RAMOS VS.
SARAO (461 SCRA 103) The presumption of equitable mortgage imposes a
FACTS: Spouses Ramos executed a contract over
their conjugal house and lot in favor of Susana S.
Sarao for and in consideration of ₱1,310,430.
Entitled "DEED OF SALE UNDER PACTO DE
RETRO," the contract granted the Ramos spouses
the option to repurchase the property within 6
months for ₱1,310,430 plus an interest of 4.5% a
month. It was also agreed that should the spouses
fail to pay the monthly interest or to exercise the
right to repurchase within the stipulated period, the
conveyance would be deemed an absolute sale.
Thereafter, Myrna Ramos tendered to Sarao the
amount of ₱1,633,034.20 in the form of two
manager’s checks, which the latter refused to accept
for being allegedly insufficient. Myrna filed a
Complaint for the redemption of the property and
moral damages plus attorney’s fees, and deposited
with the Makati RTC two checks that Sarao refused
to accept. Subsequently, Sarao also filed against the
Ramos spouses a Petition "for consolidation of
ownership in pacto de retro sale". These cases were
later consolidated and jointly tried before Branch
145 of the said Makati RTC.
After trial, the RTC dismissed the Complaint and
granted the prayer of Sarao to consolidate the title
of the property in her favor. Aggrieved, Myrna
elevated the case to the CA which sustained the
RTC’s finding that the disputed contract was a
bonafide pacto de retro sale, not a mortgage to
secure a loan.
ISSUE: Whether the Deed of Sale under Pacto de
Retro was, and is in reality and under the law an
equitable mortgage
RULING: YES. In the present factual milieu, the
vendor retained possession of the property allegedly
sold. Petitioner and her children continued to use it
as their residence, even after Jonas Ramos had
abandoned them. In fact, it remained as her address
for the service of court orders and copies of
Respondent Sarao’s pleadings.
burden on Sarao to present clear evidence to rebut
it. Corollary to this principle, the favored party need
not introduce proof to establish such presumption;
the party challenging it must overthrow it, lest it
persist. To overturn that prima facie fact that
operated against her, Sarao needed to adduce
substantial and credible evidence to prove that the
contract was a bona fide pacto de retro. This
evidentiary burden she miserably failed to
discharge.
A meticulous review of the evidence reveals that the
alleged contract was executed merely as security for
a loan. The July 23, 1991 letter of Respondent
Sarao’s lawyer had required petitioner to pay a
computed amount -- under the heading "House and
Lot Loan" -- to enable the latter to repurchase the
property. In effect, respondent would resell the
property to petitioner, once the latter’s loan
obligation would have been paid. This explicit
requirement was a clear indication that the property
was to be used as security for a loan. The loan
obligation was clear from Sarao’s evidence as found
by the trial court.
Respondent herself stressed that the pacto de retro
had been entered into on the very same day that the
property was to be foreclosed by a commercial
bank. Such circumstance proves that the spouses
direly needed funds to avert a foreclosure sale. Had
they intended to sell the property just to realize
some profit, as Sarao suggests, they would not have
retained possession of the house and continued to
live there. Clearly, the spouses had entered into the
alleged pacto de retro sale to secure a loan
obligation, not to transfer ownership of the
property.
Inasmuch as the contract between the parties was an
equitable mortgage, Respondent Sarao’s remedy
was to recover the loan amount from petitioner by
filing an action for the amount due or by foreclosing
the property.
 FILINVEST LAND VS. COURT OF APPEALS (470
SCRA 57)
FACTS: Filinvest Land, Inc., a corporation engaged
in the development and sale of residential
subdivisions, awarded to defendant Pacific
Equipment Corporation (Pacific) the development
of its residential subdivisions consisting of two (2)
parcels of land
Notwithstanding three extensions granted by
plaintiff to defendant Pacific, the latter failed to
finish the contracted works. Plaintiff wrote to
Pacific advising the latter of its intention to take
over the project and to hold said defendant liable for
all damages which it had incurred and will incur to
finish the project.
In defense, Pacific claims that its failure to finish
the contracted work was due to inclement weather
and the fact that several items of finished work and
change order which plaintiff refused to accept and
pay for caused the disruption of work. Since the
contractual relation between plaintiff and defendant
Pacific created a reciprocal obligation, the failure of
the plaintiff to pay its progressing bills estops it
from demanding fulfillment of what is incumbent
upon defendant Pacific. The acquiescence by
plaintiff in granting three extensions to defendant
Pacific is likewise a waiver of the former's right to
claim any damages for the delay. Further, the
unilateral and voluntary action of plaintiff in
preventing defendant Pacific from completing the
work has relieved the latter from the obligation of
completing the same.
ISSUE: Whether or not the penalty (liquidated
damages) of P15,000.00 per day of delay shall be
binding upon mutual agreement of parties.
