NEGLIGENCE

G.R. No. 34840 September 23, 1931

NARCISO GUTIERREZ, plaintiff-appellee,

vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO VELASCO, and
SATURNINO CORTEZ, defendants-appellants.

L.D. Lockwood for appellants Velasco and Cortez.

San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff in the Court of First Instance of Manila against the five
defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a result
of an automobile accident. On judgment being rendered as prayed for by the plaintiff, both sets of
defendants appealed.

On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of
Las Piñas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was
owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18
years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At
the time of the collision, the father was not in the car, but the mother, together will several other
members of the Gutierrez family, seven in all, were accommodated therein. A passenger in the
autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The
collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fracture
right leg which required medical attendance for a considerable period of time, and which even at
the date of the trial appears not to have healed properly.

It is conceded that the collision was caused by negligence pure and simple. The difference
between the parties is that, while the plaintiff blames both sets of defendants, the owner of the
passenger truck blames the automobile, and the owner of the automobile, in turn, blames the
truck. We have given close attention to these highly debatable points, and having done so, a
majority of the court are of the opinion that the findings of the trial judge on all controversial
questions of fact find sufficient support in the record, and so should be maintained. With this
general statement set down, we turn to consider the respective legal obligations of the defendants.

In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be
explained that the youth Bonifacio was in incompetent chauffeur, that he was driving at an
excessive rate of speed, and that, on approaching the bridge and the truck, he lost his head and so
contributed by his negligence to the accident. The guaranty given by the father at the time the son
was granted a license to operate motor vehicles made the father responsible for the acts of his
son. Based on these facts, pursuant to the provisions of article 1903 of the Civil Code, the father
alone and not the minor or the mother, would be liable for the damages caused by the minor.

We are dealing with the civil law liability of parties for obligations which arise from fault or
negligence. At the same time, we believe that, as has been done in other cases, we can take
cognizance of the common law rule on the same subject. In the United States, it is uniformly held
that the head of a house, the owner of an automobile, who maintains it for the general use of his
family is liable for its negligent operation by one of his children, whom he designates or permits to
run it, where the car is occupied and being used at the time of the injury for the pleasure of other
members of the owner's family than the child driving it. The theory of the law is that the running
of the machine by a child to carry other members of the family is within the scope of the owner's
business, so that he is liable for the negligence of the child because of the relationship of master
and servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The
liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a
different basis, namely, that of contract which, we think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the evidence. The reason for this conclusion
reaches to the findings of the trial court concerning the position of the truck on the bridge, the
speed in operating the machine, and the lack of care employed by the chauffeur. While these facts
are not as clearly evidenced as are those which convict the other defendant, we nevertheless
hesitate to disregard the points emphasized by the trial judge. In its broader aspects, the case is one
of two drivers approaching a narrow bridge from opposite directions, with neither being willing to
slow up and give the right of way to the other, with the inevitable result of a collision and an
accident.

The defendants Velasco and Cortez further contend that there existed contributory negligence on
the part of the plaintiff, consisting principally of his keeping his foot outside the truck, which
occasioned his injury. In this connection, it is sufficient to state that, aside from the fact that the
defense of contributory negligence was not pleaded, the evidence bearing out this theory of the
case is contradictory in the extreme and leads us far afield into speculative matters.

The last subject for consideration relates to the amount of the award. The appellee suggests that the
amount could justly be raised to P16,517, but naturally is not serious in asking for this sum, since no
appeal was taken by him from the judgment. The other parties unite in challenging the award of
P10,000, as excessive. All facts considered, including actual expenditures and damages for the injury
to the leg of the plaintiff, which may cause him permanent lameness, in connection with other
adjudications of this court, lead us to conclude that a total sum for the plaintiff of P5,000 would be
fair and reasonable. The difficulty in approximating the damages by monetary compensation is well
elucidated by the divergence of opinion among the members of the court, three of whom have
inclined to the view that P3,000 would be amply sufficient, while a fourth member has argued that
P7,500 would be none too much.

In consonance with the foregoing rulings, the judgment appealed from will be modified, and the
plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo
Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of both
instances.

G.R. No. L-48930 February 23, 1944

ANTONIO VAZQUEZ, petitioner,

vs.
FRANCISCO DE BORJA, respondent.

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

G.R. No. L-48931 February 23, 1944

 FRANCISCO DE BORJA, petitioner,
vs.
ANTONIO VAZQUEZ, respondent.

OZAETA, J.:

This action was commenced in the Court of First Instance of Manila by Francisco de Borja against
Antonio Vazquez and Fernando Busuego to recover from them jointly and severally the total sum of
P4,702.70 upon three alleged causes of action, to wit: First, that in or about the month of January,
1932, the defendants jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans
of palay at P2.10 per cavan, to be delivered during the month of February, 1932, the said defendants
having subsequently received from the plaintiff in virtue of said agreement the sum of P8,400; that
the defendants delivered to the plaintiff during the months of February, March, and April, 1932, only
2,488 cavans of palay of the value of P5,224.80 and refused to deliver the balance of 1,512 cavans of
the value of P3,175.20 notwithstanding repeated demands. Second, that because of defendants'
refusal to deliver to the plaintiff the said 1,512 cavans of palay within the period above mentioned,
the plaintiff suffered damages in the sum of P1,000. And, third, that on account of the agreement
above mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of which they
returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks
or to pay their value amounting to P377.50; and that on account of such refusal the plaintiff suffered
damages in the sum of P150.

The defendant Antonio Vazquez answered the complaint, denying having entered into the contract
mentioned in the first cause of action in his own individual and personal capacity, either solely or
together with his codefendant Fernando Busuego, and alleging that the agreement for the purchase
of 4,000 cavans of palay and the payment of the price of P8,400 were made by the plaintiff with and
to the Natividad-Vasquez Sabani Development Co., Inc., a corporation organized and existing under
the laws of the Philippines, of which the defendant Antonio Vazquez was the acting manager at the
time the transaction took place. By way of counterclaim, the said defendant alleged that he suffered
damages in the sum of P1,000 on account of the filing of this action against him by the plaintiff with
full knowledge that the said defendant had nothing to do whatever with any and all of the
transactions mentioned in the complaint in his own individual and personal capacity.

The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff
the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums, and absolving the
defendant Fernando Busuego (treasurer of the corporation) from the complaint and the plaintiff
from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of Appeals, the latter
modified that judgment by reducing it to the total sum of P3,314.78, with legal interest thereon and
the costs. But by a subsequent resolution upon the defendant's motion for reconsideration, the
Court of Appeals set aside its judgment and ordered that the case be remanded to the court of origin
for further proceedings. The defendant Vazquez, not being agreeable to that result, filed the present
petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the Court of Appeals;
and the plaintiff Francisco de Borja, excepting to the resolution of the Court of Appeals whereby its
original judgment was set aside and the case was ordered remanded to the court of origin for
further proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the original
judgment of the Court of Appeals.

The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read
as follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al
demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales, dicho demandante
solamente recibio 2,583 cavanes; y que asimismo recibio para su envase 4,000 sacos vacios. Esta
provbado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder del
demandado el resto, y cuyo valor es el de P0.24 cada uno. Presentada la demanda contra los
demandados Antonio Vazquez y Fernando Busuego para el pago de la cantidad de P4,702.70, con
sus intereses legales desde el 1.o de marzo de 1932 hasta su completo pago y las costas, el Juzgado
de Primera Instancia de Manila el asunto condenando a Antonio Vazquez a pagar al demandante la
cantidad de P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al
demandado Fernando Busuego de la demanda y al demandante de la reconvencion de los
demandados, sin especial pronunciamiento en cuanto a las costas. De dicha decision apelo el
demandado Antonio Vazquez, apuntado como principal error el de que el habia sido condenado
personalmente, y no la corporacion por el representada.

Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de
Borja de los 4,000 cavanes de palay fue en su capacidad de Presidente interino y Manager de la
corporacion Natividad-Vazquez Sabani Development Co., Inc. Asi resulta del Exh. 1, que es la copia al
carbon del recibo otorgado por el demandado Vazquez, y cuyo original lo habia perdido el
demandante, segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto
que en los mismos se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al
gobierno en pago de los alquileres de la Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al
abogado Sr. Jacinto Tomacruz, posterior presidente de la corporacion sucesora en el arrendamiento
de la Sabani Estate, cuando el solicito sus buenos oficios para el cobro del precio del palay no
entregado. Asi igualmente lo declaro el que hizo entrega de parte del palay a Borja, Felipe
Veneracion, cuyo testimonio no ha sido refutado. Y asi se deduce de la misma demanda, cuando se
incluyo en ella a Fernando Busuego, tesorero de la Natividad-Vazquez Sabani Development Co., Inc.

Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez Sabani Development Co., Inc.,
que quedo insolvente y dejo de existir. El Juez sentenciador declaro, sin embargo, al demandado
Vazquez responsable del pago de la cantidad reclamada por su negligencia al vender los referidos
4,000 cavanes de palay sin averiguar antes si o no dicha cantidad existia en las bodegas de la
corporacion.

Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el
mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y decimos
'despues' porque esta ultima venta aparece asentada despues de la primera. Segun esto, el apelante
no solamente obro con negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con
los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la
cantidad objecto de la demanda.

En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el

apelante debe pagar al apelado la suma de P2,295.70 como valor de los 1,417 cavanes de palay que
dejo de entregar al demandante, mas la suma de P339.08 como importe de los 1,417 sacos vacios,
que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses legales desde la
interposicion de la demanda y las costas de ambas instancias.

Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y

alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la
corporacion todavia tenia bastante existencia de dicho grano, y no estando dicho extremo
suficientemente discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin efecto
nuestra citada decision, y ordenamos la devolucion de la causa al Juzgado de origen para que reciba
pruebas al efecto y dicte despues la decision correspondiente.

Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No. 8676,
Francisco de Borja vs. Antonio Vasquez et al., praying, for the reasons therein given, that the
resolution of December 22, 1942, be reconsidered: Considering that said resolution remanding the
case to the lower court is for the benefit of the plaintiff-appellee to afford him opportunity to refute
the contention of the defendant-appellant Antonio Vazquez, motion denied.

The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into
the contract with the defendant Antonio Vazquez in his personal capacity or as manager of the
Natividad-Vazquez Sabani Development Co., Inc. The Court of Appeals found that according to the
preponderance of the evidence "the sale made by Antonio Vazquez in favor of Francisco de Borja of
4,000 cavans of palay was in his capacity as acting president and manager of the corporation
Natividad-Vazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving the
only issue involved, should be determinative of the result.

The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for
further trial to determine whether the corporation had sufficient stock of palay at the time appellant
sold, 1500 cavans of palay to Kwong Ah Phoy. First, if that point was material to the issue, it should
have been proven during the trial; and the statement of the court that it had not been sufficiently
discussed and proven was no justification for ordering a new trial, which, by the way, neither party
had solicited but against which, on the contrary, both parties now vehemently protest. Second, the
point is, in any event, beside the issue, and this we shall now discuss in connection with the original
judgment of the Court of Appeals which the plaintiff cross-petitioner seeks to maintain.

The action being on a contract, and it appearing from the preponderance of the evidence that the
party liable on the contract is the Natividad-Vazquez Sabani Development Co., Inc. which is not a
party herein, the complaint should have been dismissed. Counsel for the plaintiff, in his brief as
respondent, argues that altho by the preponderance of the evidence the trial court and the Court of
Appeals found that Vazquez celebrated the contract in his capacity as acting president of the
corporation and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and
which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that was true from the
point of view of a legal fiction, "ello no impede que tambien sea verdad lo alegado en la demanda de
que la misma persona de Vasquez fue la que contrato con Borja y que la misma persona de Vasquez
fue quien recibio la suma de P8,400." But such argument is invalid and insufficient to show that the
president of the corporation is personally liable on the contract duly and lawfully entered into by
him in its behalf.

It is well known that a corporation is an artificial being invested by law with a personality of its own,
separate and distinct from that of its stockholders and from that of its officers who manage and run
its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to
act thru its agents, does not make the latter personally liable on a contract duly entered into, or for
an act lawfully performed, by them for an in its behalf. The legal fiction by which the personality of a
corporation is created is a practical reality and necessity. Without it no corporate entities may exists
and no corporate business may be transacted. Such legal fiction may be disregarded only when an
attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has
been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez
personally benefited by the contract of sale in question and that he is merely invoking the legal
fiction to avoid personal liability. Neither is it contended that he entered into said contract for the
corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis
upon which to hold him liable on the contract either principally or subsidiarily.

The trial court found him guilty of negligence in the performance of the contract and held him
personally liable on that account. On the other hand, the Court of Appeals found that he "no
solamente obro con negligencia, sino interveniendo culpa de su parte, por lo que de acuerdo con los
arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la
cantidad objeto de la demanda." We think both the trial court and the Court of Appeals erred in law
in so holding. They have manifestly failed to distinguish a contractual from an extracontractual
obligation, or an obligation arising from contract from an obligation arising from culpa aquiliana. The
fault and negligence referred to in articles 1101-1104 of the Civil Code are those incidental to the
fulfillment or nonfullfillment of a contractual obligation; while the fault or negligence referred to in
article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the
common law, which gives rise to an obligation independently of any contract. (Cf. Manila R.R. Co. vs.
Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that the
corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the
contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since it
was the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other
cause, made the corporation and not its agent liable.

On the other hand if independently of the contract Vazquez by his fault or negligence cause
damaged to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But
then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract
alleged in his complaint herein; and Vazquez' liability would be principal and not merely subsidiary,
as the Court of Appeals has erroneously held. No such cause of action was alleged in the complaint
or tried by express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial
court had no jurisdiction over the issue and could not adjudicate upon it (Reyes vs. Diaz, G.R. No.
48754.) Consequently it was error for the Court of Appeals to remand the case to the trial court to
try and decide such issue.

It only remains for us to consider petitioner's second assignment of error referring to the lower
courts' refusal to entertain his counterclaim for damages against the respondent Borja arising from
the bringing of this action. The lower courts having sustained plaintiff's action. The finding of the
Court of Appeals that according to the preponderance of the evidence the defendant Vazquez
celebrated the contract not in his personal capacity but as acting president and manager of the
corporation, does not warrant his contention that the suit against him is malicious and tortious; and
since we have to decide defendant's counterclaim upon the facts found by the Court of Appeals, we
find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel that a a matter of
moral justice we ought to state here that the indignant attitude adopted by the defendant towards
the plaintiff for having brought this action against him is in our estimation not wholly right. Altho
from the legal point of view he was not personally liable for the fulfillment of the contract entered
into by him on behalf of the corporation of which he was the acting president and manager, we think
it was his moral duty towards the party with whom he contracted in said capacity to see to it that
the corporation represented by him fulfilled the contract by delivering the palay it had sold, the price
of which it had already received. Recreant to such duty as a moral person, he has no legitimate
cause for indignation. We feel that under the circumstances he not only has no cause of action
against the plaintiff for damages but is not even entitled to costs.

The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without
any finding as to costs.
Remedies in Case of Breach (ACTION FOR PERFORMANCE)

G.R. No. 117190 January 2, 1997

JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL
MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.

BELLOSILLO, J.:

This case involves the proper interpretation of the contract entered into between the parties.

Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style
J.M.T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the construction of the
windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion
and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid
petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a
balance of P15,000.00.

