Republic of the Philippines Supreme Court Manila

SPECIAL SECOND DIVISION

POLO S. PANTALEON, Petitioner,

G.R. No. 174269 Present:

versus -

AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.

CARPIO MORALES, J., Acting Chairperson, VELASCO, JR., LEONARDO-DE CASTRO, BRION, and * BERSAMIN, JJ. Promulgated:

August 25, 2010 x----------------------------------------------------------------------------------------x RESOLUTION BRION, J.: We resolve the motion for reconsideration filed by respondent American Express International, Inc. (AMEX) dated June 8, 2009,[1] seeking to reverse our Decision dated May 8, 2009 where we ruled that AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral and exemplary damages, as well as attorneys fees and costs of litigation.[2] FACTUAL ANTECEDENTS The established antecedents of the case are narrated below. AMEX is a resident foreign corporation engaged in the business of providing credit services through the operation of a charge card system. Pantaleon has been an AMEX cardholder since 1980.[3]

In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son (Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group arrived in Amsterdam. Due to their late arrival, they postponed the tour of the city for the following day.[4] The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster Diamond House (Coster). To have enough time for take a guided city tour of Amsterdam before their departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at the latest. While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for this purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and asked Pantaleon to sign the charge slip, which was then electronically referred to AMEXs Amsterdam office at 9:20 a.m.[5] At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the names of his Philippine depository banks. At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even without AMEXs approval. When the Pantaleons finally returned to the tour bus, they found their travel companions visibly irritated. This irritation intensified when the tour guide announced that they would have to cancel the tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch the ferry to London.[6] From the records, it appears that after Pantaleons purchase was transmitted for approval to AMEXsAmsterdam office at 9:20 a.m.; was referred to AMEXs Manila office at 9:33 a.m.; and was approved by theManila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finally transmitted the Approval Code to AMEXs Amsterdam office. In all, it took AMEX a total of 78 minutes to approve Pantaleons purchase and to transmit the approval to the jewelry store.[7] After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in securing approval for purchases using his American Express credit card on two separate occasions. He experienced the first delay when he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth US$87.00 at the Quiency Market in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and inconvenience he and his family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount involved the charged purchase of US$13,826.00 deviated from Pantaleons established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the credit card company with the Makati City Regional Trial Court (RTC).

On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as litigation expenses. On appeal, the CA reversed the awards.[8] While the CA recognized that delay in the nature of mora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it disagreed with the RTCs finding that AMEX had breached its contract, noting that the delay was not attended by bad faith, malice or gross negligence. The appellate court found that AMEX exercised diligent efforts to effect the approval of Pantaleons purchases; the purchase at Coster posed particularly a problem because it was at variance with Pantaleons established charge pattern. As there was no proof that AMEX breached its contract, or that it acted in a wanton, fraudulent or malevolent manner, the appellate court ruled that AMEX could not be held liable for any form of damages. Pantaleon questioned this decision via a petition for review on certiorari with this Court. In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX was guilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit provider to act on Pantaleons purchase requests, whether to approve or disapprove them, with timely dispatch. Based on the evidence on record, we found that AMEX failed to timely act on Pantaleons purchases. Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit card charges would be three to four seconds under regular circumstances. In Pantaleons case, it took AMEX 78 minutes to approve the Amsterdam purchase. We attributed this delay to AMEXs Manila credit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history, his payment record and his credit and bank references before he approved the purchase. Finding this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and exemplary damages, as well as attorneys fees and costs of litigation. THE MOTION FOR RECONSIDERATION

In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty of culpable delay in complying with its obligation to act with timely dispatch on Pantaleons purchases. While AMEX admits that it normally takes seconds to approve charge purchases, it emphasizes that Pantaleon experienced delay in Amsterdam because his transaction was not a normal one. To recall, Pantaleon sought to charge in a single transaction jewelry items purchased from Coster in the total amount of US$13,826.00 orP383,746.16. While the total amount of Pantaleons previous purchases using his AMEX credit card did exceed US$13,826.00, AMEX points out that these purchases were made in a span of more than 10 years, not in a single transaction. Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit card, AMEX argues that the transaction necessarily required the credit authorizer to carefully review Pantaleons credit history and bank references. AMEX maintains that it did this not only to ensure Pantaleons protection (to minimize the possibility that a third party was fraudulently using his credit card), but also to protect itself from the risk that Pantaleon might not be able to pay for his purchases on credit. This careful review, according to AMEX, is also in keeping with the extraordinary degree of diligence required of banks in handling its transactions. AMEX concluded that in these lights, the thorough review of Pantaleons credit record was motivated by legitimate concerns and could not be evidence of any ill will, fraud, or negligence by AMEX. AMEX further points out that the proximate cause of Pantaleons humiliation and embarrassment was his own decision to proceed with the purchase despite his awareness that the tour group was waiting for him and his wife. Pantaleon could have prevented the humiliation had he cancelled the sale when he noticed that the credit approval for the Coster purchase was unusually delayed. In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora solvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on jurisprudence, a just cause for delay does not relieve the debtor in delay from the consequences of delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve it from the liability arising from its failure to timely act on Pantaleons purchase. In response to AMEXs assertion that the delay was in keeping with its duty to perform its obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or prompt performance of its obligation. As to AMEXs contention that moral or exemplary damages cannot be awarded absent a finding of malice, Pantaleon argues that evil motive or design is not always necessary to support a finding of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient basis for the award of moral and exemplary damages.

OUR RULING We GRANT the motion for reconsideration.

Brief historical background A credit card is defined as any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods, property, labor or services or anything of value on credit.[9] It traces its roots to the charge card first introduced by the Diners Club in New York City in 1950.[10] American Express followed suit by introducing its own charge card to the American market in 1958.[11] In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card into the country in the 1970s.[12] However, it was only in the early 2000s that credit card use gained wide acceptance in the country, as evidenced by the surge in the number of credit card holders then.[13] Nature of Credit Card Transactions To better understand the dynamics involved in credit card transactions, we turn to the United States case of Harris Trust & Savings Bank v. McCray[14] which explains: The bank credit card system involves a tripartite relationship between the issuer bank, the cardholder, and merchants participating in the system. The issuer bank establishes an account on behalf of the person to whom the card is issued, and the two parties enter into an agreement which governs their relationship. This agreement provides that the bank will pay for cardholders account the amount of merchandise or services purchased through the use of the credit card and will also make cash loans available to the cardholder. It also states that the cardholder shall be liable to the bank for advances and payments made by the bank and that the cardholders obligation to pay the bank shall not be affected or impaired by any dispute, claim, or demand by the cardholder with respect to any merchandise or service purchased. The merchants participating in the system agree to honor the banks credit cards. The bank irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant performs his undertakings such as checking the list of revoked cards before accepting the card. x x x. These slips are forwarded to the member bank which originally issued the card. The cardholder receives a statement from the bank periodically and may then decide whether to make payment to the bank in

full within a specified period, free of interest, or to defer payment and ultimately incur an interest charge.

We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch),[15]where we also recognized that credit card issuers are not limited to banks. We said: Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular, refers to any card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or services x x x on credit; and is being used usually on a revolving basis. This means that the consumer-credit arrangement that exists between the issuer and the holder of the credit card enables the latter to procure goods or services on a continuing basis as long as the outstanding balance does not exceed a specified limit. The card holder is, therefore, given the power to obtain present control of goods or service on a promise to pay for them in the future. Business establishments may extend credit sales through the use of the credit card facilities of a non-bank credit card company to avoid the risk of uncollectible accounts from their customers. Under this system, the establishments do not deposit in their bank accounts the credit card drafts that arise from the credit sales. Instead, they merely record their receivables from the credit card company and periodically send the drafts evidencing those receivables to the latter. The credit card company, in turn, sends checks as payment to these business establishments, but it does not redeem the drafts at full price. The agreement between them usually provides for discounts to be taken by the company upon its redemption of the drafts. At the end of each month, it then bills its credit card holders for their respective drafts redeemed during the previous month. If the holders fail to pay the amounts owed, the company sustains the loss.

Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) theloan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to paybetween the credit card issuer and the merchant or business establishment.[16] Credit card issuer cardholder relationship

When a credit card company gives the holder the privilege of charging items at establishments associated with the issuer,[17] a necessary question in a legal analysis is when does this relationship begin? There are two diverging views on the matter. In City Stores Co. v. Henderson,[18] another U.S. decision, held that: The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral and supported by no consideration. The offer may be withdrawn at any time, without prior notice, for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty for there is no duty to continue it and violates no rights. Thus, under this view, each credit card transaction is considered a separate offer and acceptance. Novack v. Cities Service Oil Co.[19] echoed this view, with the court ruling that the mere issuance of a credit card did not create a contractual relationship with the cardholder. On the other end of the spectrum is Gray v. American Express Company[20] which recognized the card membership agreement itself as a binding contract between the credit card issuer and the card holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray paid an annual fee for the privilege of being an American Express cardholder. In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the credit card issuer and the credit card holder as a contractual one that is governed by the terms and conditions found in the card membership agreement.[21] This contract provides the rights and liabilities of a credit card company to its cardholders and vice versa. We note that a card membership agreement is a contract of adhesion as its terms are prepared solely by the credit card issuer, with the cardholder merely affixing his signature signifying his adhesion to these terms.[22]This circumstance, however, does not render the agreement void; we have uniformly held that contracts of adhesion are as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.[23] The only effect is that the terms of the contract are construed strictly against the party who drafted it.[24]

On AMEXs obligations to Pantaleon We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon presumes that since his credit card has no pre-set spending limit, AMEX has the obligation to approve all his charge requests. Conversely, even if AMEX has no

such obligation, at the very least it is obliged to act on his charge requests within a specific period of time. i. Use of credit card a mere offer to enter into loan agreements

Although we recognize the existence of a relationship between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the terms of the card membership agreement (customarily signified by the act of the cardholder in signing the back of the credit card), we have to distinguish this contractual relationship from the creditor-debtor relationship which only arises after the credit card issuer has approved the cardholders purchase request. The first relates merely to an agreement providing for credit facility to the cardholder. The latter involves the actual credit on loan agreement involving three contracts, namely: the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; the loan agreement between the credit card issuer and the credit card holder; and the promise to pay between the credit card issuer and the merchant or business establishment. From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the offer[25] and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which provides: Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. This view finds support in the reservation found in the card membership agreement itself, particularly paragraph 10, which clearly states that AMEX reserve[s] the right to deny authorization for any requested Charge. By so providing, AMEX made its position clear that it has no obligation to approve any and all charge requests made by its card holders. ii. AMEX not guilty of culpable delay Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites to hold a debtor guilty of culpable delay, states: Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. x x x.

The three requisites for a finding of default are: (a) that the obligation is demandable and liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially requires the debtors performance.[26] Based on the above, the first requisite is no longer met because AMEX, by the express terms of the credit card agreement, is not obligated to approve Pantaleons purchase request. Without a demandable obligation, there can be no finding of default. Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make the demand required by Article 1169 of the Civil Code. As previously established, the use of a credit card to pay for a purchase is only an offer to the credit card company to enter a loan agreement with the credit card holder. Before the credit card issuer accepts this offer, no obligation relating to the loan agreement exists between them. On the other hand, a demand is defined as the assertion of a legal right; xxx an asking with authority, claiming or challenging as due.[27] A demand presupposes the existence of an obligation between the parties. Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not be classified as the demand required by law to make the debtor in default, given that no obligation could arise on the part of AMEX until after AMEX transmitted its acceptance of Pantaleons offers. Pantaleons act of insisting on and waiting for the charge purchases to be approved by AMEX[28] is not the demand contemplated by Article 1169 of the Civil Code. For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is guilty of culpable delay in approving his purchase requests must fail. iii. On AMEXs obligation to act on the offer within a specific period of time Even assuming that AMEX had the right to review his credit card history before it approved his purchase requests, Pantaleon insists that AMEX had an obligation to act on his purchase requests, either to approve or deny, in a matter of seconds or in timely dispatch. Pantaleon impresses upon us the existence of this obligation by emphasizing two points: (a) his card has no pre-set spending limit; and (b) in his twelve years of using his AMEX card, AMEX had always approved his charges in a matter of seconds. Pantaleons assertions fail to convince us. We originally held that AMEX was in culpable delay when it acted on the Coster transaction, as well as the two other transactions in the United States which took AMEX

approximately 15 to 20 minutes to approve. This conclusion appears valid and reasonable at first glance, comparing the time it took to finally get the Coster purchase approved (a total of 78 minutes), to AMEXs normal approval time of three to four seconds (based on the testimony of Edgardo Jaurigue, as well as Pantaleons previous experience). We come to a different result, however, after a closer look at the factual and legal circumstances of the case. AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in a credit card simply means that the charges made by the cardholder are approved based on his ability to pay, as demonstrated by his past spending, payment patterns, and personal resources.[29] Nevertheless, every time Pantaleon charges a purchase on his credit card, the credit card company still has to determine whether it will allow this charge, based on his past credit history. This right to review a card holders credit history, although not specifically set out in the card membership agreement, is a necessary implication of AMEXs right to deny authorization for any requested charge. As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years, AMEX has always approved his charge requests in three or four seconds), this record does not establish that Pantaleon had a legally enforceable obligation to expect AMEX to act on his charge requests within a matter of seconds. For one, Pantaleon failed to present any evidence to support his assertion that AMEX acted on purchase requests in a matter of three or four seconds as an established practice. More importantly, even if Pantaleon did prove that AMEX, as a matter of practice or custom, acted on its customers purchase requests in a matter of seconds, this would still not be enough to establish a legally demandable right; as a general rule, a practice or custom is not a source of a legally demandable or enforceable right.[30] We next examine the credit card membership agreement, the contract that primarily governs the relationship between AMEX and Pantaleon. Significantly, there is no provision in this agreement that obligates AMEX to act on all cardholder purchase requests within a specifically defined period of time. Thus, regardless of whether the obligation is worded was to act in a matter of seconds or to act in timely dispatch, the fact remains that no obligation exists on the part of AMEX to act within a specific period of time. Even Pantaleon admits in his testimony that he could not recall any provision in the Agreement that guaranteed AMEXs approval of his charge requests within a matter of minutes.[31] Nor can Pantaleon look to the law or government issuances as the source of AMEXs alleged obligation to act upon his credit card purchases within a matter of seconds. As the following survey of Philippine law on credit card transactions demonstrates, the State does not require credit card companies to act upon its cardholders purchase requests within a specific period of time. Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved onFebruary 11, 1998, is the controlling legislation

that regulates the issuance and use of access devices, [32] including credit cards. The more salient portions of this law include the imposition of the obligation on a credit card company to disclose certain important financial information[33] to credit card applicants, as well as a definition of the acts that constitute access device fraud. As financial institutions engaged in the business of providing credit, credit card companies fall under thesupervisory powers of the Bangko Sentral ng Pilipinas (BSP).[34] BSP Circular No. 398 dated August 21, 2003embodies the BSPs policy when it comes to credit cards The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit through innovative products such as credit cards under conditions of fair and sound consumer credit practices. The BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair dealings with customers. (Emphasis supplied) Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their subsidiary credit card companies must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments.[35] As the above-quoted policy expressly states, the general intent is to foster fair and sound consumer credit practices. Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued on September 24, 2004, but this circular merely enumerates the unfair collection practices of credit card companies a matter not relevant to the issue at hand. In light of the foregoing, we find and so hold that AMEX is neither contractually bound nor legally obligated to act on its cardholders purchase requests within any specific period of time, much less a period of a matter of seconds that Pantaleon uses as his standard. The standard therefore is implicit and, as in all contracts, must be based on fairness and reasonableness, read in relation to the Civil Code provisions on human relations, as will be discussed below. AMEX acted with good faith Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal obligation to act upon Pantaleons purchases within a specific period of time; and (b) AMEX has a right to review a cardholders credit card history. Our recognition of these entitlements, however, does not give AMEX an unlimited right to put off action on cardholders purchase requests for indefinite periods of time. In acting on cardholders purchase requests, AMEX must take care not to abuse its rights and cause injury to its clients and/or third persons. We cite in this regard Article 19, in conjunction with Article 21, of the Civil Code, which provide:

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due and observe honesty and good faith. Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. Article 19 pervades the entire legal system and ensures that a person suffering damage in the course of anothers exercise of right or performance of duty, should find himself without relief.[36] It sets the standard for the conduct of all persons, whether artificial or natural, and requires that everyone, in the exercise of rights and the performance of obligations, must: (a) act with justice, (b) give everyone his due, and (c) observe honesty and good faith. It is not because a person invokes his rights that he can do anything, even to the prejudice and disadvantage of another.[37] While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the person injured by the willful act, an action for damages. We explained how these two provisions correlate with each other in GF Equity, Inc. v. Valenzona:[38] [Article 19], known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be observed not only in the exercise of one's rights but also in the performance of one's duties. These standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages under either Article 20 or Article 21 would be proper. In the context of a credit card relationship, although there is neither a contractual stipulation nor a specific law requiring the credit card issuer to act on the credit card holders offer within a definite period of time, these principles provide the standard by which to judge AMEXs actions. According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused this right when it unreasonably delayed the processing of the Coster charge purchase, as well as his purchase requests at the Richard Metz Golf

