echague through whose mediation a Compromise Agreement was executed between
Francisco Bareng and the Adorables whereby the former acknowledged his indebtedness of P56,385.00 which he
promised to pay on or before July 15, 1987. When the maturity date arrived, however, Francisco Bareng failed to pay.
A demand letter was sent to Francisco Bareng, but he refused to pay.

Petitioners, learning of the sale made by Francisco Bareng to Jose Ramos, then filed a complaint with the Regional
Trial Court, Branch 24, Echague, Isabela for the annulment or rescission of the sale on the ground that the sale was
fraudulently prepared and executed.

During trial, petitioners presented as witness Jose Ramos. After his testimony; the next hearing was set on August 4
and 5, 1990. On said hearing dates, however, petitioners were absent. The trial court therefore ordered the
presentation of evidence for petitioners terminated and allowed private respondents to present their evidence ex parte.
On February 15, 1991, the trial court rendered judgment dismissing the complaint for lack of cause of action, declaring
the contract of sale between Francisco Bareng and Jose Ramos valid and ordering Francisco Bareng to pay the
amount he owed petitioners.

On appeal, the Court of Appeals affirmed the decision of the Regional Trial Court, with modification as to the amount
of Francisco Bareng's debt to petitioners.

Hence, this petition for review, raising the following issues: (1) whether the Court of Appeals erred in dismissing the
complaint for lack of cause of action; (2) whether petitioners enjoyed legal preference to purchase the lots they lease;
and (3) whether the Court of Appeals erred in sustaining the lower court's order terminating petitioners' presentation of
evidence and allowing private respondents to present their evidence ex parte.

In sustaining the decision of the trial court dismissing the complaint for lack of cause of action, the Court of Appeals
premised its decision on Rule 3, §2 of the former Rules of Court which provided:

Parties in interest. — Every action must be prosecuted and defended in the name of the real party in
interest. All persons having an interest in the subject of the action and in obtaining the relief
demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or who are
necessary to a complete determination or settlement of the questions involved therein shall be joined
as defendants.

62
A real party in interest is one who would be benefited or injured by the judgment, or who is entitled to the avails of the
suit. "Interest," within the meaning of this rule, should be material, directly in issue and to be affected by the decree, as
distinguished from a mere incidental interest or in the question involved. 2 Otherwise put, an action shall be
prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced. 3

Petitioners anchor their interest on their right as creditors of Francisco Bareng, as well as on their claim of preference
over the sale of the contested
lot. 4 They contend that the sale between Francisco Bareng and Jose Ramos prejudiced their interests over the
property as creditors of Francisco Bareng. Moreover, they claim that, under Commonwealth Act No. 539, they have a
preferential right, as tenants or lessees, to purchase the land in question.

The petition has no merit.

First. We hold that, as creditors, petitioners do not have such material interest as to allow them to sue for rescission of
the contract of sale. At the outset, petitioners' right against private respondents is only a personal right to receive
payment for the loan; it is not a real right over the lot subject of the deed of sale.

A personal right is the power of one person to demand of another, as a definite passive subject, the fulfillment of a
prestation to give, to do, or not to do. On the other hand, a real right is the power belonging to a person over a specific
thing, without a passive subject individually determined, against whom such right may be personally exercised. 5 In
this case, while petitioners have an interest in securing payment of the loan they extended, their right to seek payment
does not in any manner attach to a particular portion of the patrimony of their debtor, Francisco Bareng.

Nor can we sustain petitioners' claim that the sale was made in fraud of creditors. Art. 1177 of the Civil Code provides:

The creditors, after having pursued the property in possession of the debtor to satisfy their claims,
may exercise all the rights and bring all the actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn the actions which the debtor may have done
to defraud them. (Emphasis added)

Thus, the following successive measures must be taken by a creditor before he may bring an action for rescission of
an allegedly fraudulent sale: (1) exhaust the properties of the debtor through levying by attachment and execution
upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana). Without availing of the first and second remedies, i.e.,
exhausting the properties of the debtor or subrogating themselves in Francisco Bareng's transmissible rights and
actions, petitioners simply undertook the third measure and filed an action for annulment of the sale. This cannot be
done.

Indeed, an action for rescission is a subsidiary remedy; it cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same. 6 Thus, Art. 1380 of the Civil Code provides:

The following contracts are rescissible:

x x x           x x x          x x x

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;

Petitioners have not shown that they have no other means of enforcing their credit. As the Court of Appeals pointed
out in its decision:

In this case, plaintiffs-appellants had not even commenced an action against defendants-appellees
Bareng for the collection of the alleged indebtedness. Plaintiffs-appellants had not even tried to
exhaust the property of defendants-appellees Bareng. Plaintiffs-appellants, in seeking for the
rescission of the contracts of sale entered into between defendants-appellees, failed to show and
prove that defendants-appellees Bareng had no other property, either at the time of the sale or at the
time this action was filed, out of which they could have collected this (sic) debts.

Second. Nor do petitioners enjoy any preference to buy the questioned property. In Aldecoa v. Hongkong and
Shanghai Banking Corporation, 7 it was held that in order that one who is not obligated in a contract either principally
63
or subsidiarily may maintain an action for nullifying the same, his complaint must show the injury that would positively
result to him from the contract in which he has not intervened, with regard at least to one of the contracting parties.

Petitioners attempt to establish such legal injury through a claim of preference created under C.A. No. 539, the
pertinent provision of which provides:

Sec. 1. The President of the Philippines is authorized to acquire private lands or any interest therein,
through purchase or expropriation, and to subdivide the same into home lots or small farms for resale
at reasonable prices and under such conditions as he may fix to their bona fide tenants or occupants
or to private individuals who will work the lands themselves and who are qualified to acquire and own
lands in the Philippines.

This statute was passed to implement Art. XIII, §4 of the 1935 Constitution which provided that "The Congress may
authorize, upon payment of just compensation, the expropriation of lands to be subdivided into small lots and
conveyed at cost to individuals." It is obvious that neither under this provision of the former Constitution nor that of
C.A. No. 539 can petitioners claim any right since the grant of preference therein applies only to bona fide tenants,
after the expropriation or purchase by the government of the land they are occupying. 8 Petitioners are not tenants of
the land in question in this case. Nor has the land been acquired by the government for their benefit.

Third. Finally, we hold that no error was committed by the Court of Appeals in affirming the order of the trial court
terminating the presentation of petitioners' evidence and allowing private respondents to proceed with theirs because
of petitioners' failure to present further evidence at the scheduled dates of trial.

Petitioners contend that since their counsel holds office in Makati, the latter's failure to appear at the trial in Isabela at
the scheduled date of hearing should have been treated by the court with a "sense of fairness." 9

This is more a plea for compassion rather than explanation based on reason. We cannot find grave abuse of
discretion simply because a court decides to proceed with the trial of a case rather than postpone the hearing to
another day, because of the absence of a party. That the absence of a party during trial constitutes waiver of his right
to present evidence and cross-examine the opponent's witnesses is firmly supported by jurisprudence. 10 To constitute
grave abuse of discretion amounting to lack or excess of jurisdiction, the refusal of the court to postpone the hearing
must be characterized by arbitrariness or capriciousness. Here, as correctly noted by the Court of Appeals, petitioners'
counsel was duly notified through registered mail of the scheduled trials. 11 His only excuse for his failure to appear at
the scheduled hearings is that he "comes from Makati." This excuse might hold water if counsel was simply late in
arriving in the courtroom. But this was not the case. He did not appear at all.

WHEREFORE, the petition for review is DENIED, and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

64