RULING: NO. As a general rule, courts are not at
liberty to ignore the freedom of the parties to agree
on such terms and conditions as they see fit as long
as they are not contrary to law, morals, good
customs, public order or public policy.
Nevertheless, courts may equitably reduce a
stipulated penalty in the contract in two instances:
(1) if the principal obligation has been partly or
irregularly complied; and (2) even if there has been
no compliance if the penalty is iniquitous or
unconscionable in accordance with Article 1229 of
the Civil Code.
There is no question that the penalty of P15,000.00
per day of delay was mutually agreed upon by the
parties and that the same is sanctioned by law. A
penal clause is an accessory undertaking to assume
greater liability in case of breach. It is attached to
an obligation in order to insure performance and has
a double function: (1) to provide for liquidated
damages, and (2) to strengthen the coercive force of
the obligation by the threat of greater responsibility
in the event of breach. Article 1226 of the Civil
Code states that in obligations with a penal clause,
the penalty shall substitute the indemnity for
damages and the payment of interests in case of
noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
Unfortunately for Filinvest, the above-quoted
doctrine is inapplicable to herein case. The
Supreme Court in Laureano instructed that a
distinction between a penalty clause imposed
essentially as penalty in case of breach and a
penalty clause imposed as indemnity for damages
should be made in cases where there has been
neither partial nor irregular compliance with the
terms of the contract. In cases where there has
been partial or irregular compliance, as in this case,
there will be no substantial difference between a
penalty and liquidated damages insofar as legal
results are concerned. The distinction is thus more
apparent than real especially in the light of certain
provisions of the Civil Code of the Philippines
provided in Articles 2226 and Article 2227 thereof.
Thus, we lamented in one case that "(t)here is no
justification for the Civil Code to make an apparent
distinction between a penalty and liquidated
damages because the settled rule is that there is no
difference between penalty and liquidated damages
insofar as legal results are concerned and that either
may be recovered without the necessity of proving
actual damages and both may be reduced when
proper."
In Ligutan v. Court of Appeals, we pointed out that
the question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly
objective as its "resolution would depend on such
factors as, but not necessarily confined to, the type,
extent and purpose of the penalty, the nature of the
obligation, the mode of breach and its
consequences, the supervening realities, the
standing and relationship of the parties, and the like,
the application of which, by and large, is addressed
to the sound discretion of the court.”
In herein case, there has been substantial
compliance in good faith on the part of Pacific
which renders unconscionable the application of the
full force of the penalty especially if we consider
that in 1979 the amount of P15,000.00 as penalty
for delay per day was quite steep... indeed.
Nothing in the records suggests that Pacific's delay
in the performance of 5.47% of the contract was due
to it having acted negligently or in bad faith.
Finally, we factor in the fact that Filinvest is not
free of blame either as it likewise failed to do... that
which was incumbent upon it, i.e., it failed to pay
Pacific for work actually performed by the latter in
the total amount of P1,881,867.66. Thus, all things
considered, we find no reversible error in the Court
of Appeals' exercise of discretion in the instant case.
SAN AGUSTIN VS. COURT OF APPEALS (371
SCRA 346)
FACTS: The Government Service Insurance System
(GSIS) sold to a certain Macaria Vda. de Caiquep, a
parcel of residential land in Rosario, Pasig City as
evidenced by a Deed of Absolute Sale. The Register
of Deeds of Rizal issued Transfer Certificate of
Title (TCT) No. 436465 in the name of Macaria
Vda. de Caiquep. A day after the issuance of the
TCT, de Caiquep sold the subject lot to private
respondent, Maximo Menez, Jr., as evidenced by a
Deed of Absolute Sale. This deed was notarized but
was not registered immediately upon its execution
in 1974 because GSIS prohibited him from
registering the same in view of the five-year
prohibition to sell during the period ending in 1979.
Sometime in 1979, for being suspected as a
subversive, an Arrest, Search and Seizure Order
(ASSO) was issued against private respondent. He
voluntarily surrendered and was detained for 2
years. When released, another order for his re-arrest
was issued so he hid in Mindanao for another four
(4) years.
In December of 1990, he discovered that the subject
TCT was missing. An Affidavit of Loss was filed
with the Register of Deeds of Pasig and a certified
copy of TCT No. 436465 was issued. Private
respondent also declared the property for tax
purposes and obtained a certification thereof from
the Assessor's Office. Private respondent sent
notices to the registered owner at her address
appearing in the title and in the Deed of Sale.
However, their search proved futile.