On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a
complaint to collect the amount. In his Answer before the trial court respondent denied the claim
saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI)
which constructed the deep well to which the windmill system was to be connected. According to
respondent, since the deep well formed part of the system the payment he tendered to SPGMI
should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by the defects in the windmill system which caused the
structure to collapse after a strong wind hit their place.1

Petitioner denied that the construction of a deep well was included in the agreement to build the
windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its
installation, exclusive of other incidental materials needed for the project. He also disowned any
obligation to repair or reconstruct the system and insisted that he delivered it in good and working
condition to respondent who accepted the same without protest. Besides, its collapse was
attributable to a typhoon, a force majeure, which relieved him of any liability.

In finding for plaintiff, the trial court held that the construction of the deep well was not part of the
windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent.2
It noted that "[i]f the intention of the parties is to include the construction of the deep well in the
project, the same should be stated in the proposals. In the absence of such an agreement, it could
be safely concluded that the construction of the deep well is not a part of the project undertaken by
the plaintiff."3 With respect to the repair of the windmill, the trial court found that "there is no clear
and convincing proof that the windmill system fell down due to the defect of the construction."4
The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was
included in the agreement of the parties because the term "deep well" was mentioned in both
proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the
proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of
constructing the deep well would be deducted from the contract price of P60,000.00. Upon these
premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI should
be applied to his remaining balance with petitioner thus effectively extinguishing his contractual
obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to
reconstruct the windmill in accordance with the stipulated one-year guaranty.

His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks
relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill
system included the installation of a deep well and, secondly, whether petitioner is under obligation
to reconstruct the windmill after it collapsed.

We reverse the appellate court on the first issue but sustain it on the second.

The preponderance of evidence supports the finding of the trial court that the installation of a deep
well was not included in the proposals of petitioner to construct a windmill system for respondent.
There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at
P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later,
i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of
P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction
immediately followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced
hereunder —

In connection with your Windmill System and Installation, we would like to quote to you as follows:

One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter,
with 20 pieces blade, Tower 40 feet high, including mechanism which is not advisable to operate
during extra-intensity wind. Excluding cylinder pump.

UNIT CONTRACT PRICE P87,000.00

The second letter-proposal (Exh. "A") provides as follows:

In connection with your Windmill system, Supply of Labor Materials and Installation, operated water
pump, we would like to quote to you as
follows —

One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet
diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances up to Cylinder
pump, shafting U.S. adjustable International Metal.

One (1) lot — Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.

One (1) lot — Float valve.

One (1) lot — Concreting materials foundation.

F. O. B. Laguna
Contract Price P60,000.00

Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely.
Neither is there an itemization or description of the materials to be used in constructing the deep
well. There is absolutely no mention in the two (2) documents that a deep well pump is a
component of the proposed windmill system. The contract prices fixed in both proposals cover only
the features specifically described therein and no other. While the words "deep well" and "deep well
pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system.
They merely describe the type of deep well pump for which the proposed windmill would be
suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions
"for" and "suitable for" were meant only to convey the idea that the proposed windmill would be
appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner
was to include a deep well in the agreement to construct a windmill, he would have used instead the
conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to
their meaning they should not be disturbed.

Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall
be accorded primordial consideration5 and, in case
of doubt, their contemporaneous and subsequent acts shall be principally considered.6 An
examination of such contemporaneous and subsequent acts of respondent as well as the attendant
circumstances does not persuade us to uphold him.

Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the
installation of a deep well pump. He contends that since petitioner did not have the capacity to
install the pump the latter agreed to have a third party do the work the cost of which was to be
deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who
declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking
him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr.
Tanguilig."7

We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a
letter is unsubstantiated. The alleged letter was never presented in court by private respondent for
reasons known only to him. But granting that this written communication existed, it could not have
simply contained a request for Pili to install a deep well; it would have also mentioned the party who
would pay for the undertaking. It strains credulity that respondent would keep silent on this matter
and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the
windmill construction and that its payment would come from the contract price of P60,000.00.

We find it also unusual that Pili would readily consent to build a deep well the payment for which
would come supposedly from the windmill contract price on the mere representation of petitioner,
whom he had never met before, without a written commitment at least from the former. For if
indeed the deep well were part of the windmill project, the contract for its installation would have
been strictly a matter between petitioner and Pili himself with the former assuming the obligation to
pay the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over
to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of
the windmill project but a separate agreement between respondent and Pili. Besides, if the price of
P60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to
petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the
latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner,
respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid
the money in his possession."8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is
clear that "payment shall be made to the person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to receive it,"9 it does not appear from the
record that Pili and/or SPGMI was so authorized.

Respondent cannot claim the benefit of the law concerning "payments made by a third person."10
The Civil Code provisions do not apply in the instant case because no creditor-debtor relationship
between petitioner and Guillermo Pili and/or SPGMI has been established regarding the
construction of the deep well. Specifically, witness Pili did not testify that he entered into a contract
with petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by
petitioner to construct the deep well, an agreement particularly to this effect should have been
entered into.

The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's
assertions. These circumstances only show that the construction of the well by SPGMI was for the
sole account of respondent and that petitioner merely supervised the installation of the well
because the windmill was to be connected to it. There is no legal nor factual basis by which this
Court can impose upon petitioner an obligation he did not expressly assume nor ratify.

The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in
order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of
the Civil Code the event should be the sole and proximate cause of the loss or destruction of the
object of the contract. In Nakpil vs. Court of Appeals,12 four (4) requisites must concur: (a) the cause
of the breach of the obligation must be independent of the will of the debtor; (b) the event must be
either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any
participation in or aggravation of the injury to the creditor.

Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event.
Interestingly, the evidence does not disclose that there was actually a typhoon on the day the
windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this
case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong wind should
be present in places where windmills are constructed, otherwise the windmills will not turn.

The appellate court correctly observed that "given the newly-constructed windmill system, the same
would not have collapsed had there been no inherent defect in it which could only be attributable to
the appellee."13 It emphasized that respondent had in his favor the presumption that "things have
happened according to the ordinary course of nature and the ordinary habits of life."14 This
presumption has not been rebutted by petitioner.

Finally, petitioner's argument that private respondent was already in default in the payment of his
outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him.15 When the windmill failed to function properly it
became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty
stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is
petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the
Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same
shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay
petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the
date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective
windmill system, in accordance with the one-year guaranty"16 and to complete the same within
three (3) months from the finality of this decision.

SO ORDERED.

ACCION PAULIANA

[G.R. No. 144169. March 28, 2001.]

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, Petitioners, v. COURT
OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO., INC.,
Respondents.

DECISION

KAPUNAN, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the
decision of the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000 denying
the motion for reconsideration of the aforesaid decision. The original complaint that is the subject
matter of this case is an accion pauliana — an action filed by Philam Insurance Company, Inc.
(respondent Philam) to rescind or annul the donations made by petitioner Khe Hong Cheng
allegedly in fraud of creditors. The main issue for resolution is whether or not the action to rescind
the donations has already prescribed. While the first paragraph of Article 1389 of the Civil Code
states: "The action to claim rescission must be commenced within four years . . ." the question is,
from which point or event does this prescriptive period commence to run?

The facts are as follows:

Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears that
on or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board the
vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate,
Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was
covered by a marine insurance policy issued by American Home Insurance Company (respondent
Philam’s assured). M/V PRINCE ERIC, however, sank somewhere between Negros Island and
Northeastern Mindanao, resulting in the total loss of the shipment. Because of the loss, the
insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the
consignee.

Having been subrogated into the rights of the consignee, American Home instituted Civil Case No.
13357 in the Regional Trial Court (RTC) of Makati, Branch 147 to recover the money paid to the
consignee, based on breach of contract of carriage. While the case was still pending, or on
December 20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of land in
favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with an
area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was donated to
Ray Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of
land located in Butuan City, covered by TCT No. RT-12838. On the basis of said deeds, TCT No. T-
3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven and TCT
No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was issued in the name of Sandra
Joy.

The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No. 13357 on
December 29, 1993, four years after the donations were made and the TCTs were registered in the
donees’ names. The decretal portion of the aforesaid decision reads:jgc:chanrobles.com.ph

"Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and
against the defendant, ordering the latter to pay the former:chanrob1es virtual 1aw library

1) the sum of P354,000.00 representing the amount paid by the plaintiff to the Philippine
Agricultural Trading Corporation with legal interest at 12% from the time of the filing of the
complaint in this case;

2) the sum of P50,000.00 as attorney’s fees;

3) the costs. 1

After the said decision became final and executory, a writ of execution was forthwith, issued on
September 14, 1995. Said writ of execution, however, was not served. An alias writ of execution was,
thereafter, applied for and granted in October 1996. Despite earnest efforts, the sheriff found no
property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or
garnish for the satisfaction of the trial court’s decision. When the sheriff, accompanied by counsel of
respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of execution,
they discovered that petitioner Khe Hong Cheng no longer had any property and that he had
conveyed the subject properties to his children.

On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of Makati
City, Branch 147, for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng
in favor of his children and for the nullification of their titles (Civil Case No. 97-415). Respondent
Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of
his creditors, including respondent Philam. 2

Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal on
the ground that the action had already prescribed. They posited that the registration of the deeds of
donation on December 27, 1989 constituted constructive notice and since the complaint a quo was
filed only on February 25, 1997, or more than four (4) years after said registration, the action was
already barred by prescription. 3

Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philam’s
complaint had not yet prescribed. According to the trial court, the prescriptive period began to run
only from December 29, 1993, the date of the decision of the trial court in Civil Case No. 13357. 4

On appeal by petitioners, the CA affirmed the trial court’s decision in favor of respondent Philam.
The CA declared that the action to rescind the donations had not yet prescribed. Citing Articles 1381
and 1383 of the Civil Code, the CA basically ruled that the four year period to institute the action for
rescission began to run only in January 1997, and not when the decision in the civil case became final
and executory on December 29, 1993. The CA reckoned the accrual of respondent Philam’s cause of
action on January 1997, the time when it first learned that the judgment award could not be
satisfied because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his
name. Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of
the decision in its favor, as prescribed under Article 1383 of the Civil Code. 5

The Court of Appeals thus denied the petition for certiorari filed before it, and held that the trial
court did not commit any error in denying petitioners’ motion to dismiss. Their motion for
reconsideration was likewise dismissed in the appellate court’s resolution dated July 11, 2000.

Petitioners now assail the aforesaid decision and resolution of the CA alleging that:chanrob1es
virtual 1aw library

PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION WHEN IT
DENIED THE PETITION TO DISMISS THE CASE BASED ON THE GROUND OF PRESCRIPTION.chanrob1es
virtua1 1aw 1ibrary

II

PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PRESCRIPTION BEGINS
TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO BUTUAN CITY IN SEARCH OF PROPERTIES
OF PETITIONER FELIX KHE CHENG TO SATISFY THE JUDGMENT IN CIVIL CASE NO. 13357 AND FOUND
OUT THAT AS EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE DEEDS OF
DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION FOR RESCISSION ACCRUED
BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE DONATIONS WERE REGISTERED WITH THE
REGISTER OF DEEDS IN DECEMBER 1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN
FEBRUARY 1997, MORE THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS
ALREADY PRESCRIBED. 6

Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year
prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file its
action for rescission of the subject deeds of donation commence to run?

The petition is without merit.

Article 1389 of the Civil Code simply provides that, "The action to claim rescission must be
commenced within four years." Since this provision of law is silent as to when the prescriptive period
would commence, the general rule, i.e, from the moment the cause of action accrues, therefore,
applies. Article 1150 of the Civil Code is particularly instructive:chanrob1es virtual 1aw library

ARTICLE 1150. The time for prescription for all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day they may be brought.

Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action which
determines the starting point for the computation of the prescriptive period for the action. 7 Article
1383 of the Civil Code provides as follows:chanrob1es virtual 1aw library
ARTICLE 1383. An action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.

It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed of
only after all other legal remedies have been exhausted and have been proven futile. For an accion
pauliana to accrue, the following requisites must concur:chanrob1es virtual 1aw library

1) That the plaintiff asking for rescission, has a credit prior to the alienation, although demandable
later; 2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third
person; 3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person; 4) That the act being impugned is fraudulent; 5)
That the third person who received the property conveyed, if by onerous title, has been an
accomplice in the fraud. 8 (Emphasis ours)

We quote with approval the following disquisition of the CA on the matter:chanrob1es virtual 1aw
library

An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for
the satisfaction of his claim against the debtor other than an accion pauliana. The accion pauliana is
an action of a last resort. For as long as the creditor still has a remedy at law for the enforcement of
his claim against the debtor, the creditor will not have any cause of action against the creditor for
rescission of the contracts entered into by and between the debtor and another person or persons.
Indeed, an accion pauliana presupposes a judgment and the issuance by the trial court of a writ of
execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the
judgment of the court. It presupposes that the creditor has exhausted the property of the debtor.
The date of the decision of the trial court against the debtor is immaterial. What is important is that
the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property.
After all, the decision of the trial court against the debtor will retroact to the time when the debtor
became indebted to the creditor. 9

Petitioners, however, maintain that the cause of action of respondent Philam against them for the
rescission of the deeds of donation accrued as early as December 27, 1989, when petitioner Khe
Hong Cheng registered the subject conveyances with the Register of Deeds. Respondent Philam
allegedly had constructive knowledge of the execution of said deeds under Section 52 of Presidential
Decree No. 1529, quoted infra, as follows:chanrob1es virtual 1aw library

SECTION 52. Constructive knowledge upon registration. — Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed
or entered in the Office of the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such registering, filing, or
entering.chanrob1es virtua1 1aw 1ibrary

Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is
misplaced, for in no way does this imply that the specific provisions of the former may be all
together ignored. To count the four year prescriptive period to rescind an allegedly fraudulent
contract from the date of registration of the conveyance with the Register of Deeds, as alleged by
the petitioners, would run counter to Article 1383 of the Civil Code as well as settled jurisprudence.
It would likewise violate the third requisite to file an action for rescission of an allegedly fraudulent
conveyance of property, i.e., the creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial court
of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce
and satisfy the judgment of the court. It requires that the creditor has exhausted the property of the
debtor. The date of the decision of the trial court is immaterial. What is important is that the credit
of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the
decision of the trial court against the debtor will retroact to the time when the debtor became
indebted to the creditor.

Tolentino, a noted civilist, explained:jgc:chanrobles.com.ph

". . . [T]herefore, credits with suspensive term or condition are excluded, because the accion
pauliana presupposes a judgment and unsatisfied execution, which cannot exist when the debt is not
yet demandable at the time the rescissory action is brought. Rescission is a subsidiary action, which
presupposes that the creditor has exhausted the property of the debtor which is impossible in
credits which cannot be enforced because of a suspensive term or condition.

While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with retroactive effect to the date when the
credit was constituted." 10

These principles were reiterated by the Court when it explained the requisites of an accion pauliana
in greater detail, to wit:jgc:chanrobles.com.ph

"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 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 Bareg’s transmissible rights and actions.
petitioners simply undertook the third measure and filed an action for annulment of sale. This
cannot be done." 11 (Emphasis ours)

In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of the
accion pauliana on the basis of lack of cause of action:jgc:chanrobles.com.ph

"In this case, plaintiff’s 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 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." (Emphasis ours)

Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong Cheng had
executed the deeds of donation in favor of his children, the complaint against Butuan Shipping Lines
and/or petitioner Khe Hong Cheng was still pending before the trial court. Respondent Philam had
no inkling, at the time, that the trial court’s judgment would be in its favor and further, that such
judgment would not be satisfied due to the deeds of donation executed by petitioner Khe Hong
Cheng during the pendency of the case. Had respondent Philam filed his complaint on December 27,
1989, such complaint would have been dismissed for being premature. Not only were all other legal
remedies for the enforcement of respondent Philam’s claims not yet exhausted at the time the
deeds of donation were executed and registered. Respondent Philam would also not have been able
to prove then that petitioner Khe Hong Cheng had no more property other than those covered by
the subject deeds to satisfy a favorable judgment by the trial court.chanrob1es virtua1 1aw 1ibrary

It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that he
had reserved to himself property sufficient to answer for his debts contracted prior to this
date:jgc:chanrobles.com.ph

"That the DONOR further states, for the same purpose as expressed in the next preceding
paragraph, that this donation is not made with the object of defrauding his creditors having reserved
to himself property sufficient to answer his debts contracted prior to this date." 12

As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan City
to attach the properties of petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent Philam’s action for rescission of the deeds
of donation accrued because then it could be said that respondent Philam had exhausted all legal
means to satisfy the trial court’s judgment in its favor. Since respondent Philam filed its complaint
for accion pauliana against petitioners on February 25, 1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other property to satisfy the judgment award against him, its
action for rescission of the subject deeds clearly had not yet prescribed.

