[G.R. No. 138018. July 26, 2002.] RIDO MONTECILLO, petitioner, vs.

IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA ABUCAY respondents. , Francisco M. Malilong, Jr. for petitioner. V. L. Legaspi for respondents. SYNOPSIS Respondent Reynes was the owner of the subject lot containing an area of 448 square meters. She sold 185 square meters of the lot to the Abucay Spouses. Subsequently, she signed a Deed of Sale of the lot in favor of Montecillo. For failure of Montecillo to pay the purchase price, Reynes unilaterally revoked the sale and she executed a Deed of Sale transferring to the Abucay spouses the entire subject lot, at the same time confirming the previous sale of the 185-square meter portion of the lot. Montecillo claimed that the consideration for the sale of the lot was the amount he paid to Cebu Ice Storage for the mortgaged debt of Bienvenido Jayag. Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the lot. The trial court declared the Deed of Sale to Montecillo null and void for lack of cause or consideration because he never paid the purchase price, and it ordered the cancellation of his Transfer Certificate of Title and the issuance of a new Certificate of Title in favor of the Abucay Spouses. On appeal, the Court of Appeals affirmed the decision of the trial court. Hence, this petition for review on certiorari. In affirming the decision of the Court of Appeals, the Supreme Court ruled that absent any showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Thus, Montecillo's payment to Cebu Ice Storage is not the payment that would extinguish Montecillo's obligation to Reynes under the Deed of Sale. The Court likewise ruled that where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS; PAYMENT; SHALL BE MADE TO THE PERSON IN WHOSE FAVOR THE OBLIGATION HAS BEEN CONSTITUTED, OR HIS SUCCESSOR IN INTEREST, OR ANY PERSON AUTHORIZED TO RECEIVE IT. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows: "Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Thus, Montecillo's payment to Cebu Ice Storage is not the payment that would extinguish Montecillo's obligation to Reynes under the Deed of Sale. 2.REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; PETITION FOR REVIEW ON CERTIORARI; ONLY QUESTIONS OF LAW CAN BE RAISED THEREIN. We find no reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal under Rule 45, as in the instant case, a petitioner can raise only questions of law. This Court is not the proper venue to consider a factual issue as it is not a trier of facts. HCacDE 3.ID.; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF TRIAL COURT, GENERALLY NOT DISTURBED ON APPEAL. Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such findings. We do not disturb such findings unless the evidence on record clearly does not support such findings or such findings are based on a patent misunderstanding of facts, which is not the case here. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that no valid consideration supported Montecillo's Deed of Sale. 4.CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF SALE; LACK OF CONSENT LACK OF CONSIDERATION, DISTINGUISHED. One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when

in fact it has never been paid. D E C IS IO N CARPIO, J p: The Case On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a Decision declaring the deed of sale of a parcel of land in favor of petitioner null and void ab initio. The Court of Appeals, in its July 16, 1998 Decision as well as its February 11, 1999 Order denying petitioner's Motion for Reconsideration, affirmed the trial court's decision in toto. Before this Court now is a Petition for Review on Certiorari assailing the Court of Appeals' decision and order. The Facts Respondents Ignacia Reynes ("Reynes" for brevity) and Spouses Abucay ("Abucay Spouses" for brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo ("Montecillo" for brevity). Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No. 74196 and containing an area of 448 square meters ("Mabolo Lot" for brevity). In 1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought. Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo ("Montecillo's Deed of Sale" for brevity). Reynes, being illiterate, signed by affixing her thumb-mark on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale. Montecillo's Deed of Sale states as follows: "That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address at Mabolo, Cebu City, Philippines, for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO, of legal age, Filipino, married, with residence and postal address at Mabolo, Cebu City, Philippines, the receipt hereof is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, his heirs, executors, administrators, and assigns, forever, a parcel of land together with the improvements thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and encumbrances, and more particularly described as follows: A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of Mabolo, City of Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of Banilad Estate; on the NW., along line 4-5, by Lot 203-B-2-A of the subdivision of Four Hundred Forty Eight (448) square meters, more or less. of which I am the absolute owner in accordance with the provisions of the Land Registration Act, my title being evidenced by Transfer Certificate of Title No. 74196 of the Registry of Deeds of the City of Cebu, Philippines. That This Land Is Not Tenanted and Does Not Fall Under the Purview of P.D. 27." 8 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes (Emphasis supplied) Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the onemonth period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale, 9 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo. ISAaTH Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185-square meter portion of the lot. This Deed of Sale states: "I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do hereby confirm the sale of a portion of Lot No. 74196 to an extent of 185 square meters to Spouses Redemptor Abucay and Elisa Abucay covered by Deed per Doc. No. 47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of which spouses is now in occupation; That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS, Philippine Currency, received in full and receipt whereof is herein acknowledged from SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY do hereby in these presents, SELL, TRANSFER and , CONVEY absolutely unto said Spouses Redemptor Abucay and Elisa Abucay, their heirs, assigns and successors-in-interest the whole parcel of land together with improvements thereon and more

particularly described as follows: TCT No. 74196 A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of Lot 203-B-2, described on plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street, containing an area of total FOUR HUNDRED FORTY EIGHT (448) Square meters. of which I am the absolute owner thereof free from all liens and encumbrances and warrant the same against claim of third persons and other deeds affecting said parcel of land other than that to the said spouses and inconsistent hereto is declared without any effect. In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City, Philippines." 10 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot. Reynes and the Abucay Spouses argued that "for lack of consideration there (was) no meeting of the minds" 11 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Montecillo's Deed of Sale, and order the cancellation of Certificate of Title No. 90805 in the name of Montecillo. In his Answer, Montecillo, a bank executive with a B.S. Commerce degree, 12 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot. In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the chattel mortgage, especially after Reynes revoked Montecillo's Deed of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel mortgage through machination. They further asserted that Montecillo took advantage of the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name. During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Ice and Cold Storage Corporation ("Cebu Ice Storage" for brevity) for the mortgage debt of Bienvenido Jayag ("Jayag" for brevity). Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. Reynes, however, stated that she had nothing to do with Jayag's mortgage debt except that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage on Jayag's house is a matter between Montecillo and Jayag. The mortgage on the house, being a chattel mortgage, could not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment on January 30, 1967. The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo null and void. The trial court ordered the cancellation of Montecillo's Transfer Certificate of Title No. 90805 and the issuance of a new certificate of title in favor of the Abucay Spouses. The trial court found that Montecillo's Deed of Sale had no cause or consideration because Montecillo never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale that Reynes received the purchase price. The trial court ruled that Montecillo's Deed of Sale produced no effect whatsoever for want of consideration. The dispositive portion of the trial court's decision reads as follows: "WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered declaring the deed of sale in favor of defendant null and void and of no force and effect thereby ordering the cancellation of Transfer Certificate of Title No. 90805 of the Register of Deeds of Cebu City and to