Subsequently, private respondent filed a petition
with the RTC of Pasig, Branch 154 for the issuance
of owner's duplicate copy of TCT No. 436465 to
replace the lost one. To show he was the owner of
the contested lot, he showed the Deed of Absolute
Sale. The petition was set for hearing and the court's
order was published once in Malaya. During the
hearing, only Menez and his counsel appeared. The
Register of Deeds who was not served notice, and
the Office of the Solicitor General and the
Provincial Prosecutor who were notified did not
attend. Subsequently, having no opposition, Menez
presented his evidence ex-parte. The trial court
granted his petition in its decision on September 30,
1992 which directed the Registry of Deeds of Pasig,
Metro Manila to issue a new Owner's Duplicate
Copy of Transfer Certificate of Title No. 436465
based on the original filed in his office which shall
contain the memorandum of encumbrance and an
additional memorandum of the fact that it was
issued in place of the lost duplicate and which shall,
in all respect, be entitled to like faith and credit as
the original duplicate, for all legal intents and
purposes. Additionally, the said lost owner's
duplicate is hereby declared null and void.
On October 13, 1992, herein petitioner, Jesus San
Agustin, received a copy of the abovecited decision.
He claimed this was the first time he became aware
of the case of her aunt, Macaria Vda. de Caiquep
who, according to him, died sometime in 1974.
Claiming that he was the present occupant of the
property and the heir of Macaria, he filed his
"Motion to Reopen Reconstitution Proceedings'' but
it was denied in a resolution dated September 11,
1995.
ISSUE: Whether the sale between Macaria Vda. de
Caiquep and Maximo Menez, Jr. is null and void.
RULING: NO. The proscription under Com. Act No.
141 on sale within the 5-year restrictive period
refers to homestead lands only. Here the lot in
dispute is not a homestead land, as found by the
trial and appellate courts. Said lot is owned by
GSIS, under TCT No. 10028 in its proprietary
capacity.
In this case, the GSIS has not filed any action for
the annulment of the sale between Macaria Vda. de
Caiquep and Maximo Menez, Jr., nor for the
forfeiture of the lot in question. Therefore, the
contract of sale remains valid between the parties,
unless and until annulled in the proper suit filed by
the rightful party, the GSIS. For now, the said
contract of sale is binding upon the heirs of Macaria
Vda. de Caiquep, including petitioner who alleges
to be one of her heirs, in line with the rule that heirs
are bound by contracts entered into by their
predecessors-in-interest.
The social justice policy of R.A. 8291 otherwise
known as "Government Service Insurance Act of
1997", in granting housing assistance to the less-
privileged GSIS members and their dependents
payable at an affordable payment scheme, is the
same policy which the 5-year restrictive clause in
the contract seeks to implement by stating in the
encumbrance itself annotated at the back of TCT
No. 436465 that, "The purpose of the sale is to aid
the vendee in acquiring a lot for himself/themselves
and not to provide him/them with a means for
speculation or profit by a future assignment of
his/their right herein acquired or the resale of the lot
through rent, lease or subletting to others of the lot
and subject of this deed, within five (5) years from
the date final and absolute ownership thereof
becomes vested in the vendee, except in cases of
hereditary succession or resale in favor of the
vendor." However, absent the proper action taken
by the GSIS as the original vendor referred to, the
contract between petitioner's predecessor-in-interest
and private respondent deserves to be upheld. For as
pointed out by said private respondent, it is
protected by the Constitution under Section 10,
Article III, of the Bill of Rights stating that, "No
law impairing the obligation of contracts shall be
passed." Much as we would like to see a salutary
policy triumph, that provision of the Constitution
duly calls for compliance.
CATHAY PACIFIC AIRWAYS LTD. VS. VASQUEZ
(399 SCRA 207)
FACTS: Cathay is a common carrier engaged in the
business of transporting passengers and goods by
air. It services the Manila - Hong Kong - Manila
course, among many others. As part of its marketing
strategy, it accords its frequent flyers membership
in its Marco Polo Club. Members enjoy priority for
upgrading of booking without any extra charge
whenever opportunity arises. So a frequent flyer
booked in Business Class has priority for upgrading
to First Class if the Business Class Section is fully-
booked.
Dr. Vasquez and Maria Vasquez are frequent flyers
of Cathay and are Gold Card members of the Polo
Club. On Sept 1996, Vasquezes with their maid and
2 friends Cruz and De Dios went to Hong Kong for
pleasure and business. For their return flight on Sept
28, 1996, they were booked on a Cathay flight at
9:20pm. 2 hours before, they checked in their
luggage and were given their boarding passes, to
wit, business class for Vasquezes and 2 friends,
economy for the maid. They went to the business
class passenger lounge.
Come boarding time, they went to the Departure
Gate 28, designated for business class passengers.
Dr. Vasquez presented his boarding pass to the
stewardess. It was inserted into an electronic
machine reader or computer. Another ground
attendant Chiu assisted. When Chiu glanced at the
monitor, she saw a message that there was a “seat
change” from business class to first class for the
Vasquezes.