Studio and Kids Unlimited Store; AMEX should have known that its failure to act immediately on charge referrals would entail inconvenience and result in humiliation, embarrassment, anxiety and distress to its cardholders who would be required to wait before closing their transactions.[39] It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of proving bad faith rests upon the party alleging it. [40] Although it took AMEX some time before it approved Pantaleons three charge requests, we find no evidence to suggest that it acted with deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was contrary to morals, good customs or public policy. We give credence to AMEXs claim that its review procedure was done to ensure Pantaleons own protection as a cardholder and to prevent the possibility that the credit card was being fraudulently used by a third person. Pantaleon countered that this review procedure is primarily intended to protect AMEXs interests, to make sure that the cardholder making the purchase has enough means to pay for the credit extended. Even if this were the case, however, we do not find any taint of bad faith in such motive. It is but natural for AMEX to want to ensure that it will extend credit only to people who will have sufficient means to pay for their purchases. AMEX, after all, is running a business, not a charity, and it would simply be ludicrous to suggest that it would not want to earn profit for its services. Thus, so long as AMEX exercises its rights, performs its obligations, and generally acts with good faith, with no intent to cause harm, even if it may occasionally inconvenience others, it cannot be held liable for damages. We also cannot turn a blind eye to the circumstances surrounding the Coster transaction which, in our opinion, justified the wait. In Edgardo Jaurigues own words: Q 21: With reference to the transaction at the Coster Diamond House covered by Exhibit H, also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the request was relayed at 1:33 a.m., can you explain why the approval came after about 46 minutes, more or less? A21: Because we have to make certain considerations and evaluations of [Pantaleons] past spending pattern with [AMEX] at that time before approving plaintiffs request because [Pantaleon] was at that time making his very first singlecharge purchase of US$13,826 [this is below the US$16,112.58 actually billed and paid for by the plaintiff because the difference was already automatically approved by [AMEX] office in Netherland[s] and the record of [Pantaleons] past spending with [AMEX] at that time does not favorably support his ability to pay for such purchase. In fact, if the foregoing internal policy of [AMEX] had been strictly followed, the transaction would not have been approved at all considering that the past spending pattern of the plaintiff with [AMEX] at that time does not support his ability to pay for such purchase.[41]

x x x x Q: Why did it take so long? A: It took time to review the account on credit, so, if there is any delinquencies [sic] of the cardmember. There are factors on deciding the charge itself which are standard measures in approving the authorization. Now in the case of Mr. Pantaleon although his account is single charge purchase of US$13,826. [sic] this is below the US$16,000. plus actually billed x x x we would have already declined the charge outright and asked him his bank account to support his charge. But due to the length of his membership as cardholder we had to make a decision on hand.[42] As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was because he had to go over Pantaleons credit card history for the past twelve months.[43] It would certainly be unjust for us to penalize AMEX for merely exercising its right to review Pantaleons credit history meticulously. Finally, we said in Garciano v. Court of Appeals that the right to recover [moral damages] under Article 21 is based on equity, and he who comes to court to demand equity, must come with clean hands. Article 21 should be construed as granting the right to recover damages to injured persons who are not themselves at fault.[44] As will be discussed below, Pantaleon is not a blameless party in all this. Pantaleons action was the proximate cause for his injury Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and humiliation that he felt when the European tour group had to wait for him and his wife for approximately 35 minutes, and eventually had to cancel the Amsterdam city tour. After thoroughly reviewing the records of this case, we have come to the conclusion that Pantaleon is the proximate cause for this embarrassment and humiliation. As borne by the records, Pantaleon knew even before entering Coster that the tour group would have to leave the store by 9:30 a.m. to have enough time to take the city tour of Amsterdam before they left the country. After 9:30 a.m., Pantaleons son, who had boarded the bus ahead of his family, returned to the store to inform his family that they were the only ones not on the bus and that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the sale at 9:40 a.m. because he did not want to cause any inconvenience to the tour group. However, when Costers sale manager asked him to wait a few more minutes for the credit card approval, he agreed, despite the knowledge that he had already caused a 10-minute delay and that the city tour could not start without him.

In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who knowingly and voluntarily exposes himself to danger cannot claim damages for the resulting injury: The doctrine of volenti non fit injuria (to which a person assents is not esteemed in law as injury) refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages by one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in doing so.

This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the most basic rule when travelling in a tour group is that you must never be a cause of any delay because the schedule is very strict.[46] When Pantaleon made up his mind to push through with his purchase, he must have known that the group would become annoyed and irritated with him. This was the natural, foreseeable consequence of his decision to make them all wait. We do not discount the fact that Pantaleon and his family did feel humiliated and embarrassed when they had to wait for AMEX to approve the Coster purchase in Amsterdam. We have to acknowledge, however, that Pantaleon was not a helpless victim in this scenario at any time, he could have cancelled the sale so that the group could go on with the city tour. But he did not. More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances under the principle of damnum absque injuria, or damages without legal wrong, loss without injury.[47] As we held inBPI Express Card v. CA:[48] We do not dispute the findings of the lower court that private respondent suffered damages as a result of the cancellation of his credit card. However, there is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria. In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of liability for

that breach before damages may be awarded; and the breach of such duty should be the proximate cause of the injury. Pantaleon is not entitled to damages Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted. Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can only be awarded if a defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.[49] The plaintiff must also show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded.[50] As previously discussed, it took AMEX some time to approve Pantaleons purchase requests because it had legitimate concerns on the amount being charged; no malicious intent was ever established here. In the absence of any other damages, the award of exemplary damages clearly lacks legal basis. Neither do we find any basis for the award of attorneys fees and costs of litigation. No premium should be placed on the right to litigate and not every winning party is entitled to an automatic grant of attorney's fees.[51] To be entitled to attorneys fees and litigation costs, a party must show that he falls under one of the instances enumerated in Article 2208 of the Civil Code.[52] This, Pantaleon failed to do. Since we eliminated the award of moral and exemplary damages, so must we delete the award for attorney's fees and litigation expenses. Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this Resolution and not for those found in the CA decision. WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT the present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is herebyAFFIRMED. No costs. SO ORDERED.

FIRST DIVISION

[G.R. No. 115129. February 12, 1997]

IGNACIO BARZAGA, petitioner, ALVIAR,respondents.

vs. COURT

OF

APPEALS

and

ANGELITO

DECISION BELLOSILLO, J.: The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer. Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith gave him and his family their gloomiest Christmas ever. This is Barzaga's story. On 21 December 1990, at about three o`clock in the afternoon, he went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following day. With that reply petitioner left. At seven o' clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase of construction materials. He told the store employees that the materials he was buying would have to be delivered at the Memorial Cemetery in Dasmarias, Cavite, by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. Marina Boncales agreed to deliver the items at the designated time, date and place. With this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a kilometer away, to await the delivery. The construction materials did not arrive at eight o'clock as promised. At nine o' clock, the delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the materials. By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But he received the same answer from respondent's employees who even cajoled him to go back to the burial place as they would just follow with his construction materials.

After hours of waiting - which seemed interminable to him - Barzaga became extremely upset. He decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. He had his complaint entered in the police blotter. When he returned again to the store he saw the delivery truck already there but the materials he purchased were not yet ready for loading. Distressed that Alviar's employees were not the least concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for construction materials elsewhere. In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and his workers had left, he made up his mind to start his project the following morning, 23 December. But he knew that the niche would not be finish in time for the scheduled burial the following day. His laborers had to take a break on Christmas Day and they could only resume in the morning of the twentysixth. The niche was completed in the afternoon and Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule. On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote private respondent Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional Trial Court.[1] Resisting petitioner's claim, private respondent contended that legal delay could not be validly ascribed to him because no specific time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery that caused the delay in the construction of the niche and the consequent failure of the family to inter their loved one on the twenty-fourth of December, and that, if at all, it was petitioner and no other who brought about all his personal woes. Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice to petitioner, the trial court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees. On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale.[2] The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at that precise moment, is non-sequitur. The Court of Appeals also held that assuming that there was delay,

petitioner still had sufficient time to construct the tomb and hold his wife's burial as she wished. We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.[3] Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the materials to the cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices.[4] Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's purchases. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat tire. Besides, according to him, Barzaga still had sufficient time to build the tomb for his wife. This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner's timetable and substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to him who in his bereavement had yet to attend to other pressing family concerns. Despite this, respondent's employees still made light of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court " x x x they (respondent's employees) were making a fool out of me."[5] We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if indeed it happened, was forseeable according to the trial court, and as such should have been reasonably guarded against. The nature of private respondent's business requires that he should be ready at all times to meet contingencies of this kind. One piece of testimony by respondent's witness Marina Boncales has caught our attention - that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan, Dasmarias, Cavite.[6] Significantly, this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to

suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bought the materials from respondent's hardware store but elsewhere which could meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent's storekeeper. The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of the essence in the delivery of the materials to the grave site. However, we find petitioner's assertion to be anchored on solid ground. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner's wife. This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put off on Christmas day. This case is clearly one of non-performance of a reciprocal obligation.[7] In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price ofP2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into. We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish. We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is an erroneous application of the

concept of temperate damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by means of payment receipts. As such, the claim falls unequivocally within the realm of actual or compensatory damages. Petitioner's failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.[8] We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's fees and litigation costs is left to the sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on appeal.[9] WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a motion for reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the construction materials. Consequently, except for the award of P5,000.00 as temperate damages which we delete, the decision of the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c)P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs. SO ORDERED. Padilla, (Chairman), Vitug, Kapunan, and Hermosisima, Jr., JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 145483 November 19, 2004

LORENZO SHIPPING CORP., petitioner, vs. BJ MARTHEL INTERNATIONAL, INC., respondent.