declare plaintiff Spouses Redemptor and Elisa Abucay as rightful vendees and Transfer Certificate of Title to the property subject matter of the suit issued in their names. The defendants are further directed to pay moral damages in the sum of P20,000.00 and attorney's fees in the sum of P2,000.00 plus cost of the suit. xxx xxx xxx" Not satisfied with the trial court's Decision, Montecillo appealed the same to the Court of Appeals. Ruling of the Court of Appeals The appellate court affirmed the Decision of the trial court in toto and dismissed the appeal 13 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes on the ground that Montecillo's Deed of Sale is void for lack of consideration. The appellate court also denied Montecillo's Motion for Reconsideration 14 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes on the ground that it raised no new arguments. Still dissatisfied, Montecillo filed the present petition for review on certiorari. The Issues Montecillo raises the following issues: 1."Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title?" 2."If there was none, is the Deed of Sale void from the beginning or simply rescissible?" 15 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes The Ruling of the Court The petition is devoid of merit. First issue: manner of payment of the P47,000.00 purchase price. Montecillo's Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows: TCDHaE "Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Thus, Montecillo's payment to Cebu Ice Storage is not the payment that would extinguish 16 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes Montecillo's obligation to Reynes under the Deed of Sale. It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire amount would only go to Cebu Ice Storage, leaving not a single centavo to her for giving up ownership of a valuable property. This incredible allegation of Montecillo becomes even more absurd when one considers that Reynes did not benefit, directly or indirectly, from the payment of the P47,000.00 to Cebu Ice Storage. The trial court found that Reynes had nothing to do with Jayag's mortgage debt with Cebu Ice Storage. The trial court made the following findings of fact: ". . .. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the land." 17 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes Thus, Montecillo's payment to Jayag's creditor could not possibly redound to the benefit 18 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes of Reynes. We find no reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal under Rule 45, as in the instant case, a petitioner can raise only questions of law. 19

http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes This Court is not the proper venue to consider a factual issue as it is not a trier of facts. Second issue: whether the Deed of Sale is void ab initio or only rescissible. Under Article 1318 of the Civil Code, "[T]here is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established." Article 1352 of the Civil Code also provides that "[C]ontracts without cause . . . produce no effect whatsoever." Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out that he agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price of P47,000.00. Thus, the three requisites for a valid contract concur: consent, object certain and consideration. Montecillo asserts there is no lack of consideration that would prevent the existence of a valid contract. Rather, there is only non-payment of the consideration within the period agreed upon for payment. Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such breach merely gives Reynes a right to ask for specific performance, or for annulment of the obligation to sell the Mabolo Lot. Montecillo maintains that in reciprocal obligations, the injured party can choose between fulfillment and rescission, 20 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes or more properly cancellation, of the obligation under Article 1191 21 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes of the Civil Code. This Article also provides that the "court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period." Montecillo claims that because Reynes failed to make a demand for payment, and instead unilaterally revoked Montecillo's Deed of Sale, the court has a just cause to fix the period for payment of the balance of the purchase price. These arguments are not persuasive. Montecillo's Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00 purchase price on March 1, 1984, the date of signing of the Deed of Sale. This is clear from the following provision of the Deed of Sale: "That I, IGNACIA T. REYNES, . . . for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO . . . , receipt of which is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, . . . a parcel of land . . .." On its face, Montecillo's Deed of Absolute Sale 22 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes appears supported by a valuable consideration. However, based on the evidence presented by both Reynes and Montecillo, the trial court found that Montecillo never paid to Reynes, and Reynes never received from Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of consideration contrary to what is stated in Montecillo's Deed of Sale. As pointed out by the trial court "From the allegations in the pleadings of both parties and the oral and documentary evidence adduced during the trial, the court is convinced that the Deed of Sale (Exhibits "1" and "1-A") executed by plaintiff Ignacia Reynes acknowledged before Notary Public Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through the representation of Baudillo Baladjay had executed a Deed of Sale in favor of defendant on the promise that the consideration should be paid within one (1) month from the execution of the Deed of Sale. However, after the lapse of said period, defendant failed to pay even a single centavo of the consideration. The answer of the defendant did not allege clearly why no consideration was paid by him except for the allegation that he had a balance of only P10,000.00. It turned out during the pre-trial that what the defendant considered as the consideration was the amount which he paid for the obligation of Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over which plaintiff Ignacia Reynes did not have a part except that the subject of the mortgage was constructed on the parcel of land in question. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The

payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the land." 23 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such findings. 24 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes We do not disturb such findings unless the evidence on record clearly does not support such findings or such findings are based on a patent misunderstanding of facts, 25 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes which is not the case here. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that no valid consideration supported Montecillo's Deed of Sale. This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a cause one of the three essential requisites of a valid contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract 26 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes while the latter prevents the existence of a valid contract Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. This has been the wellsettled rule as early as Ocejo Perez & Co. v. Flores, 27 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes a 1920 case. As subsequently explained in Mapalo v. Mapalo 28 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes "In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable herein. In that case we ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor." The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque, 29 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes to wit "The Appellate Court's finding that the price was not paid or that the statement in the supposed contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales were void. "If the price is simulated, the sale is void . . ." (Art. 1471, Civil Code) A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229)." Applying this well-entrenched doctrine to the instant case, we rule that Montecillo's Deed of Sale is null and void ab initio for lack of consideration. Montecillo asserts that the only issue in controversy is "the mode and/or manner of payment and/or whether or not payment has been made." 30 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes Montecillo implies that the mode or manner of payment is separate from the consideration and does not affect the validity of the contract. In the recent case of San Miguel Properties Philippines, Inc. v. Huang, 31 http://www.cdasiaonline.com/search/show_article/2312? search=gr%3A+%28138018%2A%29#footnotes we ruled that "In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]), we

laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320 [1995]), agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price." (Emphasis supplied) One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid. cTaDHS Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayag's mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillo's Deed of Sale. Thus, there was no consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent. In summary, Montecillo's Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo. WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the Court of Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner. SO ORDERED. ---------------------------------------------------------[G.R. No. 108630. April 2, 1996.] PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS and LORETO TAN, respondents. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; A DEBT IS PAID BY COMPLETE DELIVERY OF THE THING OR RENDITION OF SERVICE. There is no question that no payment had ever been made to private respondent as the check was never delivered to him. When the court ordered petitioner to pay private respondent the amount of P32,480.00, it had the obligation to deliver the same to him. Under Art. 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. 2.REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF OF PAYMENT OF OBLIGATION LIES WITH THE DEBTOR; PAYMENT NOT PROVED IN CASE AT BAR. The burden of proof of such payment lies with the debtor. In the instant case, neither the SPA nor the check issued by petitioner was ever presented in court. The testimonies of petitioner's own witnesses regarding the check were conflicting. Tagamolila testified that the check was issued to the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," while Elvira Tibon, assistant cashier of PNB (Bacolod Branch), stated that the check was issued to the order of "Loreto Tan." Furthermore, contrary to petitioner's contention that all that is needed to be proved is the existence of the SPA, it is also necessary for evidence to be presented regarding the nature and extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically, to determine whether the document indeed authorized her to receive payment intended for private respondent. However, no such evidence was ever presented. 3.ID.; ID.; BEST EVIDENCE RULE; WHEN SECONDARY EVIDENCE IS ALLOWED. Section 4, Rule 130 of the Rules of Court allows the presentation of secondary evidence when the original is lost or destroyed. 4.ID.; ID.; ID.; PAYMENT OF OBLIGATION NEGATED BY FAILURE TO PRESENT SPECIAL POWER OF ATTORNEY IN CASE AT BAR. Considering that the contents of the SPA are also in issue here, the best evidence rule applies. Hence, only the original document (which has not been presented at all) is the best evidence of the fact as to whether or not private respondent indeed