Dr. Vasquez refused the upgrade because they had 2
guests who will be in the business class and they
would be discussing business during the flight. The
stewardess insisted saying that business class is
already fully booked and that if they would not
avail, they would not be allowed to take the flight.
Vasquezes acceded and took the first class cabin.
In a letter, the Vasquezes demanded 1M
indemnification from Cathay for “humiliation and
embarrassment” caused by its employees and a
written apology from a person from Cathay
preferably with a rank of no less than Country
Manager and Mrs. Chiu w/in 15 days. Asst. Country
Manager Robson informed them that Cathay would
investigate the incident and get back to them within
a week’s time.
No feedback came, so the Vasquezes filed a case for
damages against Cathay. Asked for temperate,
moral, exemplary and attorney’s fees.
ISSUE: Whether or not the petitioners (1) breached
the contract of carriage, (2) tainted with fraud or
bad faith the upgrading; and (3) were liable for
damages.
RULING:Breach of contract is defined as the
“failure without legal reason to comply with the
terms of a contract.” It is also defined as the
“[f]ailure, without legal excuse, to perform any
promise which forms the whole or part of the
contract.” In all their pleadings, the Vazquezes
never denied that they were members of Cathay’s
Marco Polo Club and they knew that as members of
the Club, they had priority for upgrading of their
seat accommodation at no extra cost when an
opportunity arises. But, just like other privileges,
such priority could be waived.
The Vazquezes should have been consulted first
whether they wanted to avail themselves of the
privilege or would consent to a change of seat
accommodation before their seat assignments were
given to other passengers. Whatever their reason
was and however odd it might be, the Vazquezes
had every right to decline the upgrade and insist on
the Business Class accommodation they had booked
for and which was designated in their boarding
passes. They clearly waived their priority or
preference when they asked that other passengers be
given the upgrade. It should not have been imposed
on them over their vehement objection. By insisting
on the upgrade, Cathay, therefore, breached its
contract of carriage with the Vazquezes.
However, the second issue that the upgrading of
seat was tainted with fraud or bad faith is of no
moment. The Vazquezes were not induced to agree
to the upgrading through insidious words or
deceitful machination or through willful
concealment of material facts. Neither was the
transfer of the Vazquezes effected for some evil or
devious purpose. As testified to by Mr. Robson, the
First Class Section is better than the Business Class
Section in terms of comfort, quality of food, and
service from the cabin crew; thus, the difference in
fare between the First Class and Business Class at
that time was $250. Additionally, it is clear from
Section 3 of the Economic Regulation No. 7 of the
Civil Aeronautics Board that an overbooking that
does not exceed ten percent is not considered
deliberate and therefore does not amount to bad
faith. Here, while there was admittedly an
overbooking of the Business Class, there was no
evidence of overbooking of the plane beyond ten
percent, and no passenger was ever bumped off or
was refused to board the aircraft.
For the last issue of damages, it was held In this
case that the breach of contract of carriage, which
consisted in the involuntary upgrading of the
Vazquezes’ seat accommodation, was not attended
by fraud or bad faith. The Court of Appeals’ award
of moral damages has, therefore, no leg to stand on.
The deletion of the award for exemplary damages
by the Court of Appeals is also correct. It is a
requisite in the grant of exemplary damages that the
act of the offender must be accompanied by bad
faith or done in wanton, fraudulent or malevolent
manner, which is absent in this case. Moreover, to
be entitled thereto the claimant must first establish
his right to moral, temperate, or compensatory
damages. Since the Vazquezes are not entitled to
any of these damages, the award for exemplary
damages has no legal basis. And where the awards
for moral and exemplary damages are eliminated, so
must the award for attorney’s fees.
 MENDOZA VS. COURT OF APPEALS (359 SCRA
438)
FACTS:Petitioner Danilo D. Mendoza is engaged in
the domestic and international trading of raw
materials and chemicals. He operates under the
business name Atlantic Exchange Philippines
(Atlantic), a single proprietorship registered with
the Department of Trade and Industry (DTI). He
was granted by respondent Philippine National
Bank (PNB) a P500,000.00 credit line and a
P1,000,000.00 Letter of Credit/Trust Receipt
(LC/TR) line. In exchange, petitioner mortgaged to
respondent PNB the following: 1) 3 parcels of land
with improvements in F. Pasco Avenue, Santolan,
Pasig; 2) his house and lot in Quezon City; and 3)
several pieces of machinery and equipment in his
Pasig coco-chemical plant. Petitioner also executed
in favor of respondent PNB three (3) promissory
notes covering the credit line, one dated March 8,
1979 for P310,000.00; another dated March 30,
1979 for P40,000.00; and the last dated September
27, 1979 for P150,000.00. The said 1979
promissory notes uniformly stipulated: "with
interest thereon at the rate of 12% per annum, until
paid, which interest rate the Bank may, at any time,
without notice, raise within the limits allowed by
law."