DECISION CHICO-NAZARIO, J.: This is a petition for review seeking to set aside the Decision1 of the Court of Appeals in CA-G.R. CV No. 54334 and its Resolution denying petitioner's motion for reconsideration. The factual antecedents of this case are as follows:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express. Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare parts. From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation,2 thus: May 31, 1989 MINQ-6093 LORENZO SHIPPING LINES Pier 8, North Harbor Manila SUBJECT: PARTS FOR ENGINE MODEL MITSUBISHI 6UET 52/60 Dear Mr. Go: We are pleased to submit our offer for your above subject requirements. Description Nozzle Tip Plunger & Barrel Cylinder Head Cylinder Liner Qty. 6 pcs. 6 pcs. Unit Price P 5,520.00 27,630.00 Total Price 33,120.00 165,780.00

2 pcs. 1 set

1,035,000.00

2,070,000.00 477,000.00 P2,745,900.00

TOTAL PRICE FOB MANILA ___________

DELIVERY: Within 2 months after receipt of firm order. TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal

Installment[s] not to exceed 90 days. We trust you find our above offer acceptable and look forward to your most valued order. Very truly yours, (SGD) HENRY PAJARILLO Sales Manager Petitioner thereafter issued to respondent Purchase Order No. 13839,3 dated 02 November 1989, for the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The purchase order was co-signed by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of the purchase order: Name of Description CYL. LINER M/E NOTHING FOLLOW INV. # TERM OF PAYMENT: 25% DOWN PAYMENT 5 BI-MONTHLY INSTALLMENT[S] Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks4 to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner. Subsequently, petitioner issued Purchase Order No. 14011, 5 dated 15 January 1990, for yet another unit of cylinder liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal installment[s]."6 Like the purchase order of 02 November 1989, the second purchase order did not state the date of the cylinder liner's delivery. On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner. Qty. Amount

1 SET

P477,000.00

The parties presented disparate accounts of what happened to the check which was previously dishonored. Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to respondent. For its part, respondent insisted that it returned said postdated check to petitioner. Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo. On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices7 evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared. Respondent thereafter sent a Statement of Account dated 15 November 1990 8 to petitioner. While the other items listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02 January 19919 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter dated 12 March 199110 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale. Shortly thereafter, another demand letter dated 27 March 199111 was furnished petitioner by respondent's counsel requiring the former to settle its obligation to respondent together with accrued interest and attorney's fees. Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before the Regional Trial Court (RTC) of Makati City. In its complaint,12 respondent (plaintiff below) alleged that despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary damages; actual damages; and compensatory damages. On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended complaint with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of Court.13 Aside from the prayer for the issuance of writ of preliminary attachment, the amendments also pertained to the issuance by petitioner of the postdated checks and the amounts of damages claimed. In an Order dated 25 July 1991,14 the court a quo granted respondent's prayer for the issuance of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent ExParte Motion to Discharge Writ of Attachment15attaching thereto a counter-bond as

required by the Rules of Court. On even date, the trial court issued an Order16 lifting the levy on petitioner's properties and the garnishment of its bank accounts. Petitioner afterwards filed its Answer17 alleging therein that time was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2) months after receipt of firm order"18 from petitioner. Petitioner likewise sought counterclaims for moral damages, exemplary damages, attorney's fees plus appearance fees, and expenses of litigation. Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October 1991.19 The amendment introduced dealt solely with the number of postdated checks issued by petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine postdated checks were involved, in its second amended complaint, respondent claimed that petitioner actually issued ten postdated checks. Despite the opposition by petitioner, the trial court admitted respondent's Second Amended Complaint with Preliminary Attachment.20 Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners)21 alleging therein that "[w]ith the passage of time and with no definite end in sight to the present litigation, the cylinder liners run the risk of obsolescence and deterioration"22 to the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This motion, unopposed by respondent, was granted by the trial court through the Order of 17 March 1991.23 After trial, the court a quo dismissed the action, the decretal portion of the Decision stating: WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to pay P50,000.00 to the defendant as and by way of attorney's fees. 24 The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the contract of sale when it returned the postdated checks issued by petitioner. Respondent's counterclaims for moral, exemplary, and compensatory damages were dismissed for insufficiency of evidence. Respondent moved for the reconsideration of the trial court's Decision but the motion was denied for lack of merit.25 Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals26 which reversed and set aside the Decision of the court a quo. The appellate court brushed aside petitioner's claim that time was of the essence in the contract of sale between the parties herein considering the fact that a significant period of time had lapsed between respondent's offer and the issuance by petitioner of its purchase orders. The dispositive portion of the Decision of the appellate court states:

WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is hereby ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per annum reckoned from May, 1991.27 The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision of Article 1169 of the Civil Code which provides: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances. On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals but this was denied through the resolution of 06 October 2000.28 Hence, this petition for review which basically raises the issues of whether or not respondent incurred delay in performing its obligation under the contract of sale and whether or not said contract was validly rescinded by petitioner. That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains that its obligation to pay fully the purchase price was extinguished because the adverted contract was validly terminated due to respondent's failure to deliver the cylinder liners within the two-month period stated in the formal quotation dated 31 May 1989. The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify petitioner to disregard the terms of the contract considering that time was of the essence thereof? In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the contract itself or the surrounding circumstances of that intention.29 Petitioner insists that although its purchase orders did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the term of delivery appearing on the quotation it submitted to petitioner.30 Petitioner theorizes that the quotation embodied the offer from respondent while the purchase order represented its (petitioner's) acceptance of the proposed terms of the contract of sale.31 Thus, petitioner is of the view that these two documents "cannot be taken separately as if there were two distinct contracts."32 We do not agree. It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control.33 However, in order to ascertain the intention of the parties, their

contemporaneous and subsequent acts should be considered.34 While this Court recognizes the principle that contracts are respected as the law between the contracting parties, this principle is tempered by the rule that the intention of the parties is primordial35 and "once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms."36 In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves, embody the terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms as stated in the formal quotation and Purchase Order No. 13839 with regard to the due date of the down payment for the first cylinder liner and the date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of the second cylinder liner. While the quotation provided by respondent evidently stated that the cylinder liners were supposed to be delivered within two months from receipt of the firm order of petitioner and that the 25% down payment was due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these significant items. The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did not indicate the due date of delivery of the second cylinder liner. In the case of Bugatti v. Court of Appeals,37 we reiterated the principle that "[a] contract undergoes three distinct stages preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof." In the instant case, the formal quotation provided by respondent represented the negotiation phase of the subject contract of sale between the parties. As of that time, the parties had not yet reached an agreement as regards the terms and conditions of the contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or tendered a counter-offer to respondent while the latter could have, under the pertinent provision of the Civil Code,38 withdrawn or modified the same. The parties were at liberty to discuss the provisions of the contract of sale prior to its perfection. In this connection, we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed, renegotiated prior to the issuance of Purchase Order No. 13839. During the hearing of the case on 28 January 1993, Pajarillo testified as follows: Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of the cylinder liner, did you not? A: Yes sir.

Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that the delivery of the cylinder liner will be made in two months' time from the time you received the confirmation of the order. Is that correct? A: Yes sir. Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant make a confirmation of the order? A: After six months. Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation? A: Yes sir. Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of payment which you required of them of 25% down payment, now, it is stated in the purchase order the date of delivery, will you explain to the court why the date of delivery of the cylinder liner was not mentioned in the purchase order which is the contract between you and Lorenzo Shipping Corporation? A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired [with] our supplier in Japan to give us the price and delivery of that item. When we received that quotation from our supplier it is stated there that they can deliver within two months but we have to get our confirmed order within June. Q: But were you able to confirm the order from your Japanese supplier on June of that year? A: No sir. Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese supplier? A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner. Q: And it was only on November 2, 1989 when they gave you the purchase order? A: Yes sir. Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the order with your Japanese supplier after receiving the purchase order dated November 2, 1989? A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%.39

For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in the following manner: WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed upon by both parties was 25% down payment. Q: When? A: Upon confirmation of the order. ... Q: And when was the down payment supposed to be paid? A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the earliest possible time. Again, that would depend on the customers. Even after receipt of the purchase order which was what happened here, they re-negotiated the terms and sometimes we do accept that. Q: Was there a re-negotiation of this term? A: This offer, yes. We offered a final requirement of 25% down payment upon delivery. Q: What was the re-negotiated term? A: 25% down payment Q: To be paid when? A: Supposed to be paid upon order.40 The above declarations remain unassailed. Other than its bare assertion that the subject contracts of sale did not undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the above testimonies of Pajarillo and Kanaan, Jr. Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No. 14011 yet it utterly failed to adduce any justification as to why said documents contained terms which are at variance with those stated in the quotation provided by respondent. The only plausible reason for such failure on the part of petitioner is that the parties had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as the obscurity in the terms of the contract between respondent and petitioner was caused by the latter when it omitted the date of delivery of the cylinder liners in the purchase orders and varied the term with respect to the due date of the down payment,41 said obscurity must be resolved against it.42 Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti,43 instructive. There, we held that When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of the contract. . . .

In such cases, the delivery must be made within a reasonable time. The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of anything to show that an immediate delivery intended. . . . We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January 1990, the record is bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify respondent of said date is fatal to its claim that time was of the essence in the subject contracts of sale. In addition, we quote, with approval, the keen observation of the Court of Appeals: . . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and January 15, 1990, no specific date of delivery was indicated therein. If time was really of the essence as claimed by the appellee, they should have stated the same in the said purchase orders, and not merely relied on the quotation issued by the appellant considering the lapse of time between the quotation issued by the appellant and the purchase orders of the appellee. In the instant case, the appellee should have provided for an allowance of time and made the purchase order earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the first week of January, 1990. In fact, the appellee should have cancelled the first purchase order when the cylinder liner was not delivered on the date it now says was necessary. Instead it issued another purchase order for the second set of cylinder liner. This fact negates appellee's claim that time was indeed of the essence in the consummation of the contract of sale between the parties.44 Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent as full payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail to impress. It is not an indication of failure to honor a commitment on the part of the respondent. The earliest maturity date of the checks was 18 January 1990. As delivery of said checks could produce the effect of payment only when they have been cashed,45 respondent's obligation to deliver the first cylinder liner could not have arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by respondent, it proceeded with the placement of the order for the cylinder liners with its principal in Japan solely on the basis of its previously harmonious business relationship with petitioner. As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the contract in that respect by one of the parties may be waived by the other party's subsequently treating the contract as still in force."46 Petitioner's receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly indicates that

it considered the contract of sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said receipt was "subject to verification." By accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items. We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on 20 April 1990 was made within a reasonable period of time considering that respondent had to place the order for the cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work. 47 There having been no failure on the part of the respondent to perform its obligation, the power to rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The law explicitly gives either party the right to rescind the contract only upon the failure of the other to perform the obligation assumed thereunder.48 The right, however, is not an unbridled one. This Court in the case of University of the Philippines v. De los Angeles,49 speaking through the eminent civilist Justice J.B.L. Reyes, exhorts: Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denied that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. (Emphasis supplied) In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages.50 Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no

prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by the other party. WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur. THIRD DIVISION [G.R. No. 170479, February 18, 2008] ANDRE T. ALMOCERA, Petitioner, vs. JOHNNY ONG, Respondent. DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to set aside the Decision[1] of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 affirming in toto the Decision[2] of Branch 11 of the Regional Trial Court (RTC) of Cebu City in Civil Case No. CEB-23687 and its Resolution[3] dated 16 November 2005 denying petitioners motion for reconsideration. The RTC decision found petitioner Andre T. Almocera, Chairman and Chief Executive Officer of First Builder Multi-Purpose Cooperative (FBMC), solidarily liable with FMBC for damages. Stripped of non-essentials, the respective versions of the parties have been summarized by the Court of Appeals as follows: Plaintiff Johnny Ong tried to acquire from the defendants a townhome described as Unit No. 4 of Atrium Townhomes in Cebu City. As reflected in a Contract to Sell, the selling price of the unit was P3,400,000.00 pesos, for a lot area of eighty-eight (88) square meters with a three-storey building. Out of the purchase price, plaintiff was able to pay the amount of P1,060,000.00. Prior to the full payment of this amount, plaintiff claims that defendants Andre Almocera and First Builders fraudulently concealed the fact that before and at the time of the perfection of the aforesaid contract to sell, the property was already mortgaged to and encumbered with the Land Bank of the Philippines (LBP). In addition, the construction of the house has long been delayed and remains unfinished. On March 13, 1999, Lot 4-a covered by TCT No. 148818, covering the unit was advertised in a local tabloid for public auction for foreclosure of mortgage. It is the assertion of the plaintiff that had it not for the fraudulent concealment of the

mortgage and encumbrance by defendants, he would have not entered into the contract to sell. On the other hand, defendants assert that on March 20, 1995, First Builders Multipurpose Coop. Inc., borrowed money in the amount of P500,000.00 from Tommy Ong, plaintiffs brother. This amount was used to finance the documentation requirements of the LBP for the funding of the Atrium Town Homes. This loan will be applied in payment of one (1) town house unit which Tommy Ong may eventually purchase from the project. When the project was under way, Tommy Ong wanted to buy another townhouse for his brother, Johnny Ong, plaintiff herein, which then, the amount of P150,000.00 was given as additional partial payment. However, the particular unit was not yet identified. It was only on January 10, 1997 that Tommy Ong identified Unit No. 4 plaintiffs chosen unit and again tendered P350,000.00 as his third partial payment. When the contract to sell for Unit 4 was being drafted, Tommy Ong requested that another contract to sell covering Unit 5 be made so as to give Johnny Ong another option to choose whichever unit he might decide to have. When the construction was already in full blast, defendants were informed by Tommy Ong that their final choice was Unit 5. It was only upon knowing that the defendants will be selling Unit 4 to some other persons for P4million that plaintiff changed his choice from Unit 5 to Unit 4. [4] In trying to recover the amount he paid as down payment for the townhouse unit, respondent Johnny Ong filed a complaint for Damages before the RTC of Cebu City, docketed as Civil Case No. CEB-23687, against defendants Andre T. Almocera and FBMC alleging that defendants were guilty of fraudulent concealment and breach of contract when they sold to him a townhouse unit without divulging that the same, at the time of the perfection of their contract, was already mortgaged with the Land Bank of the Philippines (LBP), with the latter causing the foreclosure of the mortgage and the eventual sale of the townhouse unit to a third person. In their Answer, defendants denied liability claiming that the foreclosure of the mortgage on the townhouse unit was caused by the failure of complainant Johnny Ong to pay the balance of the price of said townhouse unit. After the pre-trial conference was terminated, trial on the merits ensued. Respondent and his brother, Thomas Y. Ong, took the witness stand. For defendants, petitioner testified. In a Decision dated 20 May 2002, the RTC disposed of the case in this manner: WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered in this case in favor of the plaintiff and against the defendants: (a) Ordering the defendants to solidarily pay to the plaintiff the sum of P1,060,000.00, together with a legal interest thereon at 6% per annum from April 21, 1999 until its full payment before finality of the judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time when the judgment becomes final and executory until fully satisfied;