authorized Sonia Gonzaga to receive the check from petitioner. In the absence of such document, petitioner's arguments regarding due payment must fall. 5.CIVIL LAW; DAMAGES; ATTORNEYS' FEES; AVAILABLE TO PARTY WHO WAS COMPELLED TO LITIGATE. Regarding the award of attorney's fees, we hold that private respondent Tan is entitled to the same. Art. 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. 6.ID.; ID; EXEMPLARY DAMAGES; WHEN RECOVERABLE. Under Art. 2232 of the Civil Code, exemplary damages may be awarded if a party acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. However, they cannot be recovered as a matter of right; the court has yet to decide whether or not they should be adjudicated. 7.ID.; ID.; ID.; REQUIREMENTS FOR GRANT. Jurisprudence has set down the requirements for exemplary damages to be awarded: 1. they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them has been established; 2. they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; 3. the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner. 8.ID.; ID.; ID.; CANNOT BE RECOVERED WHERE THERE IS NO CLEAR BREACH OF OBLIGATION TO PAY OR THAT A PARTY ACTED IN FRAUDULENT, WANTON, RECKLESS OR OPPRESSIVE MANNER. As for the award of exemplary damages, we agree with the appellate court that the same should be deleted. In the case at bench, while there is a clear breach of petitioner's obligation to pay private respondents, there is no evidence that it acted in a fraudulent, wanton, reckless or oppressive manner. Furthermore, there is no award of compensatory damages which is a prerequisite before exemplary damages may be awarded. Therefore, the award by the trial court of P5,000.00 as exemplary damages is baseless. D E C IS IO N ROMERO, J p: Petitioner Philippine National Bank (PNB) questions the decision 1 of the Court of Appeals partially affirming the judgment of the Regional Trial Court, Branch 44, Bacolod City. The dispositive portion of the trial court's decision states: "WHEREFORE, premises considered, the Court hereby renders judgment in favor of the plaintiff and against the defendants as follows: 1)Ordering defendants to pay plaintiff jointly and severally the sum of P32,480.00, with legal rate of interest to be computed from May 2, 1979, date of filing of this complaint until fully paid; 2)Ordering defendants to pay plaintiff jointly and severally the sum of P5,000.00 as exemplary damages; 3)Ordering defendants to pay plaintiff jointly and severally the sum of P5,000.00 as attorney's fees; 4)To pay the costs of this suit. SO ORDERED." 2 The facts are the following: Private respondent Loreto Tan (Tan) is the owner of a parcel of land abutting the national highway in Mandalagan, Bacolod City. Expropriation proceedings were instituted by the government against private respondent Tan and other property owners before the then Court of First Instance of Negros Occidental, Branch IV, docketed as Civil Case No. 12924. Tan filed a motion dated May 10, requesting issuance of an order for the release to him of the expropriation price of P32,480.00. On May 22, 1978, petitioner PNB (Bacolod Branch) was required by the trial court to release to Tan the amount of P32,480.00 deposited with it by the government. On May 24, 1978, petitioner, through its Assistant Branch Manager Juan Tagamolila, issued a manager's check for P32,480.00 and delivered the same to one Sonia Gonzaga without Tan's knowledge, consent or authority. Sonia Gonzaga deposited it in her account with Far East Bank and Trust Co. (FEBTC) and later on withdrew the said amount. Private respondent Tan subsequently demanded payment in the amount of P32,480.00 from petitioner, but the same was refused on the ground that petitioner had already paid and delivered the amount to Sonia Gonzaga on the strength of a Special Power of Attorney (SPA) allegedly

executed in her favor by Tan. On June 8, 1978, Tan executed an affidavit before petitioner's lawyer, Alejandro S. Somo, stating that: 1)he had never executed any Special Power of Attorney in favor of Sonia S. Gonzaga; 2)he had never authorized Sonia Gonzaga to receive the sum of P32,480.00 from petitioner; 3)he signed a motion for the court to issue an Order to release the said sum of money to him and gave the same to Mr. Nilo Gonzaga (husband of Sonia) to be filed in court. However, after the Order was subsequently issued by the court, a certain Engineer Decena of the Highway Engineer's Office issued the authority to release the funds not to him but to Mr. Gonzaga. When he failed to recover the amount from PNB, private respondent filed a motion with the court to require PNB to pay the same to him. Petitioner filed an opposition contending that Sonia Gonzaga presented to it a copy of the May 22, 1978 order and a special power of attorney by virtue of which petitioner delivered the check to her. The matter was set for hearing on July 21, 1978 and petitioner was directed by the court to produce the said special power of attorney thereat. However, petitioner failed to do so. The court decided that there was need for the matter to be ventilated in a separate civil action and thus private respondent filed a complaint with the Regional Trial Court in Bacolod City (Branch 44) against petitioner and Juan Tagamolila, PNB's Assistant Branch Manager, to recover the said amount. In its defense, petitioner contended that private respondent had duly authorized Sonia Gonzaga to act as his agent. On September 28, 1979, petitioner filed a third-party complaint against the spouses Nilo and Sonia Gonzaga praying that they be ordered to pay private respondent the amount of P32,480.00. However, for failure of petitioner to have the summons served on the Gonzagas despite opportunities given to it, the third-party complaint was dismissed. Tagamolila, in his answer, stated that Sonia Gonzaga presented a Special Power of Attorney to him but borrowed it later with the promise to return it, claiming that she needed it to encash the check. On June 7, 1989, the trial court rendered judgment ordering petitioner and Tagamolila to pay private respondent jointly and severally the amount of P32,480.00 with legal interest, damages and attorney's fees. Both petitioner and Tagamolila appealed the case to the Court of Appeals. In a resolution dated April 8, 1991, the appellate court dismissed Tagamolila's appeal for failure to pay the docket fee within the reglementary period. On August 31, 1992, the Court of Appeals affirmed the decision of the trial court against petitioner, with the modification that the award of P5,000.00 for exemplary damages and P5,000.00 for attorney's fees by the trial court was deleted. Hence, this petition. Petitioner PNB states that the issue in this case is whether or not the SPA ever existed. It argues that the existence of the SPA need not be proved by it under the "best evidence rule" because it already proved the existence of the SPA from the testimonies of its witnesses and by the certification issued by the Far East Bank and Trust Company that it allowed Sonia Gonzaga to encash Tan's check on the basis of the SPA. We find the petition unmeritorious. There is no question that no payment had ever been made to private respondent as the check was never delivered to him. When the court ordered petitioner to pay private respondent the amount of P32,480.00, it had the obligation to deliver the same to him. Under Art. 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. The burden of proof of such payment lies with the debtor. 3 In the instant case, neither the SPA nor the check issued by petitioner was ever presented in court. The testimonies of petitioner's own witnesses regarding the check were conflicting. Tagamolila testified that the check was issued to the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," 4 while Elvira Tibon, assistant cashier of PNB (Bacolod Branch), stated that the check was issued to the order of "Loreto Tan." 5 Furthermore, contrary to petitioner's contention that all that is needed to be proved is the existence

of the SPA, it is also necessary for evidence to be presented regarding the nature and extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically, to determine whether the document indeed authorized her to receive payment intended for private respondent. However, no such evidence was ever presented. Section 2, Rule 130 of the Rules of Court states that: "SECTION 2.Original writing must be produced; exceptions. There can be no evidence of a writing the contents of which is the subject of inquiry, other than the original writing itself, except in the following cases: (a)When the original has been lost, destroyed, or cannot be produced in court; (b)When the original is in the possession of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice; (c)When the original is a record or other document in the custody of a public officer; (d)When the original has been recorded in an existing record a certified copy of which is made evidence by law; (e)When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole." Section 4, Rule 130 of the Rules of Court allows the presentation of secondary evidence when the original is lost or destroyed, thus: "SECTION 4.Secondary evidence when original is lost or destroyed. When the original writing has been lost or destroyed, or cannot be produced in court, upon proof of its execution and loss or destruction, or unavailability, its contents may be proved by a copy, or by a recital of its contents in some authentic document, or by the recollection of witnesses." Considering that the contents of the SPA are also in issue here, the best evidence rule applies. Hence, only the original document (which has not been presented at all) is the best evidence of the fact as to whether or not private respondent indeed authorized Sonia Gonzaga to receive the check from petitioner. In the absence of such document, petitioner's arguments regarding due payment must fail. Regarding the award of attorney's fees, we hold that private respondent Tan is entitled to the same. Art. 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. 6 In Rasonable v. NLRC, et al., 7 we held that when a party is forced to litigate to protect his rights, he is entitled to an award of attorney's fees. As for the award of exemplary damages, we agree with the appellate court that the same should be deleted. Under Art. 2232 of the Civil Code, exemplary damages may be awarded if a party acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. However, they cannot be recovered as a matter of right; the court has yet to decide whether or not they should be adjudicated. 8 Jurisprudence has set down the requirements for exemplary damages to be awarded: 1.they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them has been established; 2.they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; 3.the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner. 9 In the case at bench, while there is a clear breach of petitioner's obligation to pay private respondents, there is no evidence that it acted in a fraudulent, wanton, reckless or oppressive manner. Furthermore, there is no award to compensatory damages which is a prerequisite before exemplary damages may be awarded. Therefore, the award by the trial court of P5,000.00 as exemplary damages is baseless. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that the award by the Regional Trial Court of P5,000.00 as attorney's fees is REINSTATED. SO ORDERED. ---------------------------------------------------------FAR EAST BANK & TRUST COMPANY petitioner, vs. DIAZ REALTY INC., respondent. [G.R. No. ,