In a letter dated January 3, 1980 and signed by
Branch Manager Fil S. Carreon Jr., respondent PNB
advised petitioner Mendoza that effective December
1, 1979, the bank raised its interest rates to 14% per
annum, in line with Central Bank's Monetary Board
Resolution No. 2126 dated November 29, 1979.
In response, petitioner wrote a letter to respondent
PNB requesting for the restructuring of his past due
accounts into a five-year term loan and for an
additional LC/TR line of P2,000,000.00. Another
letter was sent by petitioner addressed to PNB Vice-
President Jose Salvador, regarding his request for
restructuring of his loans.
Petitioner testified that respondent PNB
Mandaluyong Branch found his proposal favorable
and recommended the implementation of the
agreement. However, Fernando Maramag, PNB
Executive Vice-President, disapproved the proposed
release of the mortgaged properties and reduced the
proposed new LC/TR line to P1,000,000.00.
Petitioner claimed he was forced to agree to these
changes and that he was required to submit a new
formal proposal and to sign two (2) blank
promissory notes.
ISSUE: Whether the foreclosure of petitioner’s real
estate and chattel mortgages were legal and valid.
RULING: YES. Nowhere in those letters is there a
categorical statement that respondent PNB had
approved the petitioner’s proposed five-year
restructuring plan. It is stretching the imagination to
construe them as evidence that his proposed five-
year restructuring plan has been approved by the
respondent PNB which is admittedly a banking
corporation. Only an absolute and unqualified
acceptance of a definite offer manifests the consent
necessary to perfect a contract. If anything, those
correspondences only prove that the parties had not
gone beyond the preparation stage, which is the
period from the start of the negotiations until the
moment just before the agreement of the parties.
For petitioner to claim that respondent PNB is
estopped to deny the five-year restructuring plan, he
must first prove that respondent PNB had promised
to approve the plan in exchange for the submission
of the proposal. As discussed earlier, no such
promise was proven, therefore, the doctrine of
promissory estoppel does not apply to the case at
bar. A cause of action for promissory estoppel does
not lie where an alleged oral promise was
conditional, so that reliance upon it was not
reasonable. It does not operate to create liability
where it does not otherwise exist.
It appears that respondent bank increased the
interest rates on the two (2) subject Promissory
Notes Nos. 127/82 and 128/82 without the prior
consent of the petitioner. The petitioner did not
agree to the increase in the stipulated interest rate of
21% per annum on Promissory Note No. 127/82
and 18% per annum on Promissory Note No.
128/82. As held in several cases, the unilateral
determination and imposition of increased interest
rates by respondent bank is violative of the principle
of mutuality of contracts ordained in Article 1308 of
the Civil Code.
It has been held that no one receiving a proposal to
change a contract to which he is a party is obliged
to answer the proposal, and his silence per se cannot
be construed as an acceptance. Estoppel will not lie
against the petitioner regarding the increase in the
stipulated interest on the subject Promissory Notes
Nos. 127/82 and 128/82 inasmuch as he was not
even informed beforehand by respondent bank of
the change in the stipulated interest rates.
BPI EXPRESS CARD CORPORATION VS EDDIE C.
OLALIA (372 SCRA 399)
FACTS: In January 1991, respondent’s card under
the petitioner’s system expired and a renewal card
was issued. Additionally, petitioner also issued a
credit card in the name of Cristina G. Olalia,
respondent’s ex-wife as an extension of Olalia’s
credit card. BECC alleges that the extension card
was delivered and received by Olalia at the same
time as the renewal card. However, Olalia denies
ever having applied for, much less receiving, the
extension card. It was found that the extension card
in the name of Cristina G. Olalia was used for
purchases made from March to April 1991 and total
unpaid charges from the use of this card amounted
to P101,844.54.
BECC sent a demand letter to Olalia, to which the
latter denied liability saying that said purchases
were not made under his own credit card and that he
did not apply for nor receive the extension card in
the name of his wife. He has likewise not used or
allowed anybody in his family to receive or use the
extension card. Moreover, his wife, from whom he
was already divorced, left for the States in 1986 and
has since resided there. In addition, neither he nor
Cristina was in Bacolod or Iloilo at the time the
questioned purchases were made.
This petition wherein BECC contends, as its lone
assignment of error that the Court of Appeals erred
in limiting the liability of respondent to only
P13,883.27 exclusive of interest and penalty fee
notwithstanding receipt and availment of the
extension card, instead of P136,290.97 as granted
upon its Motion for Reconsideration before the
RTC since he allegedly received the same as
evidenced, and by the express provision of
paragraph 2 of the terms and conditions governing
the use and issuance of a BPI Express Card, making
the cardholder and his extension jointly and
severally liable for all purchases and availments
made through the use of the card.