(b) Ordering the defendants to solidarily pay to the plaintiff the sum of P100,000.00 as moral damages, the sum of P50,000.00 as attorneys fee and the sum of P15,619.80 as expenses of litigation; and (c) Ordering the defendants to pay the cost of this suit.[5] The trial court ruled against defendants for not acting in good faith and for not complying with their obligations under their contract with respondent. In the Contract to Sell[6] involving Unit 4 of the Atrium Townhomes, defendants agreed to sell said townhouse to respondent for P3,400,000.00. The down payment was P1,000,000.00, while the balance of P2,400,000.00 was to be paid in full upon completion, delivery and acceptance of the townhouse. Under the contract which was signed on 10 January 1997, defendants agreed to complete and convey to respondent the unit within six months from the signing thereof. The trial court found that respondent was able to make a down payment or partial payment of P1,060,000.00 and that the defendants failed to complete the construction of, as well as deliver to respondent, the townhouse within six months from the signing of the contract. Moreover, respondent was not informed by the defendants at the time of the perfection of their contract that the subject townhouse was already mortgaged to LBP. The mortgage was foreclosed by the LBP and the townhouse was eventually sold at public auction. It said that defendants were guilty of fraud in their dealing with respondent because the mortgage was not disclosed to respondent when the contract was perfected. There was also non-compliance with their obligations under the contract when they failed to complete and deliver the townhouse unit at the agreed time. On the part of respondent, the trial court declared he was justified in suspending further payments to the defendants and was entitled to the return of the down payment. Aggrieved, defendants appealed the decision to the Court of Appeals assigning the following as errors: 1. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF HAS A VALID CAUSE OF ACTION FOR DAMAGES AGAINST DEFENDANT(S). 2. THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE COOPERATIVE FOR THE DAMAGES TO THE PLAINTIFF.[7] The Court of Appeals ruled that the defendants incurred delay when they failed to deliver the townhouse unit to the respondent within six months from the signing of the contract to sell. It agreed with the finding of the trial court that the nonpayment of the balance of P2.4M by respondent to defendants was proper in light of such delay and the fact that the property subject of the case was foreclosed and auctioned. It added that the trial court did not err in giving credence to respondents assertion that had he known beforehand that the unit was used as collateral with the LBP, he would not have proceeded in buying the townhouse. Like the trial court, the Court of Appeals gave no

weight to defendants argument that had respondent paid the balance of the purchase price of the townhouse, the mortgage could have been released. It explained: We cannot find fault with the choice of plaintiff not to further dole out money for a property that in all events, would never be his. Moreover, defendants could, if they were really desirous of satisfying their obligation, demanded that plaintiff pay the outstanding balance based on their contract. This they had not done. We can fairly surmise that defendants could not comply with their obligation themselves, because as testified to by Mr. Almocera, they already signified to LBP that they cannot pay their outstanding loan obligations resulting to the foreclosure of the townhouse.[8] Moreover, as to the issue of petitioners solidary liability, it said that this issue was belatedly raised and cannot be treated for the first time on appeal. On 18 July 2005, the Court of Appeals denied the appeal and affirmed in toto the decision of the trial court. The dispositive portion of the decision reads: IN LIGHT OF ALL THE FOREGOING, this appeal is DENIED. The assailed decision of the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB-23687 isAFFIRMED in toto.[9] In a Resolution dated 16 November 2005, the Court of Appeals denied defendants motion for reconsideration. Petitioner is now before us pleading his case via a Petition for Review on Certiorariunder Rule 45 of the 1997 Rules of Civil Procedure. The petition raises the following issues: I. II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT HAS INCURRED DELAY. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE PURCHASE PRICE. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE DEFENDANT COOPERATIVE FOR DAMAGES TO PLAINTIFF.[10]

III.

It cannot be disputed that the contract entered into by the parties was a contract to sell. The contract was denominated as such and it contained the provision that the unit shall be conveyed by way of an Absolute Deed of Sale, together with the attendant documents of Ownership the Transfer Certificate of Title and Certificate of Occupancy and that the balance of the contract price shall be paid upon the completion and delivery of the unit, as well as the acceptance thereof by respondent. All these clearly indicate that ownership of the townhouse has not passed to respondent. In Serrano v. Caguiat, [11] we explained:

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendors obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price. The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos [47 O.G. 6372 (1951)], we held that: x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price. The Contract to Sell entered into by the parties contains the following pertinent provisions: 4. TERMS OF PAYMENT: 4a. ONE MILLION PESOS (P1,000,000.00) is hereby acknowledged as Downpayment for the above-mentioned Contract Price. 4b. The Balance, in the amount of TWO MILLION FOUR HUNDRED PESOS (P2,400,000.00) shall be paid thru financing Institution facilitated by the SELLER, preferably Landbank of the Philippines (LBP). Upon completion, delivery and acceptance of the BUYER of the Townhouse Unit, the BUYER shall have paid the Contract Price in full to the SELLER. xxxx 6. COMPLETION DATES OF THE TOWNHOUSE UNIT: The unit shall be completed and conveyed by way of an Absolute Deed of Sale together with the attendant documents of Ownership in the name of the BUYER the Transfer Certificate of Title and Certificate of Occupancy within a period of six (6) months from the signing of Contract to Sell.[12]

From the foregoing provisions, it is clear that petitioner and FBMC had the obligation to complete the townhouse unit within six months from the signing of the contract. Upon compliance therewith, the obligation of respondent to pay the balance of P2,400,000.00 arises. Upon payment thereof, the townhouse shall be delivered and conveyed to respondent upon the execution of the Absolute Deed of Sale and other relevant documents. The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -to complete and deliver the townhouse within the six-month period. With petitioner and FBMCs non-fulfillment of their obligation, respondent refused to pay the balance of the contract price. Respondent does not ask that ownership of the townhouse be transferred to him, but merely asks that the amount or down payment he had made be returned to him. Article 1169 of the Civil Code reads: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. The contract subject of this case contains reciprocal obligations which were to be fulfilled by the parties, i.e., to complete and deliver the townhouse within six months from the execution of the contract to sell on the part of petitioner and FBMC, and to pay the balance of the contract price upon completion and delivery of the townhouse on the part of the respondent. In the case at bar, the obligation of petitioner and FBMC which is to complete and deliver the townhouse unit within the prescribed period, is determinative of the respondents obligation to pay the balance of the contract price. With their failure to fulfill their obligation as stipulated in the contract, they incurred delay and are liable for damages.[13] They cannot insist that respondent comply with his obligation. Where one of the parties to a contract did not perform the undertaking to which he was bound by

the terms of the agreement to perform, he is not entitled to insist upon the performance of the other party.[14] On the first assigned error, petitioner insists there was no delay when the townhouse unit was not completed within six months from the signing of the contract inasmuch as the mere lapse of the stipulated six (6) month period is not by itself enough to constitute delay on his part and that of FBMC, since the law requires that there must either be judicial or extrajudicial demand to fulfill an obligation so that the obligor may be declared in default. He argues there was no evidence introduced showing that a prior demand was made by respondent before the original action was instituted in the trial court. We do not agree. Demand is not necessary in the instant case. Demand by the respondent would be useless because the impossibility of complying with their (petitioner and FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage on the subject townhouse would not have been foreclosed and thereafter sold to a third person. Anent the second assigned error, petitioner argues that if there was any delay, the same was incurred by respondent because he refused to pay the balance of the contract price. We find his argument specious. As above-discussed, the obligation of respondent to pay the balance of the contract price was conditioned on petitioner and FBMCs performance of their obligation. Considering that the latter did not comply with their obligation to complete and deliver the townhouse unit within the period agreed upon, respondent could not have incurred delay. For failure of one party to assume and perform the obligation imposed on him, the other party does not incur delay.[15] Under the circumstances obtaining in this case, we find that respondent is justified in refusing to pay the balance of the contract price. He was never in possession of the townhouse unit and he can no longer be its owner since ownership thereof has been transferred to a third person who was not a party to the proceedings below. It would simply be the height of inequity if we are to require respondent to pay the balance of the contract price. To allow this would result in the unjust enrichment of petitioner and FBMC. The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of this doctrine which are present in this case are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense of another. It is commonly accepted that this doctrine simply means a person shall not be allowed to profit or enrich himself inequitably at another's expense. [16] Hence, to allow petitioner and FBMC keep the down payment made by respondent amounting to P1,060,000.00 would result in their unjust enrichment at the expense of the respondent.

Thus, said amount should be returned. What is worse is the fact that petitioner and FBMC intentionally failed to inform respondent that the subject townhouse which he was going to purchase was already mortgaged to LBP at the time of the perfection of their contract. This deliberate withholding by petitioner and FBMC of the mortgage constitutes fraud and bad faith. The trial court had this say: In the light of the foregoing environmental circumstances and milieu, therefore, it appears that the defendants are guilty of fraud in dealing with the plaintiff. They performed voluntary and willful acts which prevent the normal realization of the prestation, knowing the effects which naturally and necessarily arise from such acts. Their acts import a dishonest purpose or some moral obliquity and conscious doing of a wrong. The said acts certainly gtive rise to liability for damages (8 Manresa 72; BorrellMacia 26-27; 3 Camus 34; OLeary v. Macondray & Company, 454 Phil. 812; Heredia v. Salinas, 10 Phil. 157). Article 1170 of the New Civil Code of the Philippines provides expressly that those who in the performance of their obligations are guilty of fraud and those who in any manner contravene the tenor thereof are liable for damages. [17] On the last assigned error, petitioner contends that he should not be held solidarily liable with defendant FBMC, because the latter is a separate and distinct entity which is the seller of the subject townhouse. He claims that he, as Chairman and Chief Executive Officer of FBMC, cannot be held liable because his representing FBMC in its dealings is a corporate act for which only FBMC should be held liable. This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raised for the first time before the Court of Appeals which ruled that it was too late in the day to raise the same. The Court of Appeals declared: In the case below, the pleadings and the evidence of the defendants are one and the same and never had it made to appear that Almocera is a person distinct and separate from the other defendant. In fine, we cannot treat this error for the first time on appeal. We cannot in good conscience, let the defendant Almocera raise the issue of piercing the veil of corporate fiction just because of the adverse decision against him. x x x. [18] To allow petitioner to pursue such a defense would undermine basic considerations of due process. Points of law, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. It would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory not ventilated before the trial court.[19] As to the award of damages granted by the trial court, and affirmed by the Court of Appeals, we find the same to be proper and reasonable under the circumstances. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 is AFFIRMED. Costs against the petitioner.