138588. August 23, 2001.] SYNOPSIS Sometime in August 1973, Diaz and Company got a loan from the former Pacific Banking Corporation (PaBC) in the amount of P720,000.00 which was secured by a real estate mortgage of two parcels of land located in Davao City owned by Diaz Realty, Inc.. In 1981, Allied Banking Corporation rented an office space in the building constructed on the said mortgaged properties. With the conformity of the mortgagee PaBC, the parties agreed that the monthly rentals shall be paid directly to the mortgagee for the lessor's account, either to partly or fully pay off the mortgage indebtedness. Consequently, Allied Bank paid the monthly rentals to PaBC, instead of paying to Diaz Realty, Inc. On July 5, 1985, the Central Bank closed PaBC and placed it under receivership. In December 1986, Far East Bank & Trust Company (FEBTC) purchased the credit of Diaz & Company in favor of PaBC but it was only on March 23, 1988 that Diaz Realty, Inc. was informed about it. Upon inquiry, Antonio Diaz, President of Diaz and Company, was informed that the obligation totalled P1,447,142.03. On November 14, 1988, FEBTC received from Diaz an Interbank Check dated November 13, 1988 bearing the amount of P1,450,000.00 with notation "Re: Full Payment of Pacific Bank Account now turn over to Far East Bank". However, FEBTC did not accept it as payment and instead Diaz was asked to deposit the amount with the FEBTCDavao City Branch Office, allegedly pending the approval of Central Bank Liquidator Renan Santos. The check was subsequently cleared and honored by Interbank. Later, Diaz wrote FEBTC asking that the interest be reduced from 20% to 12% per annum, but no reply was ever made. When there was still no news from the FEBTC whether or not it would accept his tender of payment, Diaz filed a case with the Regional Trial Court of Davao City. FEBTC, on the other hand, claimed, among others, that sometime in December 1986, it purchased from the PaBC the account of Diaz and Company for a total consideration of P1,828,875.00 but despite such purchase, PaBC Davao Branch continued to collect interests and penalty charges on the said loan from January 6, 1987 to July 8, 1988. After trial, the court a quo ruled that there was a valid tender of payment in the sum of P1,450,000.00, made by Diaz Realty, Inc. in favor of FEBTC. The said decision was affirmed by the Court of Appeals. Hence, FEBTC filed the instant petition. cHSIDa The Court ruled that the tender was made by respondent for the purpose of settling its obligation. It was incumbent upon petitioner to refuse, or accept it as payment. The latter did not have the right or the option to accept and treat it as a deposit. Thus, by accepting the tendered check and converting it into money, petitioner is presumed to have accepted it as payment. To hold otherwise would be inequitable and unfair to the obligor. Consequently, because there was a valid tender of payment made on November 14, 1988, the accrual of interest based on the stipulated rate should stop on that date. Thus, respondent should pay petitioner-bank its principal obligation in the amount of P1,067,000 plus accrued interest thereon at 20 percent per annum until November 14, 1988, less interest payments given to PaBC from December 1986 to July 8, 1988. Thereafter, the interest shall be computed at 12 percent per annum until full payment. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS; PAYMENT; CHECK IS NOT LEGAL TENDER AND CREDITOR HAS OPTION AND DISCRETION OF REFUSING OR ACCEPTING IT. True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a creditor may validly refuse it. It must be emphasized, however, that this dictum does not prevent a creditor from accepting a check as payment. In other words, the creditor has the option and the discretion of refusing or accepting it. 2.ID.; ID.; ID.; ID.; TENDER OF PAYMENT, DEFINED. [T]ender of payment is the definitive act of offering the creditor what is due him or her, together with the demand that the creditor accept the same. More important, there must be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due. 3.ID.; ID.; ID.; ID.; PRESENT IN CASE AT BAR. That respondent intended to settle its obligation with petitioner is evident from the records of the case. After learning that its loan balance was P1,447,142.03, it presented to petitioner a check in the amount of P1,450,000, with the specific notation that it was for full payment of its Pacific Bank account that had been purchased by petitioner. The latter accepted the check, even if it now insists that it considered the same as a mere deposit. The check was sufficiently funded, as in fact it was honored by the drawee bank. When petitioner refused to release the mortgage, respondent instituted the present case to compel

the bank to acknowledge the tender of payment, accept payment and cancel the mortgage. These acts demonstrate respondent's intent, ability and capability to fully settle and extinguish its obligation to petitioner. 4.ID.; ID.; ID.; ID.; SUBSEQUENT WITHDRAWAL OF THE MONEY FROM THE CREDITOR BANK BY THE DEBTOR IS OF NO MOMENT. That respondent subsequently withdrew the money from petitioner-bank is of no moment, because such withdrawal would not affect the efficacy or the legal ramifications of the tender of payment made on November 14, 1988. As already discussed, the tender of payment to settle respondent's obligation as computed by petitioner was accepted, the check given in payment thereof converted into money, and the money kept in petitioner's possession for several months. 5.ID.; ID.; ID.; ID.; BY ACCEPTING THE TENDERED CHECK AND CONVERTING IT INTO MONEY THE CREDITOR IS PRESUMED TO HAVE ACCEPTED IT AS PAYMENT. [T]he tender , was made by respondent for the purpose of settling its obligation. It was incumbent upon petitioner to refuse, or accept it as payment. The latter did not have the right or the option to accept and treat it as a deposit. Thus, by accepting the tendered, check and converting it into money, petitioner is presumed to have accepted it as payment. To hold otherwise would be inequitable and unfair to the obligor. 6.ID.; ID.; ID.; ID.; CONSIGNATION; WHEN NECESSARY For a consignation to be necessary, . the creditor must have refused, without just cause, to accept the debtor's payment. 7.ID.; ID.; ID.; NOVATION; NOT PRESENT IN CASE AT BAR. [T]he transfer of respondent's credit from PaBC to petitioner was an assignment of credit. Petitioner's acquisition of respondent's credit did not involve any changes in the original agreement between PaBC and respondent; neither did it vary the rights and the obligations of the parties. Thus, no novation by conventional subrogation could have taken place. 8.ID.; ID.; ASSIGNMENT OF CREDIT; ELUCIDATED. An assignment of credit is an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause such as sale, dation in payment, exchange or donation and without the need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor. 9.ID.; ID.; ID.; PRESENT IN CASE AT BAR. In the present case, it is undisputed that petitioner purchased respondent's loan from PaBC. In doing so, the former acquired all of the latter's rights against respondent. Thus, petitioner had the right to collect the full value of the credit from respondent, subject to the terms as originally agreed upon in the Promissory Note. 10.ID.; ID.; EXTINGUISHMENT OF OBLIGATIONS; TENDER OF PAYMENT; WHEN VALIDLY DONE, ACCRUAL OF INTEREST SHOULD STOP ON THAT DATE. Because there was a valid tender of payment made on November 14, 1988, the accrual of interest based on the stipulated rate should stop on that date. Thus, respondent should pay petitioner-bank its principal obligation in the amount of P1,067,000 plus accrued interest thereon at 20 percent per annum until November 14, 1988, less interest payments given to PaBC from December 1986 to July 8, 1988. Thereafter, the interest shall be computed at 12 percent per annum until full payment. 11.ID.; ID.; ASSIGNMENT OF CREDIT; CONTRACT OF LEASE BETWEEN THE DEBTOR AND THE THIRD PARTY WITH CONFORMITY OF THE ORIGINAL CREDITOR SHOULD BE RESPECTED; CASE AT BAR. The Real Estate Mortgage executed between respondent and PaBC to secure the former's principal obligation, as well as the provision in the Contract of Lease between respondent and Allied Bank with regard to the application of rent payment to the former's indebtedness, should subsist until full and final settlement of such obligation pursuant to the guidelines set forth in this Decision. Thereafter, the parties are free to negotiate a renewal of either or both contracts, or to end any and all of their contractual relations. D E C IS IO N PANGANIBAN, J p: For a valid tender of payment, it is necessary that there be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due. Though a check is not legal tender, and a creditor may validly refuse to accept it if tendered as payment, one who in fact accepted a fully funded check after the debtor's manifestation that it had been given to settle an obligation is estopped from later on denouncing the efficacy of such tender of payment. HIaSDc