ISSUE: Whether or not an extension card in the
name of Cristina G. Olalia was validly issued and in
fact received by respondent Eddie C. Olalia; and
that he can be held liable for the purchases made
using the extension card.
RULING:NO. It was held that contracts of this
nature are contracts of adhesion, so-called because
their terms are prepared by only one party while the
other merely affixes his signature signifying his
adhesion thereto. As such, their terms are construed
strictly against the party who drafted it. In this case,
it was BECC who made the foregoing stipulation,
thus, they are now tasked to show vigilance for its
compliance.
BECC failed to explain who a card was issued
without accomplishment of the requirements.
Moreover, BECC did not even secure the specimen
signature of the purported extension cardholder,
such that it cannot now counter Eddie C. Olalia’s
contention that the signatures appearing on the
charge slips of the questioned transactions were not
that of his former wife, Cristina G. Olalia. It is also
noted that respondent Eddie C. Olalia did not
indicate nor declare that he had a spouse when he
applied for a credit card with BECC. In fact, at the
time the extension card was issued and allegedly
received by respondent, Cristina had long left the
Philippines.
BECC’s negligence absolves respondent Olalia
from liability.
PAGUYO VS. ASTORGA, (470 SCRA 440)
FACTS: Spouses Paguyo owned a 5-storey building
located in Makati City. The Armas Family is the
third party owner of the lot where the Paguyo
building stood. This lot was subject for civil case
which have been decided by the RTC Makati
Branch 57 settling in a compromise agreement with
a prescribed amount for the consideration of its
ownership in favor of the Paguyo spouses.
Sometime in 1988, Lourdes Paguyo entered in an
agreement with Pierre Astorga for the sale of the
building including the lot to be purchased from the
Armases. This is to raise funds needed to be paid
for the Armases’ lot. On the same date, the
petitioner received P50,000.00 as earnest money for
the sale of her property. Unfortunately, despite of
the full financial support given by the respondents,
the petitioner failed to acquire the lot. Shortly
thereafter, the petitioner asked for and were given
another P50,000.00 by the respondents to which
was badly needed by the former to finance their
construction business. Petitioners proposed the
separate sale of the building in question while the
effort to purchase the lot is on-going and the
respondents were assured of its success.
Come early the following year, the parties executed
four documents namely; Deed of Absolute Sale,
Deed of Real Estate Mortgage, Mutual
Understanding, and Deed of Assignment of Rights
and Interest. Pursuant to their agreement
particularly in Mutual understanding, the
respondents filed for the ejectment case before the
MTC where they obtained favourable decision.
Petitioners then filed for the recession of their
agreement on the contention that the respondents
led them to the wrong belief the respondents will
advance the amount needed by the petitioner to be
paid for the Armases but instead the respondents
stopped the said payment. Respondents, in their
answer as gleaned from the agreements, said that
their original purpose was the purchase of the
building and the lot which it stands. They added that
at that time, the petitioners are in dire need of the
amount to finance their construction business and
the balance to the Armases. It was on July 1989
when the petitioner asked the respondents to
execute the check amounting to P917,470.00 for the
final execution of the Deed of Conveyance of the
lot. However, the respondent stopped the payment
of check upon knowing that the petitioners have no
rights over the lot in question which was already
transferred to the Bacani spouses.
The RTC dismissed the complaint of the petitioners.
The CA also affirmed the decision of the lower
court.
ISSUE: Whether the petitioners’ claim for rescission
is tenable.
RULING: NO. The right to rescind a contract
involving reciprocal obligations is provided for in
Article 1191 of the Civil Code. The law speaks of
the right of the “injured party” to choose between
rescission or fulfillment of the obligation, with the
payment of damages in either case.
The fact that the subject contracts have been
prepared by respondents ipso facto entail that their
validity and legality be strictly interpreted against
them, and Lourdes Paguyo’s insinuation that she
was disadvantaged shall not hold. The validity
and/or enforceability of the impugned contracts will
have to be determined by the peculiar circumstances
obtaining in each case and the situation of the
parties concerned. Here, petitioner Lourdes Paguyo,
being not only cultured but a person with great
business acumen as well, cannot claim to be the
weaker or disadvantaged party in the subject
contract so as to call for a strict interpretation
against respondents. More importantly, the parties
herein went through a series of negotiations before
the documents were signed and executed.
In the case at bar, petitioners pray for rescission of
the Deed of Sale of the building and offer to repay
the purchase price after their liquidity position
would have improved and after respondents would
have refurbished the building, updated the real
property taxes, and turned the building into a
profitable business venture. This Court, however,
will not allow itself to be an instrument to the
dissolution of contract validly entered into. A party
should not, after its opportunity to enjoy the
benefits of an agreement, be allowed to later disown
the arrangement when the terms thereof ultimately
would prove to operate against its hopeful
expectations.