SO ORDERED. Ynares-Santiago, (Chairperson), Austria-Martinez, Nachura, and Reyes, JJ., concur.

SECOND DIVISION

SOLAR HARVEST, INC., Petitioner,

G.R. No. 176868

Present:

CARPIO, J., Chairperson, - versus NACHURA, PERALTA, ABAD, and MENDOZA, JJ.

DAVAO CORRUGATED CARTON CORPORATION, Respondent.

Promulgated:

July 26, 2010

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

DECISION

NACHURA, J.:

Petitioner seeks a review of the Court of Appeals (CA) Decision [1] dated September 21, 2006 and Resolution[2] dated February 23, 2007, which denied petitioners motion for reconsideration. The assailed Decision denied petitioners claim for reimbursement for the amount it paid to respondent for the manufacture of corrugated carton boxes.

The case arose from the following antecedents:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for petitioners business of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into writing. To get the production underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondents US Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes.

Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount paid.[3] On February 19, 2001, respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from the formers warehouse 30 days from completion, as agreed upon. Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment from petitioner. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time. It further alleged

6. That repeated follow-up was made by the plaintiff for the immediate production of the ordered boxes, but every time, defendant [would] only show samples of boxes and ma[k]e repeated promises to deliver the said ordered boxes.

7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff ha[d] to cancel the same and demand payment and/or refund from the defendant but the latter refused to pay and/or refund the US$40,150.00 payment made by the former for the ordered boxes.[4]

In its Answer with Counterclaim,[5] respondent insisted that, as early as April 3, 1998, it had already completed production of the 36,500 boxes, contrary to petitioners allegation. According to respondent, petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000 had been completed without waiting for petitioners payment. Respondent stated that petitioner was to pick up the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent averred that, on October 8, 1998, petitioners representative, Bobby Que (Que), went to the factory and saw that the boxes were ready for pick up. On February 20, 1999, Que visited the factory again and supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioners transaction to ship bananas to China did not materialize. Respondent claimed that the boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60.00 per square meter for every month from April 1998. As counterclaim, respondent prayed that judgment be rendered ordering petitioner to pay $15,400.00, plus interest, moral and exemplary damages, attorneys fees, and costs of the suit.

In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent already completed the initial order of 36,500 boxes and 14,000 boxes out of the second order. It maintained that

respondent only manufactured a sample of the ordered boxes and that respondent could not have produced 14,000 boxes without the required pre-payments.[6]

During trial, petitioner presented Que as its sole witness. Que testified that he ordered the boxes from respondent and deposited the money in respondents account.[7] He specifically stated that, when he visited respondents factory, he saw that the boxes had no print of petitioners logo.[8] A few months later, he followed-up the order and was told that the company had full production, and thus, was promised that production of the order would be rushed. He told respondent that it should indeed rush production because the need for the boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to cancel the order because it was already late for them to meet their commitment to ship the bananas to China.[9] On cross-examination, Que further testified that China Zero Food, the Chinese company that ordered the bananas, was sending a ship toDavao to get the bananas, but since there were no cartons, the ship could not proceed. He said that, at that time, bananas from Tagum Agricultural Development Corporation (TADECO) were already there. He denied that petitioner made an additional order of 24,000 boxes. He explained that it took three years to refer the matter to counsel because respondent promised to pay.[10]

For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in October 1998 to inspect the boxes and that the latter got samples of them. In February 2000, they inspected the boxes again and Que got more samples. Estanislao said that petitioner did not pick up the boxes because the ship did not arrive.[11] Jaime Tan (Tan), president of respondent, also testified that his company finished production of the 36,500 boxes on April 3, 1998 and that petitioner made a second order of 24,000 boxes. He said that the agreement was for respondent to produce the boxes and for petitioner to pick them up from the warehouse.[12] He also said that the reason why petitioner did not pick up the boxes was that the ship that was to carry the bananas did not arrive.[13] According to him, during the last visit of Que and Estanislao, he asked them to withdraw the boxes immediately because they were occupying a big space in his plant, but they, instead, told him to sell the cartons as rejects. He was able to sell 5,000 boxes at P20.00 each for a total of P100,000.00. They then told him to apply the said amount to the unpaid balance.

In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not commit any breach of faith that would justify rescission of the contract and the consequent reimbursement of the amount paid by petitioner. The RTC said that respondent was able to produce the ordered boxes but petitioner failed to obtain possession thereof because its ship did not arrive. It thus dismissed the complaint and respondents counterclaims, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant and against the plaintiff and, accordingly, plaintiffs complaint is hereby ordered DISMISSED without pronouncement as to cost. Defendants counterclaims are similarly dismissed for lack of merit.

SO ORDERED.[14]

Petitioner filed a notice of appeal with the CA.

On September 21, 2006, the CA denied the appeal for lack of merit.[15] The appellate court held that petitioner failed to discharge its burden of proving what it claimed to be the parties agreement with respect to the delivery of the boxes. According to the CA, it was unthinkable that, over a period of more than two years, petitioner did not even demand for the delivery of the boxes. The CA added that even assuming that the agreement was for respondent to deliver the boxes, respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes.[16]

Petitioner moved for reconsideration,[17] but the motion was denied by the CA in its Resolution of February 23, 2007.[18]

In this petition, petitioner insists that respondent did not completely manufacture the boxes and that it was respondent which was obliged to deliver the boxes to TADECO.

We find no reversible error in the assailed Decision that would justify the grant of this petition.

Petitioners claim for reimbursement is actually one for rescission (or resolution) of contract under Article 1191 of the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law, which provides:

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

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

(1) or

When the obligation or the law expressly so declares;

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

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

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

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph of the present article,[19] that is, the other party would incur in delay only from the moment the other party demands fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue.

Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a follow-up upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioners witness also testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation.

Even assuming that a demand had been previously made before filing the present case, petitioners claim for reimbursement would still fail, as the circumstances would show that respondent was not guilty of breach of contract.

The existence of a breach of contract is a factual matter not usually reviewed in a petition for review under Rule 45.[20] The Court, in petitions for review, limits its inquiry only to questions of law. After all, it is not a trier of facts, and findings of fact made by the trial court, especially when reiterated by the CA, must be given great respect if not

considered as final.[21] In dealing with this petition, we will not veer away from this doctrine and will thus sustain the factual findings of the CA, which we find to be adequately supported by the evidence on record.

As correctly observed by the CA, aside from the pictures of the finished boxes and the production report thereof, there is ample showing that the boxes had already been manufactured by respondent. There is the testimony of Estanislao who accompanied Que to the factory, attesting that, during their first visit to the company, they saw the pile of petitioners boxes and Que took samples thereof. Que, petitioners witness, himself confirmed this incident. He testified that Tan pointed the boxes to him and that he got a sample and saw that it was blank. Ques absolute assertion that the boxes were not manufactured is, therefore, implausible and suspicious.

In fact, we note that respondents counsel manifested in court, during trial, that his client was willing to shoulder expenses for a representative of the court to visit the plant and see the boxes.[22] Had it been true that the boxes were not yet completed, respondent would not have been so bold as to challenge the court to conduct an ocular inspection of their warehouse. Even in its Comment to this petition, respondent prays that petitioner be ordered to remove the boxes from its factory site, [23] which could only mean that the boxes are, up to the present, still in respondents premises.

We also believe that the agreement between the parties was for petitioner to pick up the boxes from respondents warehouse, contrary to petitioners allegation. Thus, it was due to petitioners fault that the boxes were not delivered to TADECO.

Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the boxes within 30 days from payment, as alleged in the Complaint. Its sole witness, Que, was not even competent to testify on the terms of the agreement and, therefore, we cannot give much credence to his testimony. It appeared from the testimony of Que that he did not personally place the order with Tan, thus:

Q. A.

No, my question is, you went to Davao City and placed your order there? I made a phone call.

Q.

You made a phone call to Mr. Tan?

A.

The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr. Tan.

Q. A.

So, your first statement that you were the one who placed the order is not true? Thats true. The Solar Harvest made a contact with Mr. Tan and I deposited the money in the bank.

Q. A.

You said a while ago [t]hat you were the one who called Mr. Tan and placed the order for 36,500 boxes, isnt it? First time it was Mr. Alfred Ong.

Q. A.

It was Mr. Ong who placed the order[,] not you? Yes, sir.[24]

Q. A.

Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao? Yes, sir.[25]

Moreover, assuming that respondent was obliged to deliver the boxes, it could not have complied with such obligation. Que, insisting that the boxes had not been manufactured, admitted that he did not give respondent the authority to deliver the boxes to TADECO:

Q. A.

Did you give authority to Mr. Tan to deliver these boxes to TADECO? No, sir. As I have said, before the delivery, we must have to check the carton, the quantity and quality. But I have not seen a single carton.

Q.

Are you trying to impress upon the [c]ourt that it is only after the boxes are completed, will you give authority to Mr. Tan to deliver the boxes to TADECO[?]

A.

Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan to rush the carton but not[26]

Q. A.

Did you give any authority for Mr. Tan to deliver these boxes to TADECO? Because I have not seen any of my carton.

Q. A.

You dont have any authority yet given to Mr. Tan? None, your Honor.[27]

Surely, without such authority, TADECO would not have allowed respondent to deposit the boxes within its premises.

In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the evidence having shown that respondent did not commit any breach of its contractual obligation. As previously stated, the subject boxes are still within respondents premises. To put a rest to this dispute, we therefore relieve respondent from the burden of having to keep the boxes within its premises and, consequently, give it the right to dispose of them, after petitioner is given a period of time within which to remove them from the premises.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated September 21, 2006 and Resolution dated February 23, 2007 are AFFIRMED. In addition, petitioner is given a period of 30 days from notice within which to cause the removal of the 36,500 boxes from respondents warehouse. After the lapse of said period and petitioner fails to effect such removal, respondent shall have the right to dispose of the boxes in any manner it may deem fit.

Nachura (chairperson), Carpio, Peralta, Abad, Mendoza, concur

Republic of the Philippines SUPREME COURT Manila

G.R. No. 181206

October 9, 2009

MEGAWORLD GLOBUS ASIA, INC., Petitioner, vs. MILA S. TANSECO, Respondent. DECISION CARPIO MORALES, J.: On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or less) condominium unit at a pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City. The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, orP4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 onOctober 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover. Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows: 4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances, government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this contract if for any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it can only be completed at a financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the SELLER. (Underscoring supplied) Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63 pending delivery of the unit.2 Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period.

A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.3 Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworlds failure to deliver the unit on time, she was demanding the return ofP14,281,731.70 representing the total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that none of the excepted causes of delay existed.4 Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use Regulatory Boards (HLURB) Expanded National Capital Region Field Office a complaint against Megaworld for rescission of contract, refund of payment, and damages.5 In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of turnover.6 By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tansecos complaint for lack of cause of action, finding that Megaworld had effected delivery by the notice of turnover before Tanseco made a demand. Tanseco was thereupon ordered to pay Megaworld the balance of the purchase price, plus P25,000 as moral damages,P25,000 as exemplary damages, and P25,000 as attorneys fees. On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28, 2003,8 sustained the HLURB Arbiters Decision on the ground of laches for failure to demand rescission when the right thereto accrued. It deleted the award of damages, however. Tansecos Motion for Reconsideration having been denied, 9 she appealed to the Office of the President which dismissed the appeal by Decision of April 28, 200610 for failure to show that the findings of the HLURB were tainted with grave abuse of discretion. Her Motion for Reconsideration having been denied by Resolution dated August 30, 2006,11 Tanseco filed a Petition for Review under Rule 43 with the Court of Appeals.12 By Decision of September 28, 2007,13 the appellate court granted Tansecos petition, disposing thus: WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May 28, 2003 decision of the HLURB Field Office, the November 28, 2003 decision of the HLURB Board of Commissioners in HLURB Case No. REM-A-030711-0162, the April 28, 2006 Decision and August 30, 2006 Resolution of the Office of the President in O.P. Case No. 05-I-318, are hereby REVERSED and SET ASIDE and a new one entered: (1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the contract to buy and sell; (2) DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid totaling P14,281,731.70 with Twelve (12%) Percent interest per annum from October 31, 1998; (3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by way of exemplary damages; (4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorneys fees;

and (5) ORDERINGMEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in the original; underscoring supplied) The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in default if the contract, as in the herein parties contract, states the date when the obligation should be performed; that time was of the essence because Tanseco relied on Megaworlds promise of timely delivery when she agreed to part with her money; that the delay should be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April 30, 1999 alternative date; and that specific performance could not be ordered in lieu of rescission as the right to choose the remedy belongs to the aggrieved party. The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of Megaworld in forcing her to accept its long-delayed delivery; and attorneys fees, she having been compelled to sue to protect her rights. Its Motion for Reconsideration having been denied by Resolution of January 8, 2008,14 Megaworld filed the present Petition for Review on Certiorari, echoing its position before the HLURB, adding that Tanseco had not shown any basis for the award of damages and attorneys fees.15 Tanseco, on the other hand, maintained her position too, and citing Megaworlds bad faith which became evident when it insisted on making the delivery despite the long delay,16 insisted that she deserved the award of damages and attorneys fees. Article 1169 of the Civil Code provides: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Underscoring supplied) The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or

about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor.17 That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does not abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date. Article 1174 of the Civil Code provides: Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.18 The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito.19 Megaworlds excuse for its delay does not thus lie. As for Megaworlds argument that Tansecos claim is considered barred by laches on account of her belated demand, it does not lie too. Laches is a creation of equity and its application is controlled by equitable considerations.20 It bears noting that Tanseco religiously paid all the installments due up to January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco. Pursuant to Section 23 of Presidential Decree No. 95721 which reads: Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid includingamortizatio n interests but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis and underscoring supplied), Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld. While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be 6% per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the time this judgment becomes final and executory, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.22

The award of P200,000 attorneys fees and of costs of suit is in order too, the parties having stipulated in the Contract to Buy and Sell that these shall be borne by the losing party in a suit based thereon,23 not to mention that Tanseco was compelled to retain the services of counsel to protect her interest. And so is the award of exemplary damages. With pre-selling ventures mushrooming in the metropolis, there is an increasing need to correct the insidious practice of real estate companies of proffering all sorts of empty promises to entice innocent buyers and ensure the profitability of their projects. The Court finds the appellate courts award of P200,000 as exemplary damages excessive, however. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.24 The Court finds that P100,000 is reasonable in this case. Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and sell, the suspensive condition of full payment of the purchase price not having occurred to trigger the obligation to convey title,cancellation, not rescission, of the contract is thus the correct remedy in the premises.26 WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing, AFFIRMED with MODIFICATION. As modified, the dispositive portion of the Decision reads: The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner, Megaworld Globus Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the amount of P14,281,731.70, to bear 6% interest per annum starting May 6, 2002 and 12% interest per annum from the time the judgment becomes final and executory; and to pay P200,000 attorneys fees, P100,000 exemplary damages, and costs of suit. Costs against petitioner. SO ORDERED. Carpio Morales (chairperson), Corona, Nachura, Abad, Brion, concur

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-45710 October 3, 1985 CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs.

THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents. I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners. Antonio R. Tupaz for private respondent. MAKASIAR, CJ.: This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages with preliminary injunction. On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision. On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.). On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which provides: In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by unanimous vote, decided as follows: 1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of

already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible; xxx xxx xxx (p. 46, rec.). On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec). On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969. On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.). On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.). On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.). On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec. On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island Savings Bank can

neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.). Hence, this instant petition by the central Bank. The issues are: 1. Can the action of Sulpicio M. Tolentino for specific performance prosper? 2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note? 3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount? When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question. The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)

The fact that Sulpicio M. Tolentino demanded and accepted the refund of the prededucted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist independently of his right to demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the other. The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they approve the loan application of their customers, they must investigate the existence and evaluation of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino. Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have

complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon. WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt. The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code). The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p.

138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180). Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt. The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case. Article 2089 provides: A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or creditor. Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the prejudice of other heirs who have not been paid. The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND 1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID; 2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO. NO COSTS. SO ORDERED. Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur. Aquino (Chairman) and Abad Santos, JJ., took no part.