The Case The foregoing principle is used by this Court in resolving the Petition for Review 1 on Certiorari before us, challenging the January 26, 1999 Decision 2 of the Court of Appeals 3 (CA) in GA-GR CV No. 45349. The dispositive portion of the assailed Decision reads as follows: "WHEREFORE, the judgment appealed from is hereby MODIFIED, to read as follows: 'WHEREFORE, JUDGMENT IS HEREBY RENDERED ORDERING: '1.The plaintiffs to pay Far East Bank & Trust Company the principal sum of P1,067,000.00 plus interests thereon computed at 12% per annum from July 9, 1988 until fully paid; '2.The parties to negotiate for a new lease over the subject premises; and '3.The defendant to pay the plaintiff the sum of fifteen thousand (P15,000.00) pesos as and for attorney's fees plus the costs of litigation. "All other claims of the parties against each other are DENIED." 4 Likewise assailed is the May 4, 1999 CA Resolution, 5 which denied petitioner's Motion for Reconsideration. The Facts The court a quo summarized the antecedents of the case as follows: "Sometime in August 1973, Diaz and Company got a loan from the former PaBC [Pacific Banking Corporation] in the amount of P720,000.00, with interest at 12% per annum, later increased to 14%, 16%, 18% and 20%. The loan was secured by a real estate mortgage over two parcels of land owned by the plaintiff Diaz Realty, both located in Davao City. In 1981, Allied Banking Corporation rented an office space in the building constructed on the properties covered by the mortgage contract, with the conformity of mortgagee PaBC, whereby the parties agreed that the monthly rentals shall be paid directly to the mortgagee for the lessor's account, either to partly or fully pay off the aforesaid mortgage indebtedness. Pursuant to such contract, Allied Bank paid the monthly rentals to PaBC instead of to the plaintiffs. On July 5, 1985, the Central Bank closed PaBC, placed it under receivership, and appointed Renan Santos as its liquidator. Sometime in December 1986, appellant FEBTC purchased the credit of Diaz & Company in favor of PaBC, but it was not until March 23, 1988 that Diaz was informed about it. "According to the plaintiff as alleged in the complaint and testified to by Antonio Diaz (President of Diaz & Company and Vice-President of Diaz Realty), on March 23, 1988, he went to office of PaBC which by then housed FEBTC and was told that the latter had acquired PaBC; that Cashier Ramon Lim told him that as of such date, his loan was P1,447,142.03; that he (Diaz) asked the defendant to make an accounting of the monthly rental payments made by Allied Bank; that on December 14, 1988, 6 Diaz tendered to FEBTC the amount of P1,450,000.00 through an Interbank check, in order to prevent the imposition of additional interests, penalties and surcharges on its loan; that FEBTC did not accept it as payment; that instead, Diaz was asked to deposit the amount with the defendant's Davao City Branch Office, allegedly pending the approval of Central Bank Liquidator Renan Santos; that in the meantime, Diaz wrote the defendant, asking that the interest rate be reduced from 20% to 12% per annum, but no reply was ever made; that subsequently, the defendant told him to change the P1,450,000.00 deposit into a money market placement, which he did; that the money market placement expired on April 14, 1989; that when there was still no news from the defendant whether or not it [would] accept his tender of payment, he filed this case at the Regional Trial Court of Davao City. "In its responsive pleading, the defendant set up the following special/affirmative defenses: that sometime in December 1986, FEBTC purchased from the PaBC the account of the plaintiffs for a total consideration of P1,828,875.00; that despite such purchase, PaBC Davao Branch continued to collect interests and penalty charges on the loan from January 6, 1987 to July 8, 1988; that it was therefore not FEBTC which collected the interest rates mentioned in the complaint, but PaBC; that it is not true that FEBTC was trying to impose [exorbitant] rates of interest; that as a matter of fact, after the transfer of plaintiff's account, it sought to negotiate with the plaintiffs, and in fact, negotiations were made for a settlement and possible reduction of charges; that FEBTC has no knowledge of the rates of interest imposed and collected by PaBC prior to the purchase of the account from the latter, hence it could not be held responsible for those transactions which transpired prior to the purchase; and that the defendant acted at the opportune time for the settlement of the account, albeit exercising prudence in the handling of such account. The rest of the