KWOK VS. PHILIPPINE CARPET MANUFACTURING
CORPORATION (457 SCRA 465)
FACTS: Donald Kwok and his father-in-law,
Patricio L. Lim, along with some other
stockholders, established the Philippine Carpet
Manufacturing Company in 1965. The petitioner
retired 36 years later and upon retirement, he
claimed the cash equivalent of what he believed to
be his accumulated vacation and sick leave credits
during the entire length of his service with the
company, which the total amount reached
P7,080,546.00 plus interest. The respondent
corporation refused to accede to the petitioner’s
demand claiming that the latter is not entitled to it.
The petitioner filed a complaint before the NLRC.
He claimed that Lim made a verbal promise to give
him unlimited sick leave and vacation leave benefits
and its cash conversion upon his retirement or
resignation without the need for application
therefor. The respondent denied all of these and
claimed that petitioner’s demand was without legal
basis. It was further pointed out that as per
Memorandum dated November 6, 1981, only
regular employees and managerial and confidential
employees falling under Category I were entitled to
vacation and sick leave credits. The petitioner,
whose position did not fall under Category I was
not entitled to the benefits under the said
memorandum. Labor Arbiter ruled in favor of the
petitioner. The corporation was directed to pay the
petitioner the amount he was demanding plus
interest and 10% attorney’s fees. The corporation
appealed the decision and the NLRC reversed the
decision of the Labor Arbiter. The petitioner
appealed the NLRC’s decision to the CA but the
CA affirmed the NLRC’s decision. Hence, this
petition.
ISSUE: Whether or not the verbal contract in favor
of petitioner is valid.
RULING: Under Rule 45 of the Rules of Court, only
questions of law may be raised under a petition for
review on certiorari. The Court, not being a trier of
facts, is not wont to reexamine and reevaluate the
evidence of the parties, whether testimonial or
documentary. Moreover, the findings of facts of the
CA on appeal from the NLRC are, more often than
not, given conclusive effect by the Court. The Court
may delve into and resolve factual issues only in
exceptional circumstances, such as when the
findings of facts of the Labor Arbiter, on one hand,
and those of the NLRC and the CA, on the other,
are capricious and arbitrary; or when the CA has
reached an erroneous conclusion based on arbitrary
findings of fact; and when substantial justice so
requires. In this case, however, the petitioner failed
to convince the Court that the factual findings of the
CA which affirmed the findings of the NLRC on
appeal, as well as its conclusions based on the said
findings, are capricious and arbitrary.
For a contract to be binding on the parties thereto, it
need not be in writing unless the law requires that
such contract be in some form in order that it may
be valid or enforceable or that it be executed in a
certain way, in which case that requirement is
absolute and independent. Indeed, corporate
policies need not be in writing. Contracts entered
into by a corporate officer or obligations or
prestations assumed by such officer for and in
behalf of such corporation are binding on the said
corporation only if such officer acted within the
scope of his authority or if such officer exceeded
the limits of his authority, the corporation has
ratified such contracts or obligations.
In the present case, the petitioner relied principally
on his testimony to prove that Lim made a verbal
promise to give him vacation and sick leave credits,
as well as the privilege of converting the same into
cash upon retirement. The Court agrees that those
who belong to the upper corporate echelons would
have more privileges. However, the Court cannot
presume the existence of such privileges or benefits.
The petitioner was burdened to prove not only the
existence of such benefits but also that he is entitled
to the same, especially considering that such
privileges are not inherent to the positions occupied
by the petitioner in the respondent corporation, son-
in-law of its president or not.
INFORMATION TECHNOLOGY FOUNDATION OF
THE PHILIPPINES VS. COMMISSION ON
ELECTIONS
FACTS: On June 7, 1995, Congress passed R.A.
8046 (An act authorizing the COMELEC to conduct
a nationwide demonstration of a computerized
election system and pilot-test it in the March 1996
elections in the Autonomous Region in Muslim
Mindanao (ARMM) and for other purposes). On
December 22, 1997, Congress enacted R.A. 8436
(An act authorizing the COMELEC to use an
automated election system in the May 11, 1998
national or local elections and in subsequent
national and local electoral exercises, providing
funds therefore and for other purposes).
On October 29, 2002, COMELEC adopted its
Resolution 02-0170 a modernization program for
the 2004 elections. It resolved to conduct biddings
for the three phases of its Automated Election
System: namely, Phase I-Voter Registration and
Validation System; Phase II-Automated Counting
and Canvassing System; and Phase III-Electronic
Transmissions.
President Gloria Macapagal-Arroyo issued EO No.
172, which allocated the sum of P 2.5 billion to
fund the AES for May 10, 2004 elections. She
authorized the release of an additional P 500
million, upon the request of COMELEC.