A final point. Petitioners now belatedly raise on appeal the defense of improper venue claiming that
respondent Philam’s complaint is a real action and should have been filed with the RTC of Butuan
City since the property subject matter of the donations are located therein. Suffice it to say that
petitioners are already deemed to have waived their right to question the venue of the instant case.
Improper venue should be objected to as follows 1) in a motion to dismiss filed within the time but
before the filing of the answer; 13 or 2) in the answer as an affirmative defense over which, in the
discretion of the court, a preliminary hearing may be held as if a motion to dismiss had been filed. 14
Having failed to either file a motion to dismiss on the ground of improper of venue or include the
same as an affirmative defense in their answer, petitioners are deemed to have their right to object
to improper venue.

WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.

SO ORDERED.

G.R. No. 134685 November 19, 1999

MARIA ANTONIA SIGUAN, petitioner,

vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.

DAVIDE, JR., C.J.:

May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children
be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan? This is the
pivotal issue to be resolved in this petition for review on certiorari under Rule 45 of the Revised
Rules of Court.

The relevant facts, as borne out of the records, are as follows:

On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and
P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee bank,
the checks were dishonored for the reason "account closed." Demands to make good the checks
proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as
Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of the Regional
Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992, the court a quo convicted
LIM as charged. The case is pending before this Court for review and docketed as G.R. No. 134685.

It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in
Criminal Case No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by the
Court of Appeals. On appeal, however, this Court, in a decision 3 promulgated on 7 April 1997,
acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages, plus legal
interest.

Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was
registered with the Office of the Register of Deeds of Cebu City:

(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 563 sq. m. and covered
by TCT No. 93433;

(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 600 sq. m. and covered
by TCT No. 93434;

(3) a parcel of land situated at Cebu City containing an area of 368 sq. m. and covered by TCT No.
87019; and

(4) a parcel of land situated at Cebu City, Cebu containing an area of 511 sq. m. and covered by TCT
No. 87020.

New transfer certificates of title were thereafter issued in the names of the donees. 5

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18
of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void
the new transfer certificates of title issued for the lots covered by the questioned Deed. The
complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that sometime in
July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real property to her
children in bad faith and in fraud of creditors, including her; that LIM conspired and confederated
with her children in antedating the questioned Deed of Donation, to petitioner's and other creditors'
prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay
her obligations.

On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal
Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the
Court of Appeals. As regards the questioned Deed of Donation, she maintained that it was not
antedated but was made in good faith at a time when she had sufficient property. Finally, she
alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.

In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed
of donation; (2) declared null and void the transfer certificates of title issued in the names of private
respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said
titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay
the petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney's
fees; and P5,000 as expenses of litigation.

On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the
decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the
requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing prior
to the celebration of the contract; and (2) there must be a fraud, or at least the intent to commit
fraud, to the prejudice of the creditor seeking the rescission.

According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged
before a notary public, appears on its face to have been executed on 10 August 1989. Under Section
23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is evidence of
the fact which gave rise to its execution and of the date thereof. No antedating of the Deed of
Donation was made, there being no convincing evidence on record to indicate that the notary public
and the parties did antedate it. Since LIM's indebtedness to petitioner was incurred in August 1990,
or a year after the execution of the Deed of Donation, the first requirement for accion pauliana was
not met.

Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was
nevertheless in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October 1987,
the Court of Appeals found the same untenable, for the rule is basic that the fraud must prejudice
the creditor seeking the rescission.

Her motion for reconsideration having been denied, petitioner came to this Court and submits the
following issue:

WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN FRAUD OF [THE]
CREDITORS OF RESPONDENT ROSA [LIM].

Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud
of creditors is contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the
case of Oria v. McMicking, 8 which enumerated the various circumstances indicating the existence of
fraud in a transaction. She reiterates her arguments below, and adds that another fact found by the
trial court and admitted by the parties but untouched by the Court of Appeals is the existence of a
prior final judgment against LIM in Criminal Case No. Q-89-2216 declaring Victoria Suarez as LIM's
judgment creditor before the execution of the Deed of Donation.

Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23, 9
Rule 132 of the Rules of Court, in holding that "being a public document, the said deed of donation is
evidence of the fact which gave rise to its execution and of the date of the latter." Said provision
should be read with Section 30 10 of the same Rule which provides that notarial documents are
prima facie evidence of their execution, not "of the facts which gave rise to their execution and of
the date of the latter."
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code,
which provides: "The donation is always presumed to be in fraud of creditors when at the time of
the execution thereof the donor did not reserve sufficient property to pay his debts prior to the
donation." In this case, LIM made no reservation of sufficient property to pay her creditors prior to
the execution of the Deed of Donation.

On the other hand, respondents argue that (a) having agreed on the law and requisites of accion
pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit
of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) the Court of
Appeals correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner
failed to present convincing evidence that the Deed of Donation was antedated and executed in
fraud of petitioner; and (e) the Court of Appeals correctly struck down the awards of damages,
attorney's fees and expenses of litigation because there is no factual basis therefor in the body of
the trial court's decision.

The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud
of petitioner and, therefore, rescissible. A corollary issue is whether the awards of damages,
attorney's fees and expenses of litigation are proper.

We resolve these issues in the negative.

The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of
Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the
latter court are conclusive, except in a number of instances. 11 In the case at bar, one of the
recognized exceptions warranting a review by this Court of the factual findings of the Court of
Appeals exists, to wit, the factual findings and conclusions of the lower court and Court of Appeals
are conflicting, especially on the issue of whether the Deed of Donation in question was in fraud of
creditors.

Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are
"those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them."

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to
prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit
prior to the alienation, 12 although demandable later; (2) the debtor has made a subsequent
contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy
to satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third person who received
the property conveyed, if it is by onerous title, has been an accomplice in the fraud. 15

The general rule is that rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement
setting aside the contract. 16 Without any prior existing debt, there can neither be injury nor fraud.
While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the
credit was constituted. 17

In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while
the deed of donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was antedated
to make it appear that it was made prior to petitioner's credit. Notably, that deed is a public
document, it having been acknowledged before a notary public. 18 As such, it is evidence of the fact
which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of
Court.

Petitioner's contention that the public documents referred to in said Section 23 are only those
entries in public records made in the performance of a duty by a public officer does not hold water.
Section 23 reads:

Sec. 23. Public documents as evidence. — Documents consisting of entries in public records made in
the performance of a duty by a public officer are prima facie evidence of the facts therein stated. All
other public documents are evidence, even against a third person, of the fact which gave rise to their
execution and of the date of the latter. (Emphasis supplied).

The phrase "all other public documents" in the second sentence of Section 23 means those public
documents other than the entries in public records made in the performance of a duty by a public
officer. And these include notarial documents, like the subject deed of donation. Section 19, Rule
132 of the Rules of Court provides:

Sec. 19. Classes of docum/ents. — For the purpose of their presentation in evidence, documents are
either public or private.

Public documents are:

(a) . . .

(b) Documents acknowledged before a notary public except last wills and testaments. . . .

It bears repeating that notarial documents, except last wills and testaments, are public documents
and are evidence of the facts that gave rise to their execution and of their date.

In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not
enough to overcome the presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in
August 1990, or a year after the questioned alienation. Thus, the first two requisites for the
rescission of contracts are absent.

Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the
contract of donation, still her action for rescission would not fare well because the third requisite
was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may
be rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article
1383 of the same Code provides that the action for rescission is but a subsidiary remedy which
cannot be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all
remedies by the prejudiced creditor to collect claims due him before rescission is resorted to." 19 It
is, therefore, "essential that the party asking for rescission prove that he has exhausted all other
legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged nor proved that she did
so. On this score, her action for the rescission of the questioned deed is not maintainable even if the
fraud charged actually did exist." 21
The fourth requisite for an accion pauliana to prosper is not present either.

Art. 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been entered into in fraud of creditors
when the donor did not reserve sufficient property to pay all debts contracted before the donation.
Likewise, Article 759 of the same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient
property to pay his debts prior to the donation.

For this presumption of fraud to apply, it must be established that the donor did not leave adequate
properties which creditors might have recourse for the collection of their credits existing before the
execution of the donation.

As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was
executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation.
Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed,
LIM had the following properties:

(1) A parcel of land containing an area of 220 square meters, together with the house constructed
thereon, situated in Sto. Niño Village, Mandaue City, Cebu, registered in the name of Rosa Lim and
covered by TCT No. 19706; 22

(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu; 23

(3) A parcel of land containing an area of 2.152 hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13572. 24

(4) A parcel of land containing an area of 3.6 hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13571. 25

During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought
by her in the amount of about P800,000 to P900,000. 26 Thus:

ATTY. FLORIDO:

Q These properties at the Sto. Niño Village, how much did you acquire this property?

A Including the residential house P800,000.00 to P900,000.00.

Q How about the lot which includes the house. How much was the price in the Deed of Sale of the
house and lot at Sto. Niño Violage [sic]?

A I forgot.

Q How much did you pay for it?

A That is P800,000.00 to P900,000.00.

Petitioner did not adduce any evidence that the price of said property was lower. Anent the property
in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4, the total
market value stated in the tax declarations dated 23 November 1993 was P56,871.60. Aside from
these tax declarations, petitioner did not present evidence that would indicate the actual market
value of said properties. It was not, therefore, sufficiently established that the properties left behind
by LIM were not sufficient to cover her debts existing before the donation was made. Hence, the
presumption of fraud will not come into play.

Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and
1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be
proved in any other manner recognized by the law of evidence. Thus in the consideration of whether
certain transfers are fraudulent, the Court has laid down specific rules by which the character of the
transaction may be determined. The following have been denominated by the Court as badges of
fraud:

(1) The fact that the consideration of the conveyance is fictitious or is inadequate;

(2) A transfer made by a debtor after suit has begun and while it is pending against him;

(3) A sale upon credit by an insolvent debtor;

(4) Evidence of large indebtedness or complete insolvency;

(5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially;

(6) The fact that the transfer is made between father and son, when there are present other of the
above circumstances; and

(7) The failure of the vendee to take exclusive possession of all the property. 28

The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are as
varied as the men who perpetrate the fraud in each case. This Court has therefore declined to define
it, reserving the liberty to deal with it under whatever form it may present itself. 29

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or
any other circumstance from which fraud can be inferred. Accordingly, since the four requirements
for the rescission of a gratuitous contract are not present in this case, petitioner's action must fail.

In her further attempt to support her action for rescission, petitioner brings to our attention the 31
July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was
therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of
P169,000 for the obligation LIM incurred on 8 October 1987. This decision was affirmed by the Court
of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her civilly liable for
P169,000 as actual damages.

It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the
questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides
that rescission shall only be to the extent necessary to cover the damages caused. Under this Article,
only the creditor who brought the action for rescission can benefit from the rescission; those who
are strangers to the action cannot benefit from its effects. 31 And the revocation is only to the
extent of the plaintiff creditor's unsatisfied credit; as to the excess, the alienation is maintained. 32
Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the subject deed of
donation.

Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of
litigation in favor of the petitioner. We have pored over the records and found no factual or legal
basis therefor. The trial court made these awards in the dispositive portion of its decision without
stating, however, any justification for the same in the ratio decidendi. Hence, the Court of Appeals
correctly deleted these awards for want of basis in fact, law or equity.

WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of Appeals
in CA-G.R. CV. No. 50091 is AFFIRMED in toto.

No pronouncement as to costs.

SO ORDERED.
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the
PHILIPPINE BAR ASSOCIATION, respondents.

G.R. No. L-47863 October 3, 1986

THE UNITED CONSTRUCTION CO., INC., petitioner,

vs.
COURT OF APPEALS, ET AL., respondents.

G.R. No. L-47896 October 3, 1986

PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,

vs.
COURT OF APPEALS, ET AL., respondents.

PARAS, J.:

These are petitions for review on certiorari of the November 28, 1977 decision of the Court of
Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of Manila,
Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order of the lower
court dated December 8, 1971. The Court of Appeals in modifying the decision of the lower court
included an award of an additional amount of P200,000.00 to the Philippine Bar Association to be
paid jointly and severally by the defendant United Construction Co. and by the third-party
defendants Juan F. Nakpil and Sons and Juan F. Nakpil.

The dispositive portion of the modified decision of the lower court reads:

WHEREFORE, judgment is hereby rendered:

(a) Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman
Ozaeta) to pay the plaintiff, jointly and severally, the sum of P989,335.68 with interest at the legal
rate from November 29, 1968, the date of the filing of the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;

(c) Dismissing the third-party complaint;

(d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit;

(e) Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman
Ozaeta) to pay the costs in equal shares.

SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, the judgment appealed from is modified to include an award of P200,000.00 in favor
of plaintiff-appellant Philippine Bar Association, with interest at the legal rate from November 29,
1968 until full payment to be paid jointly and severally by defendant United Construction Co., Inc.
and third party defendants (except Roman Ozaeta). In all other respects, the judgment dated
September 21, 1971 as modified in the December 8, 1971 Order of the lower court is hereby
affirmed with COSTS to be paid by the defendant and third party defendant (except Roman Ozaeta)
in equal shares.

SO ORDERED.

Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J. Carlos in L-
47863 seek the reversal of the decision of the Court of Appeals, among other things, for exoneration
from liability while petitioner Philippine Bar Association in L-47896 seeks the modification of
aforesaid decision to obtain an award of P1,830,000.00 for the loss of the PBA building plus four (4)
times such amount as damages resulting in increased cost of the building, P100,000.00 as exemplary
damages; and P100,000.00 as attorney's fees.

These petitions arising from the same case filed in the Court of First Instance of Manila were
consolidated by this Court in the resolution of May 10, 1978 requiring the respective respondents to
comment. (Rollo, L-47851, p. 172).

The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348; pp.
520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows:

The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the
Corporation Law, decided to construct an office building on its 840 square meters lot located at the
comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by
the United Construction, Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the
president and general manager of said corporation. The proposal was approved by plaintiff's board
of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The
plans and specifications for the building were prepared by the other third-party defendants Juan F.
Nakpil & Sons. The building was completed in June, 1966.

In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs
and the building in question sustained major damage. The front columns of the building buckled,
causing the building to tilt forward dangerously. The tenants vacated the building in view of its
precarious condition. As a temporary remedial measure, the building was shored up by United
Construction, Inc. at the cost of P13,661.28.

On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising
from the partial collapse of the building against United Construction, Inc. and its President and
General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building was
accused by defects in the construction, the failure of the contractors to follow plans and
specifications and violations by the defendants of the terms of the contract.

Defendants in turn filed a third-party complaint against the architects who prepared the plans and
specifications, alleging in essence that the collapse of the building was due to the defects in the said
plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar Association was
included as a third-party defendant for damages for having included Juan J. Carlos, President of the
United Construction Co., Inc. as party defendant.