'affirmative defenses' are bare denials. ECTIcS "After trial, the court a quo rendered judgment on August 6, 1993, the dispositive portion of which reads as follows: 'WHEREFORE, judgment is hereby rendered as follows: '1.The plaintiff and defendant shall jointly compute the interest due on the P1,057,000.00 loan from April 18, 1985 until November 14, 1988 at 12% per annum (IBAA Salazar Case Supra). '2.That the parties shall then add the result of the joint computation mentioned in paragraph one of the dispositive portion to the P1,057,000.00 principal. '3.The result of the addition of the P1,057,000.00 principal and the interests arrived at shall then be compared with the P1,450,000.00 deposit and if P1,450,000.00 is not enough, then the plaintiff shall pay the difference/deficiency between the P1,450,000.00 deposit and what the parties jointly computed[;] conversely, if the P1,450,000.00 is more than what the parties have arrived [at] after the computation, the defendant shall return the difference or the excess to the plaintiffs. '4.The defendant shall cancel the mortgage. '5.Paragraph eight of the Lease Contract between Allied Bank and the plaintiffs in which the defendant's predecessor, Pacific Banking gave its conformity (Exh. 'H') is hereby cancelled, so that the rental should now be paid to the plaintiffs. '6.The defendant shall pay the plaintiffs the sums: '6-A.Fifteen thousand pesos as attorney's fees. '6-B.Three [h]undred [t]housand [p]esos (P300,000.00) as exemplary damages. '6-C.The cost of suit. 'SO ORDERED." "Upon a motion for reconsideration filed by defendant FEBTC and after due notice and hearing, the court a quo issued an order on October 12, 1993, modifying the aforequoted decision, such that its dispositive portion as amended would now read as follows: 'IN VIEW WHEREOF, the decision rendered last August 6, is modified, accordingly, to wit: '1.The plaintiff and defendant shall jointly compute the interest due on the P1,167,000.00 loan from April 18, 1985 until November 14, 1988 at 12% per annum. '2.That the parties shall then add the result of the joint computation mentioned in paragraph one above to the P1,067,000.00 principal. '3.The result of the addition of the P1,067,000.00 principal and the interests arrived at shall then be compared with the P1,450,000.00 money market placement put up by the plaintiff with the defendant bank if the same is still existing or has not yet matured. '4.The defendant shall cancel the mortgage. '5.Paragraph eight of the lease contract between Allied Bank and the plaintiff in which the defendant['s predecessor], Pacific Banking gave its conformity (Exh. 'H') is hereby cancelled and deleted, so that the rental should now be paid to the plaintiff. '6.The defendant shall pay the plaintiff the sums: '6.A.Fifteen [t]housand [p]esos as attorney's fees; '6.B.Cost of suit.'" 7 The CA Ruling The CA sustained the trial court's finding that there was a valid tender of payment in the sum of P1,450,000, made by Diaz Realty Inc. in favor of Far East and Trust Company. The appellate court reasoned that petitioner failed to effectively rebut respondent's evidence that it so tendered the check to liquidate its indebtedness, and that petitioner had unilaterally treated the same as a deposit instead. The CA further ruled that in the computation of interest charges, the legal rate of 12 percent per annum should apply, reckoned from July 9, 1988, until full and final payment of the whole indebtedness. It explained that while petitioner's purchase of respondent's account from Pacific Banking Corporation (PaBC) was valid, the 20 percent interest stipulated in the Promissory Note should not apply, because the account transfer was without the knowledge and the consent of respondent-obligor. The appellate court, however, sustained petitioner's assertion that the trial court should not have cancelled the real estate mortgage, inasmuch as the principal obligation upon which it was anchored was yet to be extinguished. Further, the CA held that the lease contract was subject to renegotiation by the parties.

Lastly, the court a quo upheld the trial court's award of attorney's fees, pointing to petitioner's negligence in not immediately informing respondent of the purchase and transfer of its credit, and in failing to negotiate in order to avoid litigation. Issues Petitioner submits for our resolution the following issues: "A. "Whether or not the Court of Appeals correctly ruled that the validity of the tender of payment was not properly raised in the trial court and could not thus be raised in the appeal. "B. "Whether or not the Court of Appeals erred in failing to apply settled jurisprudential principles militating against the private respondent's contention that a valid tender of payment had been made by it. "C. "Whether or not the Court of Appeals correctly found that the transaction between petitioner and PaBC was an 'ineffective novation' and that the consent of private respondent was necessary therefor. "D. "Whether or not the Court of Appeals erred in refusing to apply the rate of interest freely stipulated upon by the parties to the respondent's obligation. "E. "Whether or not the Court of Appeals committed an irreconcilable error in ordering the parties to renegotiate the terms of the contract while finding at the same time that the mortgage contract containing the lease was valid. "F. "Whether or not the petition, as argued by private respondent, raises questions of fact not reviewable by certiorari." 8 In the main, the Court will determine (1) the efficacy of the alleged tender of payment made by respondent, (2) the effect of the transfer to petitioner of respondent's account with PaBC, (3) the interest rate applicable, and (4) the status of the Real Estate Mortgage. The Court's Ruling The Petition 9 is not meritorious. First Issue: Tender of Payment Petitioner resolutely argues that the CA erred in upholding the validity of the tender of payment made by respondent. What the latter had tendered to settle its outstanding obligation, it points out, was a check which could not be considered legal tender. We disagree. The records show that petitioner bank purchased respondent's account from PaBC in December 1986, and that the latter was notified of the transaction only on March 23, 1988. Thereafter, Antonio Diaz, president of respondent corporation, inquired from petitioner on the status and the amount of its obligation. He was informed that the obligation summed up to P1,447,142.03. On November 14, 1988, petitioner received from respondent Interbank, Check No. 81399841 dated November 13, 1988, bearing the amount of P1,450,000, with the notation "Re: Full Payment of Pacific Bank Account now turn[ed] over to Far East Bank" 10 The check was subsequently cleared and honored by Interbank, as shown by the Certification it issued on January 20, 1992. 11 True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a creditor may validly refuse it. 12 It must be emphasized, however, that this dictum does not prevent a creditor from accepting a check as payment. In other words, the creditor has the option and the discretion of refusing or accepting it. In the present case, petitioner bank did not refuse respondent's check. On the contrary, it accepted the check which, it insisted, was a deposit. As earlier stated, the check proved to be fully funded and was in fact honored by the drawee bank Moreover, petitioner was in possession of the money for several months. In further contending that there was no valid tender of payment, petitioner emphasizes our pronouncement in Roman Catholic Bishop of Malolos, Inc. v. Intermediate Appellate Court, 13 as follows: "Tender of payment involves a positive and unconditional act by the obligor of offering legal tender

currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. xxx xxx xxx "Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. 'A proof that an act could have been done is no proof that it was actually done.'" In other words, tender of payment is the definitive act of offering the creditor what is due him or her, together with the demand that the creditor accept the same. More important, there must be a fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount due. 14 That respondent intended to settle its obligation with petitioner is evident from the records of the case. After learning that its loan balance was P1,447,142.03, it presented to petitioner a check in the amount of P1,450,000, with the specific notation that it was for full payment of its Pacific Bank account that had been purchased by petitioner. The latter accepted the check, even if it now insists that it considered the same as a mere deposit. The check was sufficiently funded, as in fact it was honored by the drawee bank. When petitioner refused to release the mortgage, respondent instituted the present case to compel the bank to acknowledge the tender of payment, accept payment and cancel the mortgage. These acts demonstrate respondent's intent, ability and capability to fully settle and extinguish its obligation to petitioner. That respondent subsequently withdrew the money from petitioner-bank is of no moment, because such withdrawal would not affect the efficacy or the legal ramifications of the tender of payment made on November 14, 1988. As already discussed, the tender of payment to settle respondent's obligation as computed by petitioner was accepted, the check given in payment thereof converted into money, and the money kept in petitioner's possession for several months. HSTAcI Finally, petitioner points out that, in any case, tender of payment extinguishes the obligation only after proper consignation, which respondent did not do. The argument does not persuade. For a consignation to be necessary, the creditor must have refused, without just cause, to accept the debtor's payment. 15 However, as pointed out earlier, petitioner accepted respondent's check. To iterate, the tender was made by respondent for the purpose of settling its obligation. It was incumbent upon petitioner to refuse, or accept it as payment. The latter did not have the right or the option to accept and treat it as a deposit. Thus, by accepting the tendered check and converting it into money, petitioner is presumed to have accepted it as payment. To hold otherwise would be inequitable and unfair to the obligor. Second Issue: Nature of the Transfer of Respondent's Account Petitioner bewails the CA's characterization of the transfer of respondent's account from Pacific Banking Corporation to petitioner as an "ineffective novation." Petitioner contends that the transfer was an assignment of credit Indeed, the transfer of respondent's credit from PaBC to petitioner was an assignment of credit. Petitioner's acquisition of respondent's credit did not involve any changes in the original agreement between PaBC and respondent; neither did it vary the rights and the obligations of the parties. Thus, no novation by conventional subrogation could have taken place. An assignment of credit is an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause such as sale, dation in payment, exchange or donation and without the need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor. 16 In the present case, it is undisputed that petitioner purchased respondent's loan from PaBC. In doing so, the former acquired all of the latter's rights against respondent. Thus, petitioner had the right to collect the full value of the credit from respondent, subject to the terms as originally agreed upon in the Promissory Note. HCSEcI