The COMELEC issued an “Invitation to Apply for
Eligibility and to Bid”. There are 57 bidders who
participated therein. The Bids and Awards
Committee (BAC) found MPC and the Total
Information Management Corporation (TIMC)
eligible. Both were referred to Technical Working
Group (TWG) and the Department of Science and
Technology (DOST).
However, the DOST said in its Report on the
Evaluation of Technical Proposals on Phase II that
both MPC and TIMC had obtained a number of
failed marks in technical evaluation.
Notwithstanding these failures, the COMELEC en
banc issued Resolution No. 6074, awarding the
project to MPC.
Wherefore, petitioners Information Technology
Foundation of the Philippines wrote a letter to the
COMELEC chairman Benjamin Abalos, Sr. They
protested the award of the contract to respondent
MPC. However in a letter-reply, the COMELEC
rejected the protest.
ISSUE: Whether or not the COMELEC committed
grave abuse of discretion in awarding the contract to
MPC in violation of law and in disregard of its own
bidding rules and procedure.
RULING: YES. An essential element of a publicly
bidded contract is that all bidders must be on equal
footing. Not simply in terms of application of the
procedural rules and regulations imposed by the
relevant government agency, but more importantly,
on the contract bidded upon. Each bidder must be
able to bid on the same thing. The rationale is
obvious. If the winning bidder is allowed to later
include or modify certain provisions in the contract
awarded such that the contract is altered in any
material respect, then the essence of fair
competition in the public bidding is destroyed. A
public bidding would indeed be a farce if after the
contract is awarded, the winning bidder may modify
the contract and include provisions which are
favorable to it that were not previously made
available to the other bidders.
In this case, the Court has explained that
COMELEC flagrantly violated the public policy on
public biddings (1) by allowing MPC/MPEI to
participate in the bidding even though it was not
qualified to do so; and (2) by eventually awarding
the contract to MPC/MPEI. It is clear that the
Commission further desecrated the law on public
bidding by permitting the winning bidder to alter
the subject of the contract, in effect allowing a
substantive amendment without public bidding.
RADIOWEALTH FINANCE COMPANY VS. DEL
ROSARIO, 335 SCRA 288
FACTS: Spouses del Rosario, jointly and severally
executed, signed and delivered in favor of
Radiowealth Finance Company a Promissory Note
for ₱138,948 in installments of ₱11,579.00 payable
for 12 consecutive months. A late payment penalty
charge of two and a half (2.5%) percent per month
shall be added to each unpaid installment from due
date thereof until fully paid. If default will be made
in the payment of any of the installments or late
payment charges thereon, the total principal sum
then remaining unpaid, together with the agreed late
payment charges thereon, shall at once become due
and payable without need of notice or demand.
Respondents defaulted on the monthly installments.
Despite repeated demands, they failed to pay their
obligations.
Petitioner filed a Complaint for the collection of a
sum of money before the Regional Trial Court of
Manila, Branch 14, which it eventually dismissed
for failure of petitioner to substantiate its claims, the
evidence it had presented being merely hearsay. On
appeal, the Court of Appeals (CA) reversed the trial
court and remanded the case for further
proceedings.
ISSUE: Whether the whole amount of the loan shall
be due and demandable.
₱11,579 for twelve consecutive months. While the
specific date on which each installment would be
due was left blank, the Note clearly provided that
each installment should be payable each month.
Furthermore, it also provided for an acceleration
clause and a late payment penalty, both of which
showed the intention of the parties that the
installments should be paid at a definite date. Had
they intended that the debtors could pay as and
when they could, there would have been no need for
these two clauses. Verily, the contemporaneous and
subsequent acts of the parties manifest their
intention and knowledge that the monthly
installments would be due and demandable each
month. In this case, the conclusion that the
installments had already became due and
demandable is bolstered by the fact that respondents
started paying installments on the Promissory Note,
even if the checks were dishonored by their drawee
bank.

RULING:YES. Petitioner claims that respondents

are liable for the whole amount of their debt and the
interest thereon, after they defaulted on the monthly
installments. Respondents, on the other hand,
counter that the installments were not yet due and
demandable. Petitioner had allegedly allowed them
to apply their promotion services for its financing
business as payment of the Promissory Note. This
was supposedly evidenced by the blank space left
for the date on which the installments should have
commenced. In other words, respondents theorize
that the action for immediate enforcement of their
obligation is premature because its fulfillment is
dependent on the sole will of the debtor. Hence,
they consider that the proper court should first fix a
period for payment, pursuant to Articles 1180 and
1197 of the Civil Code. This contention is
untenable.

The act of leaving blank the due date of the first

installment did not necessarily mean that the
debtors were allowed to pay as and when they
could. If this was the intention of the parties, they
should have so indicated in the Promissory Note.
However, it did not reflect any such intention. On
the contrary, the Note expressly stipulated that the
debt should be amortized monthly in installments of