On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F. Nakpil
presented a written stipulation which reads:

1. That in relation to defendants' answer with counterclaims and third- party complaints and the
third-party defendants Nakpil & Sons' answer thereto, the plaintiff need not amend its complaint by
including the said Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties defendant.

2. That in the event (unexpected by the undersigned) that the Court should find after the trial that
the above-named defendants Juan J. Carlos and United Construction Co., Inc. are free from any
blame and liability for the collapse of the PBA Building, and should further find that the collapse of
said building was due to defects and/or inadequacy of the plans, designs, and specifications p by the
third-party defendants, or in the event that the Court may find Juan F. Nakpil and Sons and/or Juan
F. Nakpil contributorily negligent or in any way jointly and solidarily liable with the defendants,
judgment may be rendered in whole or in part. as the case may be, against Juan F. Nakpil & Sons
and/or Juan F. Nakpil in favor of the plaintiff to all intents and purposes as if plaintiff's complaint has
been duly amended by including the said Juan F. Nakpil & Sons and Juan F. Nakpil as parties
defendant and by alleging causes of action against them including, among others, the defects or
inadequacy of the plans, designs, and specifications prepared by them and/or failure in the
performance of their contract with plaintiff.

3. Both parties hereby jointly petition this Honorable Court to approve this stipulation. (Record on
Appeal, pp. 274-275; Rollo, L-47851,p.169).

Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among
others, the parties agreed to refer the technical issues involved in the case to a Commissioner. Mr.
Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following issues:

1. Whether the damage sustained by the PBA building during the August 2, 1968 earthquake had
been caused, directly or indirectly, by:

(a) The inadequacies or defects in the plans and specifications prepared by third-party defendants;

(b) The deviations, if any, made by the defendants from said plans and specifications and how said
deviations contributed to the damage sustained;
(c) The alleged failure of defendants to observe the requisite quality of materials and workmanship
in the construction of the building;

(d) The alleged failure to exercise the requisite degree of supervision expected of the architect, the
contractor and/or the owner of the building;

(e) An act of God or a fortuitous event; and

(f) Any other cause not herein above specified.

2. If the cause of the damage suffered by the building arose from a combination of the above-
enumerated factors, the degree or proportion in which each individual factor contributed to the
damage sustained;

3. Whether the building is now a total loss and should be completely demolished or whether it may
still be repaired and restored to a tenantable condition. In the latter case, the determination of the
cost of such restoration or repair, and the value of any remaining construction, such as the
foundation, which may still be utilized or availed of (Record on Appeal, pp. 275-276; Rollo, L-47851,
p. 169).

Thus, the issues of this case were divided into technical issues and non-technical issues. As
aforestated the technical issues were referred to the Commissioner. The non-technical issues were
tried by the Court.

Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may topple
down in case of a strong earthquake. The motions were opposed by the defendants and the matter
was referred to the Commissioner. Finally, on April 30, 1979 the building was authorized to be
demolished at the expense of the plaintiff, but not another earthquake of high intensity on April 7,
1970 followed by other strong earthquakes on April 9, and 12, 1970, caused further damage to the
property. The actual demolition was undertaken by the buyer of the damaged building. (Record on
Appeal, pp. 278-280; Ibid.)

After the protracted hearings, the Commissioner eventually submitted his report on September 25,
1970 with the findings that while the damage sustained by the PBA building was caused directly by
the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also caused by the
defects in the plans and specifications prepared by the third-party defendants' architects, deviations
from said plans and specifications by the defendant contractors and failure of the latter to observe
the requisite workmanship in the construction of the building and of the contractors, architects and
even the owners to exercise the requisite degree of supervision in the construction of subject
building.

All the parties registered their objections to aforesaid findings which in turn were answered by the
Commissioner.

The trial court agreed with the findings of the Commissioner except as to the holding that the owner
is charged with full nine supervision of the construction. The Court sees no legal or contractual basis
for such conclusion. (Record on Appeal, pp. 309-328; Ibid).

Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified by
the Intermediate Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence, these
petitions.

On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the
Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. They
proposed to present a position paper on the liability of architects when a building collapses and to
submit likewise a critical analysis with computations on the divergent views on the design and plans
as submitted by the experts procured by the parties. The motion having been granted, the amicus
curiae were granted a period of 60 days within which to submit their position.

After the parties had all filed their comments, We gave due course to the petitions in Our Resolution
of July 21, 1978.

The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.

The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not
defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion that the
defects in the plans and specifications indeed existed.

Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No. 4131)
and the 1966 Asep Code, the Commissioner added that even if it can be proved that the defects in
the construction alone (and not in the plans and design) caused the damage to the building, still the
deficiency in the original design and jack of specific provisions against torsion in the original plans
and the overload on the ground floor columns (found by an the experts including the original
designer) certainly contributed to the damage which occurred. (Ibid, p. 174).

In their respective briefs petitioners, among others, raised the following assignments of errors:
Philippine Bar Association claimed that the measure of damages should not be limited to
P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while
United Construction Co., Inc. and the Nakpils claimed that it was an act of God that caused the
failure of the building which should exempt them from responsibility and not the defective
construction, poor workmanship, deviations from plans and specifications and other imperfections
in the case of United Construction Co., Inc. or the deficiencies in the design, plans and specifications
prepared by petitioners in the case of the Nakpils. Both UCCI and the Nakpils object to the payment
of the additional amount of P200,000.00 imposed by the Court of Appeals. UCCI also claimed that it
should be reimbursed the expenses of shoring the building in the amount of P13,661.28 while the
Nakpils opposed the payment of damages jointly and solidarity with UCCI.

The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which
caused the failure of the building, exempts from liability, parties who are otherwise liable because of
their negligence.

The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New
Civil Code, which provides:

Art. 1723. The engineer or architect who drew up the plans and specifications for a building is liable
for damages if within fifteen years from the completion of the structure the same should collapse by
reason of a defect in those plans and specifications, or due to the defects in the ground. The
contractor is likewise responsible for the damage if the edifice fags within the same period on
account of defects in the construction or the use of materials of inferior quality furnished by him, or
due to any violation of the terms of the contract. If the engineer or architect supervises the
construction, he shall be solidarily liable with the contractor.

Acceptance of the building, after completion, does not imply waiver of any of the causes of action by
reason of any defect mentioned in the preceding paragraph.

The action must be brought within ten years following the collapse of the building.

On the other hand, the general rule is that no person shall be responsible for events which could not
be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code).

An act of God has been defined as an accident, due directly and exclusively to natural causes without
human intervention, which by no amount of foresight, pains or care, reasonably to have been
expected, could have been prevented. (1 Corpus Juris 1174).

There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.

To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation
due to an "act of God," the following must concur: (a) the cause of the breach of the obligation must
be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the debtor must be free from any participation in, or aggravation of the
injury to the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA
423; Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21
SCRA 279; Lasam v. Smith, 45 Phil. 657).

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot
escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).

Thus it has been held that when the negligence of a person concurs with an act of God in producing
a loss, such person is not exempt from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which that loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).

The negligence of the defendant and the third-party defendants petitioners was established beyond
dispute both in the lower court and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial deviations from the plans and
specifications. and to have failed to observe the requisite workmanship in the construction as well as
to exercise the requisite degree of supervision; while the third-party defendants were found to have
inadequacies or defects in the plans and specifications prepared by them. As correctly assessed by
both courts, the defects in the construction and in the plans and specifications were the proximate
causes that rendered the PBA building unable to withstand the earthquake of August 2, 1968. For
this reason the defendant and third-party defendants cannot claim exemption from liability.
(Decision, Court of Appeals, pp. 30-31).

It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and
on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17,
1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on speculation,
surmise and conjectures; (2) the inference made is manifestly mistaken; (3) there is grave abuse of
discretion; (4) the judgment is based on misapprehension of facts; (5) the findings of fact are
conflicting , (6) the Court of Appeals went beyond the issues of the case and its findings are contrary
to the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8,
1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of
facts of the Court of Appeals are contrary to those of the trial court; (8) said findings of facts are
conclusions without citation of specific evidence on which they are based; (9) the facts set forth in
the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents
(Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92 SCRA
322, 366); (10) the finding of fact of the Court of Appeals is premised on the supposed absence of
evidence and is contradicted by evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA
243, 247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, 1986).

It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On the
contrary, the records show that the lower court spared no effort in arriving at the correct
appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties
whose findings and conclusions remained convincingly unrebutted by the intervenors/amicus curiae
who were allowed to intervene in the Supreme Court.

In any event, the relevant and logical observations of the trial court as affirmed by the Court of
Appeals that "while it is not possible to state with certainty that the building would not have
collapsed were those defects not present, the fact remains that several buildings in the same area
withstood the earthquake to which the building of the plaintiff was similarly subjected," cannot be
ignored.

The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial
collapse (and eventual complete collapse) of its building.

The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner
that the total amount required to repair the PBA building and to restore it to tenantable condition
was P900,000.00 inasmuch as it was not initially a total loss. However, while the trial court awarded
the PBA said amount as damages, plus unrealized rental income for one-half year, the Court of
Appeals modified the amount by awarding in favor of PBA an additional sum of P200,000.00
representing the damage suffered by the PBA building as a result of another earthquake that
occurred on April 7, 1970 (L-47896, Vol. I, p. 92).

The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total
value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and
UNITED question the additional award of P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief
as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further urges that the unrealized
rental income awarded to it should not be limited to a period of one-half year but should be
computed on a continuing basis at the rate of P178,671.76 a year until the judgment for the principal
amount shall have been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial and it
is undisputed that the building could then still be repaired and restored to its tenantable condition.
The PBA, however, in view of its lack of needed funding, was unable, thru no fault of its own, to have
the building repaired. UNITED, on the other hand, spent P13,661.28 to shore up the building after
the August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because of the earthquake on April 7,
1970, the trial court after the needed consultations, authorized the total demolition of the building
(L-47896, Vol. 1, pp. 53-54).

There should be no question that the NAKPILS and UNITED are liable for the damage resulting from
the partial and eventual collapse of the PBA building as a result of the earthquakes.

We quote with approval the following from the erudite decision penned by Justice Hugo E. Gutierrez
(now an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of
Appeals:

There is no question that an earthquake and other forces of nature such as cyclones, drought,
floods, lightning, and perils of the sea are acts of God. It does not necessarily follow, however, that
specific losses and suffering resulting from the occurrence of these natural force are also acts of
God. We are not convinced on the basis of the evidence on record that from the thousands of
structures in Manila, God singled out the blameless PBA building in Intramuros and around six or
seven other buildings in various parts of the city for collapse or severe damage and that God alone
was responsible for the damages and losses thus suffered.

The record is replete with evidence of defects and deficiencies in the designs and plans, defective
construction, poor workmanship, deviation from plans and specifications and other imperfections.
These deficiencies are attributable to negligent men and not to a perfect God.

The act-of-God arguments of the defendants- appellants and third party defendants-appellants
presented in their briefs are premised on legal generalizations or speculations and on theological
fatalism both of which ignore the plain facts. The lengthy discussion of United on ordinary
earthquakes and unusually strong earthquakes and on ordinary fortuitous events and extraordinary
fortuitous events leads to its argument that the August 2, 1968 earthquake was of such an
overwhelming and destructive character that by its own force and independent of the particular
negligence alleged, the injury would have been produced. If we follow this line of speculative
reasoning, we will be forced to conclude that under such a situation scores of buildings in the vicinity
and in other parts of Manila would have toppled down. Following the same line of reasoning, Nakpil
and Sons alleges that the designs were adequate in accordance with pre-August 2, 1968 knowledge
and appear inadequate only in the light of engineering information acquired after the earthquake. If
this were so, hundreds of ancient buildings which survived the earthquake better than the two-year
old PBA building must have been designed and constructed by architects and contractors whose
knowledge and foresight were unexplainably auspicious and prophetic. Fortunately, the facts on
record allow a more down to earth explanation of the collapse. The failure of the PBA building, as a
unique and distinct construction with no reference or comparison to other buildings, to weather the
severe earthquake forces was traced to design deficiencies and defective construction, factors which
are neither mysterious nor esoteric. The theological allusion of appellant United that God acts in
mysterious ways His wonders to perform impresses us to be inappropriate. The evidence reveals
defects and deficiencies in design and construction. There is no mystery about these acts of
negligence. The collapse of the PBA building was no wonder performed by God. It was a result of the
imperfections in the work of the architects and the people in the construction company. More
relevant to our mind is the lesson from the parable of the wise man in the Sermon on the Mount
"which built his house upon a rock; and the rain descended and the floods came and the winds blew
and beat upon that house; and it fen not; for it was founded upon a rock" and of the "foolish upon
the sand. And the rain descended and man which built his house the floods came, and the winds
blew, and beat upon that house; and it fell and great was the fall of it. (St. Matthew 7: 24-27)." The
requirement that a building should withstand rains, floods, winds, earthquakes, and natural forces is
precisely the reason why we have professional experts like architects, and engineers. Designs and
constructions vary under varying circumstances and conditions but the requirement to design and
build well does not change.

The findings of the lower Court on the cause of the collapse are more rational and accurate. Instead
of laying the blame solely on the motions and forces generated by the earthquake, it also examined
the ability of the PBA building, as designed and constructed, to withstand and successfully weather
those forces.

The evidence sufficiently supports a conclusion that the negligence and fault of both United and
Nakpil and Sons, not a mysterious act of an inscrutable God, were responsible for the damages. The
Report of the Commissioner, Plaintiff's Objections to the Report, Third Party Defendants' Objections
to the Report, Defendants' Objections to the Report, Commissioner's Answer to the various
Objections, Plaintiffs' Reply to the Commissioner's Answer, Defendants' Reply to the Commissioner's
Answer, Counter-Reply to Defendants' Reply, and Third-Party Defendants' Reply to the
Commissioner's Report not to mention the exhibits and the testimonies show that the main
arguments raised on appeal were already raised during the trial and fully considered by the lower
Court. A reiteration of these same arguments on appeal fails to convince us that we should reverse
or disturb the lower Court's factual findings and its conclusions drawn from the facts, among them:

The Commissioner also found merit in the allegations of the defendants as to the physical evidence
before and after the earthquake showing the inadequacy of design, to wit:

Physical evidence before the earthquake providing (sic) inadequacy of design;

1. inadequate design was the cause of the failure of the building.

2. Sun-baffles on the two sides and in front of the building;

a. Increase the inertia forces that move the building laterally toward the Manila Fire Department.

b. Create another stiffness imbalance.

3. The embedded 4" diameter cast iron down spout on all exterior columns reduces the cross-
sectional area of each of the columns and the strength thereof.

4. Two front corners, A7 and D7 columns were very much less reinforced.

Physical Evidence After the Earthquake, Proving Inadequacy of design;

1. Column A7 suffered the severest fracture and maximum sagging. Also D7.

2. There are more damages in the front part of the building than towards the rear, not only in
columns but also in slabs.

3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the front corner parts of the building.

5. There was a lateral displacement of the building of about 8", Maximum sagging occurs at the
column A7 where the floor is lower by 80 cm. than the highest slab level.

6. Slab at the corner column D7 sagged by 38 cm.

The Commissioner concluded that there were deficiencies or defects in the design, plans and
specifications of the PBA building which involved appreciable risks with respect to the accidental
forces which may result from earthquake shocks. He conceded, however, that the fact that those
deficiencies or defects may have arisen from an obsolete or not too conservative code or even a
code that does not require a design for earthquake forces mitigates in a large measure the
responsibility or liability of the architect and engineer designer.