Third Issue: Applicable Interest Rate Petitioner bank, as assignee of respondent's credit, is entitled to the interest rate of 20 percent in the computation of the debt of private respondent, as stipulated in the August 26, 1983 Promissory Note executed by the latter in favor of PaBC. 17 However, because there was a valid tender of payment made on November 14, 1988, the accrual of interest based on the stipulated rate should stop on that date. Thus, respondent should pay petitioner-bank its principal obligation in the amount of P1,067,000 plus accrued interest thereon at 20 percent per annum until November 14, 1988, less interest payments given to PaBC from December 1986 to July 8, 1988. 18 Thereafter, the interest shall be computed at 12 percent per annum until full payment. Fourth Issue: Status of Mortgage Contract The Real Estate Mortgage executed between respondent and PaBC to secure the former's principal obligation, as well as the provision in the Contract of Lease between respondent and Allied Bank with regard to the application of rent payment to the former's indebtedness, should subsist until full and final settlement of such obligation pursuant to the guidelines set forth in this Decision. Thereafter, the parties are free to negotiate a renewal of either or both contracts, or to end any and all of their contractual relations. WHEREFORE the Petition is hereby DENIED. The assailed Decision of the Court of Appeals is AFFIRMED with the following modifications: Respondent Diaz Realty Inc. is ORDERED to pay Far East Bank and Trust Co. its principal loan obligation in the amount of P1,067,000, with interest thereon computed at 20 percent per annum until November 14, 1988, less any interest payments made to PaBC, petitioner's assignor. Thereafter, interest shall be computed at 12 percent per annum until fully paid. SO ORDERED. ---------------------------------------------------------DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents. [G.R. No. 129919. February 6, 2002.] SYNOPSIS Acting as agent for petitioner Dominion, Guevarra paid P156,473.90 in settling the claims of several insured clients of petitioner out of his personal money. Guevarra thereafter filed a civil case for sum of money to recover said amount. The RTC and the CA rendered judgment in favor of Guevarra. On appeal, Dominion claimed Guevarra is not entitled to reimbursement because he did not act within his authority as agent for Dominion. The Supreme Court denied the petition with modification, and held: that Art. 1918 of the Civil Code makes Dominion not liable for expenses incurred by Guevarra who acted in contravention of his principal's (Dominion's) instructions. Based on their agreement, Guevarra was instructed to pay for the claims of the insured from the revolving fund, not from Guevarra's personal money. However, while the law on agency prohibits Guevarra from obtaining reimbursement, his right to recover may still be justified under Art. 1236, par. 2 of the Civil Code. In this case, when the risk insured against occurred, Dominion's liability as insurer arose. This obligation was extinguished when Guevarra paid the claims of the insured. Thus, to the extent the payment has been beneficial to Dominion, Guevarra may demand reimbursement from the latter. To rule otherwise would result in unjust enrichment of Dominion. SYLLABUS 1.CIVIL LAW; CIVIL CODE; AGENCY; WHEN PRINCIPAL IS NOT LIABLE FOR EXPENSES INCURRED BY AGENT; CASE AT BAR. Respondent Guevarra's authority to settle claims is embodied in the Memorandum of Management Agreement dated February 18, 1987 which enumerates the scope of respondent Guevarra's duties and responsibilities as agency manager for San Fernando, Pampanga. . . . In settling the claims mentioned above, respondent Guevarra's authority is further limited by the written standard authority to pay, which states that the payment shall come from respondent Guevarra's revolving fund or collection. . . . The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession. Having

deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code. 2.ID.; ID.; OBLIGATIONS AND CONTRACTS; EFFECT OF PAYMENT MADE BY A THIRD PERSON FOR DEBTOR WITHOUT THE LATTER'S KNOWLEDGE OR CONSENT; CASE AT BAR. However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts (Article 1236, second paragraph, Civil Code.) In this case, when the risk insured against occurred, petitioner's liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid. Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner. D E C IS IO N PARDO, J p: The Case This is an appeal via certiorari 1 from the decision of the Court of Appeals 2 affirming the decision 3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment of the claims of Dominion's clients. The Facts The facts, as found by the Court of Appeals, are as follows: "On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendant's clients. "In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit. "On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area. "In due time, third-party defendant Austria filed his answer. "Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties. "On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendant's counsel which instructed him to request for postponement. Plaintiff's counsel objected to the desired postponement and moved to have defendant declared as in default. This was granted by the trial court in the following order: "ORDER "When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default for its failure to appear in court despite due notice. "Finding the verbal motion of plaintiff's counsel to be meritorious and considering that the pre-trial conference has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 o'clock in the morning. "The plaintiff and his counsel are notified of this order in open court.

"SO ORDERED. "Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992. "On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It alleged therein that the failure of counsel to attend the pre-trial conference was due to an unavoidable circumstance and that counsel had sent his representative on that date to inform the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff. "On August 25, 1992 the trial court denied defendant's motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious defense. "On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion. "On November 18, 1992, the court a quo rendered judgment as follows: "WHEREFORE, premises considered, judgment is hereby rendered ordering: "1.The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendant's clients; "2.The defendant to pay plaintiff P10,000.00 as and by way of attorney's fees; "3.The dismissal of the counter-claim of the defendant and the third-party complaint; "4.The defendant to pay the costs of suit." 4 On December 14, 1992, Dominion appealed the decision to the Court of Appeals. 5 On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court. 6 On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration. 7 On July 16, 1997, the Court of Appeals denied the motion. 8 Hence, this appeal. 9 The Issues The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured. The Court's Ruling The petition is without merit. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. 10 The basis for agency is representation. 11 On the part of the principal, there must be an actual intention to appoint 12 or an intention naturally inferrable from his words or actions; 13 and on the part of the agent, there must be an intention to accept the appointment and act on it, 14 and in the absence of such intent, there is generally no agency. 15 A perusal of the Special Power of Attorney 16 would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word "special" in the title of the document, the contents reveal that what was constituted was actually a general agency. The terms of the agreement read:

"That we, FIRST CONTINENTAL ASSURANCE COMPANY INC., 17 a corporation duly organized , and existing under and by virtue of the laws of the Republic of the Philippines, . . . represented by the undersigned as Regional Manager, . . . do hereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra . . . to be our Agency Manager in San Fdo., for our place and instead, to do and perform the following acts and things: "1.To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.

"2.To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf. "3.To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE COMPANY INC., 18 may hereafter become due, owing payable or transferable to , said Corporation by reason of or in connection with the above-mentioned appointment. "4.To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY INC., in connection with actions and all legal , proceedings against the said Corporation." 19 [Italics supplied] The agency comprises all the business of the principal, 20 but, couched in general terms, it is limited only to acts of administration. 21 A general power permits the agent to do all acts for which the law does not require a special power. 22 Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not require a special power of attorney. Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case provides that: "Article 1878. Special powers of attorney are necessary in the following cases: "(1)To make such payments as are not usually considered as acts of administration; xxx xxx xxx "(15)Any other act of strict dominion." The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured. Respondent Guevarra's authority to settle claims is embodied in the Memorandum of Management Agreement 23 dated February 18, 1987 which enumerates the scope of respondent Guevarra's duties and responsibilities as agency manager for San Fernando, Pampanga, as follows: "xxx xxx xxx "1.You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office. "2.Full authority is given you on TPPI claims settlement. "xxx xxx xxx" 24 In settling the claims mentioned above, respondent Guevarra's authority is further limited by the written standard authority to pay, 25 which states that the payment shall come from respondent Guevarra's revolving fund or collection. The authority to pay is worded as follows: "This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________(P _______) representing the payment on the _______________ claim of assured ________________ under Policy No. ________ in that accident of __________ at __________________________. "It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after effecting payment of the claim. "(sgd.) FERNANDO C. AUSTRIA Regional Manager" 26 [Italics supplied] The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession. Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that: "The principal is not liable for the expenses incurred by the agent in the following cases: "(1)If the agent acted in contravention of the principal's instructions, unless the latter should wish to avail himself of the benefits derived from the contract; "xxx xxx xxx" However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts.