The Third-party defendants, who are the most concerned with this portion of the Commissioner's
report, voiced opposition to the same on the grounds that (a) the finding is based on a basic
erroneous conception as to the design concept of the building, to wit, that the design is essentially
that of a heavy rectangular box on stilts with shear wan at one end; (b) the finding that there were
defects and a deficiency in the design of the building would at best be based on an approximation
and, therefore, rightly belonged to the realm of speculation, rather than of certainty and could very
possibly be outright error; (c) the Commissioner has failed to back up or support his finding with
extensive, complex and highly specialized computations and analyzes which he himself emphasizes
are necessary in the determination of such a highly technical question; and (d) the Commissioner has
analyzed the design of the PBA building not in the light of existing and available earthquake
engineering knowledge at the time of the preparation of the design, but in the light of recent and
current standards.

The Commissioner answered the said objections alleging that third-party defendants' objections
were based on estimates or exhibits not presented during the hearing that the resort to engineering
references posterior to the date of the preparation of the plans was induced by the third-party
defendants themselves who submitted computations of the third-party defendants are erroneous.

The issue presently considered is admittedly a technical one of the highest degree. It involves
questions not within the ordinary competence of the bench and the bar to resolve by themselves.
Counsel for the third-party defendants has aptly remarked that "engineering, although dealing in
mathematics, is not an exact science and that the present knowledge as to the nature of
earthquakes and the behaviour of forces generated by them still leaves much to be desired; so much
so "that the experts of the different parties, who are all engineers, cannot agree on what equation to
use, as to what earthquake co-efficients are, on the codes to be used and even as to the type of
structure that the PBA building (is) was (p. 29, Memo, of third- party defendants before the
Commissioner).

The difficulty expected by the Court if tills technical matter were to be tried and inquired into by the
Court itself, coupled with the intrinsic nature of the questions involved therein, constituted the
reason for the reference of the said issues to a Commissioner whose qualifications and experience
have eminently qualified him for the task, and whose competence had not been questioned by the
parties until he submitted his report. Within the pardonable limit of the Court's ability to
comprehend the meaning of the Commissioner's report on this issue, and the objections voiced to
the same, the Court sees no compelling reasons to disturb the findings of the Commissioner that
there were defects and deficiencies in the design, plans and specifications prepared by third-party
defendants, and that said defects and deficiencies involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks.

(2) (a) The deviations, if any, made by the defendants from the plans and specifications, and how
said deviations contributed to the damage sustained by the building.

(b) The alleged failure of defendants to observe the requisite quality of materials and workmanship
in the construction of the building.

These two issues, being interrelated with each other, will be discussed together.

The findings of the Commissioner on these issues were as follows:

We now turn to the construction of the PBA Building and the alleged deficiencies or defects in the
construction and violations or deviations from the plans and specifications. All these may be
summarized as follows:

a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.

(1) Wrongful and defective placing of reinforcing bars.

(2) Absence of effective and desirable integration of the 3 bars in the cluster.

(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no larger than 1 inch.

(4) Reinforcement assembly is not concentric with the column, eccentricity being 3" off when on one
face the main bars are only 1 1/2' from the surface.

(5) Prevalence of honeycombs,

(6) Contraband construction joints,

(7) Absence, or omission, or over spacing of spiral hoops,

(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5, ground floor,

(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground floor,

(10) Undergraduate concrete is evident,

(11) Big cavity in core of Column 2A-4, second floor,

(12) Columns buckled at different planes. Columns buckled worst where there are no spirals or
where spirals are cut. Columns suffered worst displacement where the eccentricity of the columnar
reinforcement assembly is more acute.

b. Summary of alleged defects as reported by Engr. Antonio Avecilla.

Columns are first (or ground) floor, unless otherwise stated.

(1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers,

(2) Column D5 — No spiral up to a height of 22" from the ground floor,

(3) Column D6 — Spacing of spiral over 4 l/2,

(4) Column D7 — Lack of lateral ties,

(5) Column C7 — Absence of spiral to a height of 20" from the ground level, Spirals are at 2" from
the exterior column face and 6" from the inner column face,

(6) Column B6 — Lack of spiral on 2 feet below the floor beams,

(7) Column B5 — Lack of spirals at a distance of 26' below the beam,

(8) Column B7 — Spirals not tied to vertical reinforcing bars, Spirals are uneven 2" to 4",

(9) Column A3 — Lack of lateral ties,

(10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars,

(11) Column A4 — (second floor Column is completely hollow to a height of 30"

(12) Column A5 — Spirals were cut from the floor level to the bottom of the spandrel beam to a
height of 6 feet,

(13) Column A6 — No spirals up to a height of 30' above the ground floor level,

(14) Column A7— Lack of lateralties or spirals,

c. Summary of alleged defects as reported by the experts of the Third-Party defendants.

Ground floor columns.

(1) Column A4 — Spirals are cut,

(2) Column A5 — Spirals are cut,

(3) Column A6 — At lower 18" spirals are absent,

(4) Column A7 — Ties are too far apart,

(5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced,

(6) Column B6 — At upper 2 feet spirals are absent,

(7) Column B7 — At upper fourth of column spirals missing or improperly spliced.

(8) Column C7— Spirals are absent at lowest 18"

(9) Column D5 — At lowest 2 feet spirals are absent,

(10) Column D6 — Spirals are too far apart and apparently improperly spliced,

(11) Column D7 — Lateral ties are too far apart, spaced 16" on centers.

There is merit in many of these allegations. The explanations given by the engineering experts for
the defendants are either contrary to general principles of engineering design for reinforced
concrete or not applicable to the requirements for ductility and strength of reinforced concrete in
earthquake-resistant design and construction.

We shall first classify and consider defects which may have appreciable bearing or relation to' the
earthquake-resistant property of the building.

As heretofore mentioned, details which insure ductility at or near the connections between columns
and girders are desirable in earthquake resistant design and construction. The omission of spirals
and ties or hoops at the bottom and/or tops of columns contributed greatly to the loss of
earthquake-resistant strength. The plans and specifications required that these spirals and ties be
carried from the floor level to the bottom reinforcement of the deeper beam (p. 1, Specifications, p.
970, Reference 11). There were several clear evidences where this was not done especially in some
of the ground floor columns which failed.

There were also unmistakable evidences that the spacings of the spirals and ties in the columns were
in many cases greater than those called for in the plans and specifications resulting again in loss of
earthquake-resistant strength. The assertion of the engineering experts for the defendants that the
improper spacings and the cutting of the spirals did not result in loss of strength in the column
cannot be maintained and is certainly contrary to the general principles of column design and
construction. And even granting that there be no loss in strength at the yield point (an assumption
which is very doubtful) the cutting or improper spacings of spirals will certainly result in the loss of
the plastic range or ductility in the column and it is precisely this plastic range or ductility which is
desirable and needed for earthquake-resistant strength.

There is no excuse for the cavity or hollow portion in the column A4, second floor, and although this
column did not fail, this is certainly an evidence on the part of the contractor of poor construction.

The effect of eccentricities in the columns which were measured at about 2 1/2 inches maximum
may be approximated in relation to column loads and column and beam moments. The main effect
of eccentricity is to change the beam or girder span. The effect on the measured eccentricity of 2
inches, therefore, is to increase or diminish the column load by a maximum of about 1% and to
increase or diminish the column or beam movements by about a maximum of 2%. While these can
certainly be absorbed within the factor of safety, they nevertheless diminish said factor of safety.

The cutting of the spirals in column A5, ground floor is the subject of great contention between the
parties and deserves special consideration.

The proper placing of the main reinforcements and spirals in column A5, ground floor, is the
responsibility of the general contractor which is the UCCI. The burden of proof, therefore, that this
cutting was done by others is upon the defendants. Other than a strong allegation and assertion that
it is the plumber or his men who may have done the cutting (and this was flatly denied by the
plumber) no conclusive proof was presented. The engineering experts for the defendants asserted
that they could have no motivation for cutting the bar because they can simply replace the spirals by
wrapping around a new set of spirals. This is not quite correct. There is evidence to show that the
pouring of concrete for columns was sometimes done through the beam and girder reinforcements
which were already in place as in the case of column A4 second floor. If the reinforcement for the
girder and column is to subsequently wrap around the spirals, this would not do for the elasticity of
steel would prevent the making of tight column spirals and loose or improper spirals would result.
The proper way is to produce correct spirals down from the top of the main column bars, a
procedure which can not be done if either the beam or girder reinforcement is already in place. The
engineering experts for the defendants strongly assert and apparently believe that the cutting of the
spirals did not materially diminish the strength of the column. This belief together with the difficulty
of slipping the spirals on the top of the column once the beam reinforcement is in place may be a
sufficient motivation for the cutting of the spirals themselves. The defendants, therefore, should be
held responsible for the consequences arising from the loss of strength or ductility in column A5
which may have contributed to the damages sustained by the building.

The lack of proper length of splicing of spirals was also proven in the visible spirals of the columns
where spalling of the concrete cover had taken place. This lack of proper splicing contributed in a
small measure to the loss of strength.

The effects of all the other proven and visible defects although nor can certainly be accumulated so
that they can contribute to an appreciable loss in earthquake-resistant strength. The engineering
experts for the defendants submitted an estimate on some of these defects in the amount of a few
percent. If accumulated, therefore, including the effect of eccentricity in the column the loss in
strength due to these minor defects may run to as much as ten percent.

To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of some of
the ground floor columns contributed greatly to the collapse of the PBA building since it is at these
points where the greater part of the failure occurred. The liability for the cutting of the spirals in
column A5, ground floor, in the considered opinion of the Commissioner rests on the shoulders of
the defendants and the loss of strength in this column contributed to the damage which occurred.

It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of the
plans and specifications of the PBA building contributed to the damages which resulted during the
earthquake of August 2, 1968 and the vice of these defects and deficiencies is that they not only
increase but also aggravate the weakness mentioned in the design of the structure. In other words,
these defects and deficiencies not only tend to add but also to multiply the effects of the
shortcomings in the design of the building. We may say, therefore, that the defects and deficiencies
in the construction contributed greatly to the damage which occurred.

Since the execution and supervision of the construction work in the hands of the contractor is direct
and positive, the presence of existence of all the major defects and deficiencies noted and proven
manifests an element of negligence which may amount to imprudence in the construction work. (pp.
42-49, Commissioners Report).

As the parties most directly concerned with this portion of the Commissioner's report, the
defendants voiced their objections to the same on the grounds that the Commissioner should have
specified the defects found by him to be "meritorious"; that the Commissioner failed to indicate the
number of cases where the spirals and ties were not carried from the floor level to the bottom
reinforcement of the deeper beam, or where the spacing of the spirals and ties in the columns were
greater than that called for in the specifications; that the hollow in column A4, second floor, the
eccentricities in the columns, the lack of proper length of splicing of spirals, and the cut in the spirals
in column A5, ground floor, did not aggravate or contribute to the damage suffered by the building;
that the defects in the construction were within the tolerable margin of safety; and that the cutting
of the spirals in column A5, ground floor, was done by the plumber or his men, and not by the
defendants.

Answering the said objections, the Commissioner stated that, since many of the defects were minor
only the totality of the defects was considered. As regards the objection as to failure to state the
number of cases where the spirals and ties were not carried from the floor level to the bottom
reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the first one without
spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches at the bottom.
The Commissioner likewise specified the first storey columns where the spacings were greater than
that called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The objection
to the failure of the Commissioner to specify the number of columns where there was lack of proper
length of splicing of spirals, the Commissioner mentioned groundfloor columns B-6 and B-5 where all
the splices were less than 1-1/2 turns and were not welded, resulting in some loss of strength which
could be critical near the ends of the columns. He answered the supposition of the defendants that
the spirals and the ties must have been looted, by calling attention to the fact that the missing spirals
and ties were only in two out of the 25 columns, which rendered said supposition to be improbable.

The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or
contribute to the damage, but averred that it is "evidence of poor construction." On the claim that
the eccentricity could be absorbed within the factor of safety, the Commissioner answered that,
while the same may be true, it also contributed to or aggravated the damage suffered by the
building.

The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by the
Commissioner by reiterating the observation in his report that irrespective of who did the cutting of
the spirals, the defendants should be held liable for the same as the general contractor of the
building. The Commissioner further stated that the loss of strength of the cut spirals and inelastic
deflections of the supposed lattice work defeated the purpose of the spiral containment in the
column and resulted in the loss of strength, as evidenced by the actual failure of this column.

Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any
sufficient cause to disregard or modify the same. As found by the Commissioner, the "deviations
made by the defendants from the plans and specifications caused indirectly the damage sustained
and that those deviations not only added but also aggravated the damage caused by the defects in
the plans and specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-142)

The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the
third-party defendants in effecting the plans, designs, specifications, and construction of the PBA
building and We hold such negligence as equivalent to bad faith in the performance of their
respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which may
be in point in this case reads:

One who negligently creates a dangerous condition cannot escape liability for the natural and
probable consequences thereof, although the act of a third person, or an act of God for which he is
not responsible, intervenes to precipitate the loss.

As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient
buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the damage would not have
occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, We deem it reasonable to render a decision imposing, as
We do hereby impose, upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine Bar
Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of
attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals)
and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the
total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve
(12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality
until paid. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta).

SO ORDERED.

G.R. No. L-21749 September 29, 1967

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.

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

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

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date the decision
appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is
twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who
paid the consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of
Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey."
Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment
to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the
rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered
losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of
action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking
check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
said:
Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in
good order from the vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged
unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage
alleged that plaintiff has no cause of action against it, not having negligent or at fault for the
shipment was already in damage and bad order condition when received by it, but nonetheless, it
still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in
the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants (in
whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial
Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two
drums were shipped in good order and condition, as clearly shown by the Bill of Lading and
Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But
when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it
excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in
the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre
operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo
Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is
stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on
December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered
by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when
defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on
January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact.
Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached
the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that
these losses/damages occurred before the shipment reached the consignee while under the
successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's
duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect
even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at
the place of destination, until the consignee has been advised and has had reasonable opportunity
to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the
"Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one
drum was found "open" and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1,
1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while
the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of
each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01
of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage

Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it
paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse
of discretion on the part of the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR
AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE
QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND
ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all
that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack
to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from
the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time
for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon
vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of
its failure to observe that diligence, and there need not be an express finding of negligence to hold
it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro
Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such
presumption of fault is not observed but these cases, enumerated in Article 17341 of the Civil Code,
are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship
between the consignee and the common carrier is similar to that of the consignee and the arrastre
operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good
condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-
versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been
brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut
the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of
both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that
the shipment sustained damage while in the successive possession of appellants" (the herein
petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a
passing remark.
Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, decided on 15 May 1969,
involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this
case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the
total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This
demand, however, was neither established in its totality nor definitely ascertained. In the stipulation
of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon.
The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal
interest thereon from the date the complaint was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the
appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal
rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The
trial court opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit
were for damages, "unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for
Injury to Person and Loss of Property." After trial, the lower court decreed:

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

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value
of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00
which is the value of the insurance recovered and the amount of P10,000.00 a month as the
estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they
are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from
the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid.
When the appellate court's decision became final, the case was remanded to the lower court for
execution, and this was when the trial court issued its assailed resolution which applied the 6%
interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on
certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus —By virtue
of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum . This Circular
shall take effect immediately. (Emphasis found in the text) — should have, instead, been applied.
This Court ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance
of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with,
nor involving loans or forbearance of any money, goods or credits does not fall within the coverage
of the said law for it is not within the ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action
for Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New Civil Code which reads —

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

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, promulgated on 28 July
1986. The case was for damages occasioned by an injury to person and loss of property. The trial
court awarded private respondent Pedro Manabat actual and compensatory damages in the
amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid.
Relying on the Reformina v. Tomol case, this Court modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from the filing of the
complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co.,
Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the
legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ."
Save from the modification of the amount granted by the lower court, the Court of Appeals
sustained the trial court's decision. When taken to this Court for review, the case, on 03 October
1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as
We do hereby impose, upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar
Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to
attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals)
and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the
total sum being payable upon the finality of this decision. Upon failure to pay on such finality,
twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from
finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman
Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of
twelve (12%) per cent per annum imposed on the total amount of the monetary award was in
contravention of law." The Court ruled out the applicability of the Reformina and Philippine Rabbit
Bus Lines cases and, in its resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit;
and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-
161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is actually imposed provided the sums
referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment
of such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total
sum, from the filing of the complaint until paid; in other words, as part of the judgment for
damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court,
to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and
P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of
judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held the award, however, for moral damages by
the trial court, later sustained by the IAC, to be inconceivably large. The Court thus set aside the
decision of the appellate court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%)
percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by
the trial court moral and exemplary damages without, however, providing any legal interest
thereon. When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated
October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except
defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in
the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory
damages, with interest at the legal rate from the date of the filing of the complaint until fully paid
(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the
trial court, and an entry of judgment was made. The writ of execution issued by the trial court
directed that only compensatory damages should earn interest at 6% per annum from the date of
the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a
petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate"
from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not
apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from
the time the complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to
pay the private respondents certain sums of money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal
interest per annum under the Civil Code, the Court declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
EXPROPRIATION of certain parcels of land for a public purpose, the payment of which is without
stipulation regarding interest, and the INTEREST ADJUDGED BY THE TRIAL COURT IS IN THE
NATURE OF INDEMNITY FOR DAMAGES. The legal interest required to be paid on the amount of
just compensation for the properties expropriated is manifestly in the form of indemnity for
damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the
joint judgment of the lower court sought to be enforced in this case is INTEREST BY WAY OF
DAMAGES, and NOT BY WAY OF EARNINGS FROM LOANS, etc. Art. 2209 of the Civil Code shall
apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding
rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol
(1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power
Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v. Manila
Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International
v. Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these
cases that there has been a consistent holding that the Central Bank Circular imposing the 12%
interest per annum applies only to loans or forbearance of money, goods or credits, as well as to
judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest
under the Civil Code governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in general.
Observe, too, that in these cases, a common time frame in the computation of the 6% interest per
annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is
fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest
per annum, depending on whether or not the amount involved is a loan or forbearance, on the one
hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which
remained consistent in holding that the running of the legal interest should be from the time of the
filing of the complaint until fully paid, the "second group" varied on the commencement of the
running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of
the court a quo, explaining that "if the suit were for damages, 'unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be
from the date of the decision.'" American Express International v. IAC, introduced a different time
frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision
until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from
the finality of the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending on
the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of
clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, NOT constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from THE TIME
THE CLAIM IS MADE JUDICIALLY OR EXTRAJUDICIALLY (Art. 1169, Civil Code) but when such
certainty CANNOT be so reasonably established at the time the demand is made, the interest shall
begin to run only FROM THE DATE THE JUDGMENT OF THE COURT IS MADE (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The ACTUAL BASE
FOR THE COMPUTATION OF LEGAL INTEREST shall, in any case, be on the amount finally adjudged.

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

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed
from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest,
in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until
the payment thereof. SO ORDERED.
 G.R. No. 128721 March 9, 1999
CRISMINA GARMENTS, INC., petitioner,
vs.
COURT OF APPEALS and NORMA SIAPNO, respondent.

(CONCLUSION: No, it is not proper to impose interest at the rate of twelve percent (12%) per
annum for an obligation that does not involve a loan or forbearance of money in the absence of
stipulation of the parties. By virtue of the authority granted to it under Section 1 of Act No. 2655, as
amended, otherwise known as the "Usury Law", the Monetary Board, in its Resolution No. 1622
dated July 29, 1974, has prescribed that the rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the ABSENCE OF EXPRESS
CONTRACT as to such rate of interest, shall be twelve per cent (12%) per annum." In this case,
there is an absence of such agreement that’s why the rate shall be six percent (6%) per annum,
computed from the time of the filing of the Complaint in the trial court until the finality of the
judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid
thereafter, the interest rate shall be twelve percent (12%) per annum computed from the time the
judgment becomes final and executory until it is fully satisfied.
PANGANIBAN, J.:

Interest shall be computed in accordance with the stipulation of the parties. In the absence of such
agreement, the rate shall be twelve percent (12%) per annum when the obligation arises out of a
loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).

The Case

On May 5, 1997, Crismina Garments, Inc. filed a Petition for Review on Certiorari assailing the
December 28, 1995 Decision and March 17, 1997 Resolution of the Court of Appeals in CA-GR CV No.
28973. On September 24, 1997, this Court issued a minute Resolution denying the petition "for its
failure to show any reversible error on the part of the Court of Appeals."

Petitioner then filed a Motion for Reconsideration, arguing that the interest rate should be
computed at 6 percent per annum as provided under Article 2209 of the Civil Code, not 12 percent
per annum as prescribed under Circular No. 416 of the Central Bank of the Philippines. Acting on
the Motion, the Court reinstated the Petition, but only with respect to the issue of which interest
rate should be applied.
The Facts

As the facts of the case are no longer disputed, we are reproducing hereunder the findings of the
appellate court:

During the period from February 1979 to April 1979, the [herein petitioner], which was engaged in
the export of girls' denim pants, contracted the services of the [respondent], the sole proprietress
of the D'Wilmar Garments, for the sewing of 20,762 pieces of assorted girls['] denims supplied by the
[petitioner] under Purchase Orders Nos. 1404, dated February 15, 1979, 0430 dated February 1,
1979, 1453 dated April 30, 1979. The [petitioner] was obliged to pay the [respondent], for her
services, in the total amount of P76,410.00. The [respondent] sew[ed] the materials and delivered
the same to the [petitioner] which acknowledged the same per Delivery Receipt Nos. 0030 dated
February 9, 1979; 0032, dated February 15, 1979; 0033 dated February 21, 1979; 0034, dated
February 24, 1979; 0036, dated February 20, 1979; 0038, dated March 11, 1979[;] 0039, dated
March 24, 1979; 0040 dated March 27, 1979; 0041, dated March 29, 1979; 0044, dated Marc[h] 25,
1979; 0101 dated May 18, 1979[;] 0037, dated March 10, 1979 and 0042 dated March 10, 1979, in
good order condition. At first, the [respondent] was told that the sewing of some of the pants
w[as] defective. She offered to take delivery of the defective pants. However, she was later told by
[petitioner]'s representative that the goods were already good. She was told to just return for her
check of P76,410.00. However, the [petitioner] failed to pay her the aforesaid amount. This
prompted her to hire the services of counsel who, on November 12, 1979, wrote a letter to the
[petitioner] demanding payment of the aforesaid amount within ten (10) days from receipt
thereof. On February 7, 1990, the [petitioner]'s [v]ice-[p]resident-[c]omptroller, wrote a letter to
[respondent]'s counsel, averring, inter alia, that the pairs of jeans sewn by her, numbering 6,164
pairs, were defective and that she was liable to the [petitioner] for the amount of P49,925.51
which was the value of the damaged pairs of denim pants and demanded refund of the aforesaid
amount.

On January 8, 1981, the [respondent] filed her complaint against the [petitioner] with the [trial
court] for the collection of the principal amount of P76,410.00. . . .

xxx xxx xxx

After due proceedings, the [trial court] rendered judgment, on February 28, 1989, in favor of the
[respondent] against the [petitioner], the dispositive portion of which reads as follows:

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

(1) The sum of P76,140.00 with interest thereon at 12% per annum, to be counted from the filing of
this complaint on January 8, 1981, until fully paid;

(2) The sum of P5,000 as attorney[']s fees; and

(3) The costs of this suit;

(4) Defendant's counterclaim is hereby dismissed.8

The Court of Appeals (CA) affirmed the trial court's ruling, except for the award of attorney's fees
which was deleted. Subsequently, the CA denied the Motion for Reconsideration.

Hence, this recourse to this Court

Sole Issue

In light of the Court's Resolution dated April 27, 1998, petitioner submits for our consideration this
sole issue:

Whether or not it is proper to impose interest at the rate of twelve percent (12%) per annum for
an obligation that does not involve a loan or forbearance of money in the absence of stipulation of
the parties.

This Court's Ruling

We sustain petitioner's contention that the interest rate should be computed at six percent (6%) per
annum.

Sole Issue: Interest Rate

The controversy revolves around petitioner's payment of the price beyond the period prescribed in a
contract for a piece of work. Article 1589 on the Civil Code provides that "[t]he vendee [herein
petitioner] shall owe interest for the period between the delivery of the thing and the payment of
the price . . . should he be in default from the time of judicial or extrajudicial demand for the
payment of the price." The only issue now is the applicable rate of interest for the late payment.

Because the case before us is "an action for the enforcement of an obligation for payment of
money arising from a contract for a piece of work,"petitioner submits that the interest rate should
be six percent (6%), pursuant to Article 2209 of the Civil Code, which states:

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

On the other hand, private respondent maintains that the interest rate should be twelve percent
(12 %) per annum, in accordance with Central Bank (CB) Circular No. 416, which reads:

By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise
known as the "Usury Law", the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has
prescribed that the rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the ABSENCE OF EXPRESS CONTRACT as to such rate of interest,
shall be twelve per cent (12%) per annum." (Emphasis supplied.)

She argues that the circular applies, since "the money sought to be recovered by her is in the form of
forbearance."

We agree with the petitioner. In Reformina v. Tomol Jr., this Court stressed that the interest rate
under CB Circular No. 416 applies to (1) loans; (2) forbearance of money, goods or credits; or (3) a
judgment involving a loan or forbearance of money, goods or credits. Cases beyond the scope of
the said circular are governed by Article 2209 of the Civil Code, which considers interest a form of
indemnity for the delay in the performance of an obligation.

In Eastern Shipping Lines, Inc. v. Court of Appeals, the Court gave the following guidelines for the
application of the proper interest rates:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be . . . the amount finally adjudged.

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

In Keng Hua Paper Products Co., Inc. v. CA, 20 we also ruled that the monetary award shall earn
interest at twelve percent (12%) per annum from the date of finality of the judgment until its
satisfaction, regardless of whether or not the case involves a loan of forbearance of money. The
interim period is deemed to be equivalent to a forbearance of a credit. 21

Because the amount due in this case arose from a contract for a piece of work , not from a loan or
forbearance of money, the legal interest of six percent (6%) per annum should be applied.
Furthermore, since the amount of the demand could be ESTABLISHED WITH CERTAINTY when the
Complaint was filed, the six percent (6%) interest should be COMPUTED FROM THE FILING OF THE
SAID COMPLAINT. But AFTER THE JUDGMENT BECOMES FINAL AND EXECUTORY until the
obligation is satisfied, the interest should be reckoned at twelve percent (12%) per year.

Private respondent maintains that the twelve percent (12%) interest should be imposed, because
the obligation arose from a forbearance of money. This is erroneous. In Eastern Shipping, the Court
observed that a "forbearance" in the context of the usury law is a "contractual obligation of lender
or creditor to refrain, during a given period of time, from requiring the borrower or debtor to
repay a loan or debt then due and payable." Using this standard, the obligation in this case was
obviously not a forbearance of money, goods or credit.

WHEREFORE, the appealed Decision is MODIFIED. The rate of interest shall be six percent (6%) per
annum, computed from the time of the filing of the Complaint in the trial court until the finality of
the judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid
thereafter, the interest rate shall be twelve percent (12%) per annum computed from the time the
judgment becomes final and executory until it is fully satisfied. No pronouncement as to costs.
SO ORDERED.

G.R. No. 113926 October 23, 1996

SECURITY BANK AND TRUST COMPANY, petitioner,
vs.
REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA VENTURA,
respondents.
(CONCLUSION: Yes. the 23% rate of interest per annum agreed upon by petitioner bank and
respondents is allowable and not against the Usury Law. The Court AFFIRMED with the
MODIFICATION that the rate of interest that should be imposed be 23% per annum. For the reason
that both parties signed the promissory notes which are binding between them. The rate of
interest was agreed upon by the parties freely. Significantly, respondent did not question that rate
or the stipulation therein. All the promissory notes were signed in 1983 and, therefore, were
already covered by CB Circular No. 905. Contrary to the claim of respondent court, THIS CIRCULAR
DID NOT REPEAL NOR IN ANYWAY AMEND THE USURY LAW but simply suspended the latter's
effectivity.

HERMOSISIMA, JR. J.:p

Questions of law which are of first impression are sought to be resolved in this case: Should the rate
of interest on a loan or forbearance of money, goods or credits, as stipulated in a contract, far in
excess of the ceiling prescribed under or pursuant to the Usury Law, prevail over Section 2 of
Central Bank Circular No. 905 which prescribes that the rate of interest thereof shall continue to
be 12% per annum? Do the Courts have the discretion to arbitrarily override stipulated interest rates
of promissory notes and stipulated interest rates of promissory notes and thereby impose a 12%
interest on the loans, in the absence of evidence justifying the imposition of a higher rate?

This is a petition for review on certiorari for the purpose of assailing the decision of Honorable Judge
Fernando V. Gorospe of the Regional Trial Court of Makati, Branch 61, dated March 30, 1993, which
found private respondent Eusebio liable to petitioner for a sum of money. Interest was lowered by
the court a quo from 23% per annum as agreed upon the parties to 12% per annum.

The undisputed facts are as follows:

On April 27, 1983, private respondent Magtanggol Eusebio executed Promissory Note No.
TL/74/178/83 in favor of petitioner Security Bank and Trust Co. (SBTC) in the total amount of One
Hundred Thousand Pesos (P100,000.00) payable in (6) six monthly installments with a stipulated
interest of 23% per annum up to the fifth installment.

On July 28, 1983, respondent Eusebio again executed Promissory Note No. TL/74/1296/83 in favor
of petitioner SBTC. Respondent bound himself to pay the sum of One Hundred Thousand Pesos
(P100,000.00) in six (6) monthly installments plus 23% interest per annum.

Finally, another Promissory Note No. TL74/1491/83 was executed on August 31, 1983 in the
amount of Sixty Five Thousand Pesos (P65,000.00). Respondent agreed to pay this note in six (6)
monthly installments plus interest at the rate of 23% per annum.

On all the abovementioned promissory notes, private respondent Leila Ventura had signed as co-
maker.

Upon maturity which fell on the different dates below, the principal balance remaining on the
notes stood at:

1) PN No. TL/74/748/83 — P16,665.00 as of September 1983.

2) PN No. TL/74/1296/83 — P83,333.00 as of August 1983.
3) PN No. TL/74/1991/83 — P65,000.00 as of August 1983.
Upon the failure and refusal of respondent Eusebio to pay the aforestated balance payable, a
collection case was filed in court by petitioner SBTC. 5 On March 30, 1993, the court a quo rendered
a judgment in favor of petitioner SBTC, the dispositive portion which reads:

WHEREFORE, premises above-considered, and plaintiff's claim having been duly proven, judgment is
hereby rendered in favor of plaintiff and as against defendant Eusebio who is hereby ordered to:

1. Pay the sum of P16,655.00, plus interest of 12% per annum starting 27 September 1983, until fully
paid;

2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28 August 1983, until fully
paid;

3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31 August 1983, until fully
paid;

4. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as and by way of
attorney's fees; and to

5. Pay the costs of this suit.

SO ORDERED.

On August 6, 1993, a motion for partial reconsideration was filed by petitioner SBTC contending
that:

(1) the interest rate agreed upon by the parties during the signing of the promissory notes was
23% per annum;

(2) the interests awarded should be compounded quarterly from due date as provided in the three
(3) promissory notes;

(3) defendants Leila Ventura should likewise be held liable to pay the balance on the promissory
notes since she has signed as co-maker and as such, is liable jointly and severally with defendant
Eusebio without a need for demand upon her.

Consequently, an Order was issued by the court a quo denying the motion to grant the rates of
interest beyond 12% per annum; and holding defendant Leila Ventura jointly and severally liable
with co-defendants Eusebio.

Hence, this petition.

The sole issue to be settled in this petition is whether or not the 23% rate of interest per annum
agreed upon by petitioner bank and respondents is allowable and not against the Usury Law.

We find merit in this petition.

From the examination of the records, it appears that indeed the agreed rate of interest as stipulated
on the three (3) promissory notes is 23% per annum. The applicable provision of law is the Central
Bank Circular No. 905 which took effect on December 22, 1982, particularly Sections 1 and 2 which
state: 9
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or judicial, shall not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.

Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of express contract as to such rate of interest, shall continue
to be twelve per cent (12%) per annum.

CB Circular 905 was issued by the Central Bank's Monetary Board pursuant to P.D. 1684
empowering them to prescribe the maximum rates of interest for loans and certain forbearances,
to wit:

Sec. 1. Section 1-a of Act No. 2655, as amended, is hereby amended to read as follows:

Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate of interest for the
loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate
or rates whenever warranted by prevailing economic and social conditions: Provided, That changes
in such rate or rates may be effected gradually on scheduled dates announced in advance.

In the exercise of the authority herein granted, the Monetary Board may prescribe higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as
such loans made by pawnshops, finance companies and other similar credit institutions although
the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is
also authorized to prescribed different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries.

The court has ruled in the case of Philippine National Bank v. Court of Appeals that:

P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely
regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward,
the interest previously stipulated.

All the promissory notes were signed in 1983 and, therefore, were already covered by CB Circular
No. 905. Contrary to the claim of respondent court, THIS CIRCULAR DID NOT REPEAL NOR IN
ANYWAY AMEND THE USURY LAW but simply suspended the latter's effectivity.

Basic is the rule of statutory construction that when the law is clear and unambiguous, the court is
left with no alternative but to apply the same according to its clear language. As we have held in the
case of Quijano v. Development Bank of the Philippines:

. . . We cannot see any room for interpretation or construction in the clear and unambiguous
language of the above-quoted provision of law. This Court had steadfastly adhered to the doctrine
that its first and fundamental duty is the application of the law according to its express terms,
interpretation being called for only when such literal application is impossible. No process of
interpretation or construction need be resorted to where a provision of law peremptorily calls for
application. Where a requirement or condition is made in explicit and unambiguous terms, no
discretion is left to the judiciary. It must see to it that is mandate is obeyed.
The rate of interest was agreed upon by the parties freely. Significantly, respondent did not
question that rate. It is not for respondent court a quo to change the stipulations in the contract
where it is not illegal. Furthermore, Article 1306 of the New Civil Code provides that contracting
parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy. We find no valid reason for the respondent court a quo to impose a 12% rate of interest on
the principal balance owing to petitioner by respondent in the presence of a valid stipulation. In a
loan or forbearance of money, the interest due should be that stipulated in writing, and in the
absence thereof, the rate shall be 12% per annum. Hence, only in the absence of a stipulation can
the court impose the 12% rate of interest.

The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are
binding between them. Respondent Eusebio, likewise, did not question any of the stipulations
therein. In fact, in the Comment filed by respondent Eusebio to this court, he chose not to question
the decision and instead expressed his desire to negotiate with the petitioner bank for "terms within
which to settle his obligation."
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo, is hereby AFFIRMED with
the MODIFICATION that the rate of interest that should be imposed be 23% per annum.
SO ORDERED.

G.R. No. 113412 April 17, 1996

Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA, petitioner,
vs.
THE COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents.

(CONCLUSION: No, respondent bank was not authorized to raise its interest rates from 21% to as
high as 68% under the credit agreement.Petitioners never agreed in writing to pay the increased
interest rates demanded by respondent bank in contravention to the tenor of their credit
agreement. That an increase in interest rates from 18% to as much as 68% is excessive and
unconscionable is indisputable. In the face of the unequivocal interest rate provisions in the credit
agreement and in the law requiring the parties to agree to changes in the interest rate in writing,
we hold that the unilateral and progressive increases imposed by respondent PNB were null and
void. Their effect was to increase the total obligation on an eighteen million peso loan to an amount
way over three times that which was originally granted to the borrowers. That these increases,
occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the
salutary policies of extending loans to spur business cannot be disputed. Presidential Decree No.
385 was issued principally to guarantee that government financial institutions would not be
denied substantial cash inflows necessary to finance the government's development projects all
over the country by large borrowers who resort to litigation to prevent or delay the government's
collection of their debts or loans. In facilitating collection of debts through its automatic foreclosure
provisions, the government is however, not exempted from observing basic principles of law, and
ordinary fairness and decency under the due process clause of the Constitution. In the first place,
because of the dispute regarding the interest rate increases, an issue which was never settled on
merit in the courts below, the exact amount of petitioner's obligations could not be determined.
Thus, THE FORECLOSURE PROVISIONS OF P.D. 385 COULD BE VALIDLY INVOKED BY RESPONDENT
ONLY AFTER SETTLEMENT OF THE QUESTION INVOLVING THE INTEREST RATE ON THE LOAN, and
ONLY AFTER THE SPOUSES REFUSED TO MEET THEIR OBLIGATIONS FOLLOWING SUCH
DETERMINATION.

KAPUNAN, J.:p

On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses
Ponciano L. Almeda and Eufemia P. Almeda several loan/credit accommodations totalling P18.0
Million pesos payable in a period of six years at an interest rate of 21% per annum. To secure the
loan, the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500 square
meter parcel of land, together with the building erected thereon (the Marvin Plaza) located at
Pasong Tamo, Makati, Metro Manila. A credit agreement embodying the terms and conditions of
the loan was executed between the parties. Pertinent portions of the said agreement are quoted
below:

SPECIAL CONDITIONS

xxx xxx xxx

The loan shall be subject to interest at the rate of twenty one per cent (21%) per annum, payable
semi-annually in arrears, the first interest payment to become due and payable six (6) months
from date of initial release of the loan. The loan shall likewise be subject to the appropriate
service charge and a penalty charge of three per cent (30%) per annum to be imposed on any
amount remaining unpaid or not rendered when due.

xxx xxx xxx

III. OTHER CONDITIONS

(c) Interest and Charges

(1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future; provided, that the interest rate on
this/these accommodations shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment
in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease
of the maximum interest rate.

Between 1981 and 1984, petitioners made several partial payments on the loan totaling.
P7,735,004.66, a substantial portion of which was applied to accrued interest. On March 31, 1984,
respondent bank, over petitioners' protestations, raised the interest rate to 28%, allegedly
pursuant to Section III-c (1) of its credit agreement. Said interest rate thereupon increased from an
initial 21% to a high of 68% between March of 1984 to September, 1986.

Petitioner protested the increase in interest rates, to no avail. Before the loan was to mature in
March, 1988, the spouses filed on February 6, 1988 a petition for declaratory relief with prayer for
a writ of preliminary injunction and temporary restraining order with the Regional Trial Court of
Makati, docketed as Civil Case No. 18872. In said petition, which was raffled to Branch 134 presided
by Judge Ignacio Capulong, the spouses sought clarification as to whether or not the PNB could
unilaterally raise interest rates on the loan, pursuant to the credit agreement's escalation clause,
and in relation to Central Bank Circular No. 905. As a preliminary measure, the lower court, on
March 3, 1988, issued a writ of preliminary injunction enjoining the Philippine National Bank from
enforcing an interest rate above the 21% stipulated in the credit agreement. By this time the
spouses were already in default of their loan obligations.

Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB
countered by ordering the extrajudicial foreclosure of petitioner's mortgaged properties and
scheduled an auction sale for March 14, 1989. Upon motion by petitioners, however, the lower
court, on April 5, 1989, granted a supplemental writ of preliminary injunction, staying the public
auction of the mortgaged property.

On January 15, 1990, upon the posting of a counterbond by the PNB, the trial court dissolved the
supplemental writ of preliminary injunction. Petitioners filed a motion for reconsideration. In the
interim, respondent bank once more set a new date for the foreclosure sale of Marvin Plaza which
was March 12, 1990. Prior to the scheduled date, however, petitioners tendered to respondent
bank the amount of P40,142,518.00, consisting of the principal (P18,000,000.00) and accrued
interest calculated at the originally stipulated rate of 21%. The PNB refused to accept the
payment.5

As a result of PNB's refusal of the tender of payment, petitioners, on March 8, 1990, formally
consigned the amount of P40,142,518.00 with the Regional Trial Court in Civil Case No. 90-663. They
prayed therein for a writ of preliminary injunction with a temporary restraining order. The case was
raffled to Branch 147, presided by Judge Teofilo Guadiz. On March 15, 1990, respondent bank
sought the dismissal of the case.

On March 30, 1990 Judge Guadiz in Civil Case No. 90-663 issued an order granting the writ of
preliminary injunction enjoining the foreclosure sale of "Marvin Plaza" scheduled on March 12, 1990.
On April 17, 1990 respondent bank filed a motion for reconsideration of the said order.

On August 16, 1991, Civil Case No. 90-663 we transferred to Branch 66 presided by Judge Eriberto
Rosario who issued an order consolidating said case with Civil Case 18871 presided by Judge Ignacio
Capulong.

For Judge Ignacio's refusal to lift the writ of preliminary injunction issued March 30, 1990,
respondent bank filed a petition for Certiorari, Prohibition and Mandamus with respondent Court
of Appeals, assailing the following orders of the Regional Trial Court:

1. Order dated March 30, 1990 of Judge Guadiz granting the writ of preliminary injunction
restraining the foreclosure sale of Mavin Plaza set on March 12, 1990;

2. Order of Judge Ignacio Capulong dated January 10, 1992 denying respondent bank's motion to lift
the writ of injunction issued by Judge Guadiz as well as its motion to dismiss Civil Case No. 90-663;

3. Order of Judge Capulong dated July 3, 1992 denying respondent bank's subsequent motion to lift
the writ of preliminary injunction; and

4. Order of Judge Capulong dated October 20, 1992 denying respondent bank's motion for
reconsideration.
On August 27, 1993, respondent court rendered its decision setting aside the assailed orders and
upholding respondent bank's right to foreclose the mortgaged property pursuant to Act 3135, as
amended and P.D. 385. Petitioners' Motion for Reconsideration and Supplemental Motion for
Reconsideration, dated September 15, 1993 and October 28, 1993, respectively, were denied by
respondent court in its resolution dated January 10, 1994.

Hence the instant petition.

This appeal by certiorari from the respondent court's decision dated August 27, 1993 raises two
principal issues namely: 1) Whether or not respondent bank was authorized to raise its interest
rates from 21% to as high as 68% under the credit agreement; and 2) Whether or not respondent
bank is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure
provisions of P.D. 385.

In its comment dated April 19, 1994, respondent bank vigorously denied that the increases in the
interest rates were illegal, unilateral, excessive and arbitrary, it argues that the escalated rates of
interest it imposed was based on the agreement of the parties. Respondent bank further contends
that it had a right to foreclose the mortgaged property pursuant to P.D. 385, after petitioners were
unable to pay their loan obligations to the bank based on the increased rates upon maturity in
1984.

The instant petition is impressed with merit.

The binding effect of any agreement between parties to a contract is premised on two settled
principles: (1) that any obligation arising from contract has the force of law between the parties;
and (2) that there must be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the contract
which is left solely to the will of one of the parties, is likewise, invalid.

It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank
unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the
loan without the prior assent of the latter. In fact, the manner of agreement is itself explicitly
stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due unless
it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal
of interest rate provision of the credit agreement signed between the parties is that petitioners
were bound merely to pay 21% interest, subject to a possible escalation or de-escalation, when 1)
the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by law;
and 3) upon agreement.

Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in
this case was the 21% rate stipulated in the interest provision. Any doubt about this is in fact
readily resolved by a careful reading of the credit agreement because the same plainly uses the
phrase "interest rate agreed upon," in reference to the original 21% interest rate. The interest
provision states:

(c) interest and Charges

(1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future; provided, that the interest rate on
this/these accommodations shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in
the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of
the maximum interest rate.

In Philippine National Bank v. Court of Appeals, this Court disauthorized respondent bank from
unilaterally raising the interest rate in the borrower's loan from 18% to 32%, 41% and 48% partly
because the aforestated increases violated the principle of mutuality of contracts expressed in
Article 1308 of the Civil Code. The Court held:

CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates —

. . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law.

but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively
increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of
P.D. 116 which limits such changes to once every twelve months.

Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the
private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil
Code:

Art. 308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them.

In order that obligations arising from contracts may have the force of law between the parties,
there must be mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence,
even assuming that the P1.8 million loan agreement between the PNB and the private respondent
gave the PNB a license (although in fact there was none) to increase the interest rate at will during
the term of the loan, that license would have been null and void for being violative of the principle
of mutuality essential in contracts. It would have invested the loan agreement with the character of
a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the
debtor) participation being reduced to the alternative "to take it or lease it" (Qua vs. Law Union &
Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the
courts of justice must protect against abuse and imposition.

PNB's successive increases of the interest rate on the private respondent's loan, over the latter's
protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section
9.01 that its terms "may be amended only by an instrument in writing signed by the party to be
bound as burdened by such amendment." The increases imposed by PNB also contravene Art. 1956
of the Civil Code which provides that "no interest shall be due unless it has been expressly stipulated
in writing."

The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24%
per annum, hence, he is not bound to pay a higher rate than that.

That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive,
as found by the Court of Appeals, is indisputable.
Clearly, the galloping increases in interest rate imposed by respondent bank on petitioners' loan,
over the latter's vehement protests, were arbitrary.

Moreover, respondent bank's reliance on C.B. Circular No. 905, Series of 1982 did not authorize the
bank, or any lending institution for that matter, to progressively increase interest rates on
borrowings to an extent which would have made it virtually impossible for debtors to comply with
their own obligations. True, escalation clauses in credit agreements are perfectly valid and do not
contravene public policy. Such clauses, however, (as are stipulations in other contracts) are
nonetheless still subject to laws and provisions governing agreements between parties, which
agreements — while they may be the law between the contracting parties — implicitly
incorporate provisions of existing law. Consequently, while the Usury Law ceiling on interest rates
was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as granting
respondent bank carte blanche authority to raise interest rates to levels which would either enslave
its borrowers or lead to a haemorrhaging of their assets. Borrowing represents a transfusion of
capital from lending institutions to industries and businesses in order to stimulate growth. This
would not, obviously, be the effect of PNB's unilateral and lopsided policy regarding the interest
rates of petitioners' borrowings in the instant case.

Apart from violating the principle of mutuality of contracts, there is authority for disallowing the
interest rates imposed by respondent bank, for the credit agreement specifically requires that the
increase be "within the limits allowed by law". In the case of PNB v. Court of Appeals, cited above,
this Court clearly emphasized that C.B. Circular No. 905 could not be properly invoked to justify the
escalation clauses of such contracts, not being a grant of specific authority.

Furthermore, the escalation clause of the credit agreement requires that the same be made
"within the limits allowed by law," obviously referring specifically to legislative enactments not
administrative circulars. Note that the phrase "limits imposed by law," refers only to the escalation
clause. However, the same agreement allows reduction on the basis of law or the Monetary Board.
Had the parties intended the word "law" to refer to both legislative enactments and administrative
circulars and issuances, the agreement would not have gone as far as making a distinction between
"law or the Monetary Board Circulars" in referring to mutually agreed upon reductions in interest
rates. This distinction was the subject of the Court's disquisition in the case of Banco Filipino Savings
and Mortgage Bank v. Navarro where the Court held that:

What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN
from 12% to 17% per annum under the Escalation Clause. It is our considered opinion that it may
not.

The Escalation Clause reads as follows:

I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this
contract without advance notice to me/us in the event a law increasing the lawful rates of interest
that may be charged on this particular kind of loan. (Paragraphing and emphasis supplied)

It is clear from the stipulation between the parties that the interest rate may be increased "in the
event a law should be enacted increasing the lawful rate of interest that may be charged on this
particular kind of loan." The Escalation Clause was dependent on an increase of rate made by "law"
alone.

CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is
not strictly a statute or a law, it has, however, the force and effect of law." (Emphasis supplied). "An
administrative regulation adopted pursuant to law has the force and effect of law." "That
administrative rules and regulations have the force of law can no longer be questioned."

The distinction between a law and an administrative regulation is recognized in the Monetary
Board guidelines quoted in the latter to the BORROWER of Ms. Paderes of September 24, 1976
(supra). According to the guidelines, for a loan's interest to be subject to the increases provided in
CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any
law or Central Bank regulation is promulgated increasing the maximum rate for loans." The
guidelines thus presuppose that a Central Bank regulation is not within the term "any law."

The distinction is again recognized by P.D. No. 1684, promulgated on March 17, 1980, adding
section 7-a to the Usury Law, providing that parties to an agreement pertaining to a loan could
stipulate that the rate of interest agreed upon may be increased in the event that the applicable
maximum rate of interest is increased "by law or by the Monetary Board." To quote:

Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may
stipulate that the rate of interest agreed upon may be increased in the event that the applicable
maximum rate of interest is increased by law or by the Monetary Board:

Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement
that the rate of interest agreed upon shall be reduced in the event that the applicable maximum
rate of interest is reduced by law or by the Monetary Board;

Provided, further, That the adjustment in the rate of interest agreed upon shall take effect on or
after the effectivity of the increase or decrease in the maximum rate of interest.' (Paragraphing and
emphasis supplied).

It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide:
(1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2)
in order for such stipulation to be valid, it must include a provision for reduction of the stipulated
interest "in the event that the applicable maximum rate of interest is reduced by law or by the
Monetary Board."

Petitioners never agreed in writing to pay the increased interest rates demanded by respondent
bank in contravention to the tenor of their credit agreement. That an increase in interest rates
from 18% to as much as 68% is excessive and unconscionable is indisputable. Between 1981 and
1984, petitioners had paid an amount equivalent to virtually half of the entire principal
(P7,735,004.66) which was applied to interest alone. By the time the spouses tendered the amount
of P40,142,518.00 in settlement of their obligations; respondent bank was demanding
P58,377,487.00 over and above those amounts already previously paid by the spouses.

Escalation clauses are not basically wrong or legally objectionable so long as they are not solely
potestative but based on reasonable and valid grounds. Here, as clearly demonstrated above, not
only the increases of the interest rates on the basis of the escalation clause patently unreasonable
and unconscionable, but also there are no valid and reasonable standards upon which the
increases are anchored.

We go now to respondent bank's claim that the principal issue in the case at bench involves its right
to foreclose petitioners' properties under P.D. 385. We find respondent's pretense untenable.
Presidential Decree No. 385 was issued principally to guarantee that government financial
institutions would not be denied substantial cash inflows necessary to finance the government's
development projects all over the country by large borrowers who resort to litigation to prevent
or delay the government's collection of their debts or loans. In facilitating collection of debts
through its automatic foreclosure provisions, the government is however, not exempted from
observing basic principles of law, and ordinary fairness and decency under the due process clause of
the Constitution.
In the first place, because of the dispute regarding the interest rate increases, an issue which was
never settled on merit in the courts below, the exact amount of petitioner's obligations could not
be determined. Thus, THE FORECLOSURE PROVISIONS OF P.D. 385 COULD BE VALIDLY INVOKED BY
RESPONDENT ONLY AFTER SETTLEMENT OF THE QUESTION INVOLVING THE INTEREST RATE ON
THE LOAN, and ONLY AFTER THE SPOUSES REFUSED TO MEET THEIR OBLIGATIONS FOLLOWING
SUCH DETERMINATION. In Filipinas Marble Corporation v. Intermediate Appellate Court, involving
P.D. 385's provisions on mandatory foreclosure, we held that:

We cannot, at this point, conclude that respondent DBP together with the Bancom people actually
misappropriated and misspent the $5 million loan in whole or in part although the trial court found
that there is "persuasive" evidence that such acts were committed by the respondent. This matter
should rightfully be litigated below in the main action. Pending the outcome of such litigation, P.D.
385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for
the misappropriation of the loan, even if only in part, then the foreclosure of the petitioner's
properties under the provisions of P.D. 385 to satisfy the whole amount of the loan would be a gross
mistake. It would unduly prejudice the petitioner, its employees and their families.

Only after trial on the merits of the main case can the true amount of the loan which was applied
wisely or not, for the benefit of the petitioner be determined. Consequently, the extent of the loan
where there was no failure of consideration and which may be properly satisfied by foreclosure
proceedings under P.D. 385 will have to await the presentation of evidence in a trial on the merits.

In Republic Planters Bank v. Court of Appeals 13 the Court reiterating the dictum in Filipinas Marble
Corporation, held:

The enforcement of P.D. 385 will sweep under the rug' this iceberg of a scandal in the sugar industry
during the Marcos Martial Law years. This we can not allow to happen. For the benefit of future
generations, all the dirty linen in the PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in
public so that the same may NEVER be repeated.

It is of paramount national interest, that we allow the trial court to proceed with dispatch to allow
the parties below to present their evidence.

Furthermore, petitioners made a valid consignation of what they, in good faith and in compliance
with the letter of the Credit Agreement, honestly believed to be the real amount of their remaining
obligations with the respondent bank. The latter could not therefore claim that there was no honest-
to-goodness attempt on the part of the spouse to settle their obligations. Respondent's rush to
inequitably invoke the foreclosure provisions of P.D. 385 through its legal machinations in the courts
below, in spite of the unsettled differences in interpretation of the credit agreement was obviously
made in bad faith, to gain the upper hand over petitioners.

In the face of the unequivocal interest rate provisions in the credit agreement and in the law
requiring the parties to agree to changes in the interest rate in writing, we hold that the unilateral
and progressive increases imposed by respondent PNB were null and void. Their effect was to
increase the total obligation on an eighteen million peso loan to an amount way over three times
that which was originally granted to the borrowers. That these increases, occasioned by crafty
manipulations in the interest rates is unconscionable and neutralizes the salutary policies of
extending loans to spur business cannot be disputed.

WHEREFORE, PREMISES CONSIDERED, the decision of the Court of Appeals dated August 27, 1993,
as well as the resolution dated February 10, 1994 is hereby REVERSED AND SET ASIDE. The case is
remanded to the Regional Trial Court of Makati for further proceedings.

SO ORDERED.

G.R. No. 118248 April 5, 2000

DKC HOLDINGS CORPORATION,petitioner,
vs.
COURT OF APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA,
DISTRICT III, respondents.

(CONCLUSION: No, the Contract of Lease with Option to Buy entered into by the late Encarnacion
Bartolome with petitioner was not terminated upon her death or whether it binds her sole heir,
Victor, even after her demise. The subject matter of the contract is likewise a lease, which is a
property right. The death of a party does not excuse nonperformance of a contract which involves
a property right, and the rights and obligations thereunder pass to the personal representatives of
the deceased. Similarly, nonperformance is not excused by the death of the party when the other
party has a property interest in the subject matter of the contract. Under both Article 1311 of the
Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with
Option to Buy. It appears, therefore, that the exercise by petitioner of its option to lease the subject
property was made in accordance with the contractual provisions. Concomitantly, private
respondent Victor Bartolome has the obligation to surrender possession of and lease the premises
to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy.

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of
the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings Corporation vs. Victor U.
Bartolome, et al.",1 affirming in toto the January 4, 1993 Decision of the Regional Trial Court of
Valenzuela, Branch 172,2 which dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay
P30,000.00 as attorney's fees.

The subject of the controversy is a 14,021 square meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally owned by private respondent Victor U.
Bartolome's deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-
37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the textile
plants of petitioner and, as such, was seen by the latter as a potential warehouse site.

On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with
Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase
the subject land, which option must be exercised within a period of two years counted from the
signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration
for the reservation of its option. Within the two-year period, petitioner shall serve formal written
notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also
provided that in case petitioner chose to lease the property, it may take actual possession of the
premises. In such an event, the lease shall be for a period of six years, renewable for another six
years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the
next six years, in case of renewal.

Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until
her death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor
Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments.

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the
properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds
cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-
14249 in the name of Victor Bartolome.

On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising
its option to lease the property, tendering the amount of P15,000.00 as rent for the month of
March. Again, Victor refused to accept the tendered rental fee and to surrender possession of the
property to petitioner.

Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation,
Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee
for March as well as P6,000.00 reservation fees for the months of February and March.

Petitioner also tried to register and annotate the Contract on the title of Victor to the property.
Although respondent Register of Deeds accepted the required fees, he nevertheless refused to
register or annotate the same or even enter it in the day book or primary register.

Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against
Victor and the Register of Deeds, docketed as Civil Case No. 3337-V-90 which was raffled off to
Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and
delivery of possession of the subject land in accordance with the Contract terms; the surrender of
title for registration and annotation thereon of the Contract; and the payment of P500,000.00 as
actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and
P300,000.00 as attorney's fees.

Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss was filed by one
Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property,
which was agricultural riceland, for forty-five years. He questioned the jurisdiction of the lower
court over the property and invoked the Comprehensive Agrarian Reform Law to protect his rights
that would be affected by the dispute between the original parties to the case.

On May 18, 1990, the lower court issued an Order referring the case to the Department of Agrarian
Reform for preliminary determination and certification as to whether it was proper for trial by said
court.
On July 4, 1990, the lower court issued another Order6 referring the case to Branch 172 of the RTC
of Valenzuela which was designated to hear cases involving agrarian land, after the Department of
Agrarian Reform issued a letter-certification stating that referral to it for preliminary determination
is no longer required.

On July 16, 1990, the lower court issued an Order denying the Motion to Intervene,7 holding that
Lanozo's rights may well be ventilated in another proceeding in due time.

After trial on the merits, the RTC of Valenzuela, Branch 172 rendered its Decision on January 4, 1993,
dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorney's fees. On
appeal to the CA, the Decision was affirmed in toto.

Hence, the instant Petition assigning the following errors:

(A)

FIRST ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO
EXERCISE OPTION WAS NOT TRANSMISSIBLE.

(B)

SECOND ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST BE
SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY.

(C)

THIRD ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED AND
ONEROUS IN FAVOR OF DKC.

(D)

FOURTH ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED
TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT.

(E)

FIFTH ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFF-APPELLANT WAS LIABLE TO
DEFENDANT-APPELLEE FOR ATTORNEY'S FEES.8

The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy
entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or
whether it binds her sole heir, Victor, even after her demise.
Both the lower court and the Court of Appeals held that the said contract was terminated upon
the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto.

Art. 1311 of the Civil Code provides, as follows —

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond the value of the property he
received from the decedent.

xxx xxx xxx

The general rule, therefore, is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation or (3) provision of law.

In the case at bar, there is neither contractual stipulation nor legal provision making the rights and
obligations under the contract intransmissible. More importantly, the nature of the rights and
obligations therein are, by their nature, transmissible.

The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as

follows:

Among contracts which are intransmissible are those which are purely personal, either by
provision of law, such as in cases of partnerships and agency, or by the very nature of the
obligations arising therefrom, such as those requiring special personal qualifications of the obligor.
It may also be stated that contracts for the payment of money debts are not transmitted to the
heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for
professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting
his claim for professional services under the contract to the probate court, substituted the minors
as parties for his client, it was held that the contract could not be enforced against the minors; the
lawyer was limited to a recovery on the basis of quantum meruit.

In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special
knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal
qualification of one or both parties, the agreement is of a personal nature, and terminates on the
death of the party who is required to render such service." 10

It has also been held that a good measure for determining whether a contract terminates upon the
death of one of the parties is whether it is of such a character that it may be performed by the
promissor's personal representative. Contracts to perform personal acts which cannot be as well
performed by others are discharged by the death of the promissor. Conversely, where the service
or act is of such a character that it may as well be performed by another, or where the contract, by
its terms, shows that performance by others was contemplated, DEATH DOES NOT TERMINATE
THE CONTRACT OR EXCUSE NONPERFORMANCE.

In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather,
the obligation of Encarnacion in the contract to deliver possession of the subject property to
petitioner upon the exercise by the latter of its option to lease the same may very well be
performed by her heir Victor.
As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." In 1952, it
was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death
the reconveyance had not been made, the heirs can be compelled to execute the proper deed for
reconveyance. This was grounded upon the principle that heirs cannot escape the legal
consequence of a transaction entered into by their predecessor-in-interest because they have
inherited the property subject to the liability affecting their common ancestor.

It is futile for Victor to insist that he is not a party to the contract because of the clear provision of
Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what rights his mother had and what
is valid and binding against her is also valid and binding as against him. This is clear from
Parañaque Kings Enterprises vs. Court of Appeals, where this Court rejected a similar defense —

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

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

In the case at bar, the subject matter of the contract is likewise a lease, which is a property right.
The death of a party does not excuse nonperformance of a contract which involves a property
right, and the rights and obligations thereunder pass to the personal representatives of the
deceased. Similarly, nonperformance is not excused by the death of the party when the other
party has a property interest in the subject matter of the contract.

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the
subject Contract of Lease with Option to Buy.

That being resolved, we now rule on the issue of whether petitioner had complied with its
obligations under the contract and with the requisites to exercise its option. The payment by
petitioner of the reservation fees during the two-year period within which it had the option to lease
or purchase the property is not disputed. In fact, the payment of such reservation fees, except those
for February and March, 1990 were admitted by Victor. 17 This is clear from the transcripts, to wit —

ATTY. MOJADO:

One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate
in that stipulation that it was issued November of 1989 and postdated January 1990 and then we will
admit all.

COURT:

All reservation fee?

ATTY. MOJADO:

Yes, Your Honor.

COURT:

All as part of the lease?

ATTY. MOJADO:

Reservation fee, Your Honor. There was no payment with respect to payment of rentals. 18

Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the
same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of
Encarnacion Bartolome, for the months of March to July 30, 1990, or a total of five (5) months,
despite the refusal of Victor to turn over the subject property.

Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its
option to lease through its letter dated Match 12, 1990, 21 well within the two-year period for it to
exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it
was legitimate for petitioner to have addressed its letter to her heir.

It appears, therefore, that the exercise by petitioner of its option to lease the subject property was
made in accordance with the contractual provisions. Concomitantly, private respondent Victor
Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a
period of six (6) years, pursuant to the Contract of Lease with Option to Buy.

Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the
present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres
Lanozo, was denied by the lower court and that such denial was never made the subject of an
appeal. As the lower court stated in its Order, the alleged right of the tenant may well be ventilated
in another proceeding in due time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of
the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in
Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent
Victor Bartolome to:

(a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No.
V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-interest,
Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy;

(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register
of Deeds for registration and annotation thereon of the subject Contract of Lease with Option to
Buy;

(c) pay costs of suit.

Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract
of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission
by petitioner of a copy thereof to his office.

SO ORDERED.