Article 1236, second paragraph, Civil Code, provides: "Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor." In this case, when the risk insured against occurred, petitioner's liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid. Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner. The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of Claim Loss and Subrogation Receipts 27 which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in the total amount of P116,276.95. However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount. The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra. The Fallo IN VIEW WHEREOF, we DENY the petition. However, we MODIFY the decision of the Court of Appeals 28 and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga, 29 in that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims of petitioner's clients. No costs in this instance. SO ORDERED. ---------------------------------------------------------DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LYDIA CUBA, respondents. [G.R. No. 118342. January 5, 1998.] LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents. [G.R. No. 118367. January 5, 1998.] SYNOPSIS Lydia P. Cuba (Cuba) obtained from the Development Bank of the Philippines (DBP) three separate loans, each of which was covered by a promissory note. As a security for said loans, Cuba executed two Deeds of Assignment of her Leasehold Rights over her 44-hectare fishpond. For failure of Cuba to pay her loans, DBP appropriated her Leasehold Rights over the fishpond without foreclosure proceedings. Subsequently, Cuba offered and agreed to repurchase her leasehold rights from DBP. For failure to pay the monthly amortizations stipulated in the deed of conditional sale executed by DBP in favor of Cuba, DBP took possession of the leasehold right and subsequently sold the same to Agripina Capera. Cuba filed a complaint with the Regional Trial Court seeking declaration of nullity DBP's appropriation of her leasehold rights without foreclosure proceedings which is contrary to Article 2088 of the Civil Code. The trial court resolved the issue in favor of Cuba and declared invalid the deed of assignment for being a clear case of patum commissorium. On appeal, the Court of Appeals reverse the decision of the trial court and declared that the deed of assignment was an express authority from Cuba for DBP to sell whatever right she had over the fishpond. The appellate court likewise held that the deed of assignment amounted to a novation of the promissory note. The Supreme Court ruled that the deed of assignment of leasehold rights was a mortgage contract. The assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness. DBP's act of appropriating Cuba's rights was violative of Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of debt. DBP cannot take refuge in the deed of assignment to justify its act of appropriating the leasehold rights since the said deed did not provide that the leasehold rights would automatically pass to DBP upon Cuba's failure to pay the loans on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise

dispose of the said real rights, in case of default by Cuba, and to apply the proceeds to the payment of the loan. The Supreme Court likewise found no merit in the contention that the assignment novated the promissory notes in that the obligation to pay a sum of money was substituted by the assignment of the rights over the fishpond. The said assignment merely complemented or supplemented the promissory notes. The obligation to pay a sum of money remained, and the assignment merely served as security for the loans covered by the promissory notes. HcSaAD SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; MORTGAGE; AN ASSIGNMENT TO GUARANTEE AN OBLIGATION IS VIRTUALLY A MORTGAGE; CASE AT BAR. We agree with CUBA that the assignment of leasehold rights was a mortgage contract. Simultaneous with the execution of the notes was the execution "Assignments of Leasehold Rights" where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition No. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed." And, condition No. 33 provided that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." There is, therefore, no shred of doubt that a mortgage was intended. In People's Bank & Trust Co. vs. Odom, this Court had the occasion to rule that an assignment to guarantee an obligation is in effect as mortgage. 2.ID.; ID.; ID.; ASSIGNMENT OF RIGHTS COMPLEMENTED AND DID NOT NOVATE THE PROMISSORY NOTES. We find no merit in DBP's contention that the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed of assignment). As correctly pointed out by CUBA, the said assignment merely complemented or supplemented the notes; both could stand together. The former was only an accessory to the latter. Contrary to DBP's submission, the obligation to pay a sum of money remained, and the assignment merely served as security for the loans were granted. Also, the last paragraph of the assignment stated: "The assignor further reiterates and states all terms, covenants, are conditions stipulated in the promissory note or notes covering the proceeds of this loan, making said promissory note or notes, to all intent and purposes, an integral part hereof". 3.ID.; ID.; PAYMENT BY CESSION ; DOES NOT APPLY WHERE THERE IS ONLY ONE CREDITOR. Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtor's property. 4.ID.; ID.; DATION IN PAYMENT; DOES NOT APPLY WHERE ASSIGNMENT WAS A MERE SECURITY AND NOT IN SATISFACTION OF INDEBTEDNESS. Nor did the assignment constitute dation in payment under Article 1245 of the Civil Code, which reads: "Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness. 5.ID.; ID.; PACTUM COMMISSORIUM ; ELEMENTS. The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. 6.ID.; ID.; ID.; NOT PRESENT WHERE THERE IS NO AUTOMATIC APPROPRIATION BY THE CREDITOR OF THE THING MORTGAGED; CASE AT BAR. Condition No. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which

authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation. DBP, however, exceeded the authority vested by condition No. 12 of the deed of assignment. As admitted by it during the pre-trial, it had "[w]ithout, foreclosure proceedings, whether judicial or extrajudicial . . . appropriated the [l]easehold rights of plaintiff Lydia Cuba over the fishpond in question." Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA. DBP cannot take refuge in condition No. 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated earlier, condition No. 12 did not provide that CUBA's default would operate to vest in DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee. 7.ID.; ID.; MORTGAGE; CREDITOR CANNOT APPROPRIATE THE THING GIVEN AS SECURITY; CASE AT BAR. At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of the thing given as security for the payment of a debt. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26 October 1997, addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it "had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for failure of said spouses (CUBA spouses) to pay their loan amortizations." This only goes to show that DBP was aware of the necessity of foreclosure proceedings. In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries cancelled CUBA's original lease permit, approved the deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the subsequent acts emanating from DBP's appropriation of the leasehold rights, should therefore be set aside. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code. Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the consequent auction sale for failure to comply with the requirements laid down by law, such as Act No. 3135, as amended. With more reason that the sale of property given as security for the payment of a debt be set aside if there was no prior foreclosure proceeding. 8.REMEDIAL LAW; ACTIONS; ESTOPPEL; CANNOT GIVE VALIDITY TO AN ACT PROHIBITED BY LAW. The fact that CUBA offered and agreed to purchase her leasehold rights from DBP did not estop her from questioning DBP's act of appropriation. Estoppel is unvailing in this case as held by this Court in some cases estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel. 9.CIVIL LAW; DAMAGES; ACTUAL OR COMPENSATORY DAMAGES; MUST BE DULY PROVED. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages' are borne. 10.ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals. We find that the alleged lost of personal belongings and equipment was not proved by clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in question. With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same was not called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not

bring to the attention of DBP the alleged loss. The award of actual damages should, therefore, be struck down for lack of sufficient basis. 11.ID.; ID.; MORAL DAMAGES; AWARD PROPER WHERE ASSAILED ACT IS CONTRARY TO LAW. In view, however, of DBP's act of appropriating CUBA's leasehold rights which was contrary to law and public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the Civil Code. 12.ID.; ID.; EXEMPLARY OR CORRECTIVE DAMAGES; AWARDED IN CASE AT BAR. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of example or correction for the public good. 13.ID.; ID.; ATTORNEY'S FEE; RECOVERABLE WHERE THERE IS AWARD OF EXEMPLARY DAMAGES. There being an award of exemplary damages, attorney's fees are also recoverable. D E C IS IO N DAVIDE, JR., J p: These two consolidated cases stemmed from a complaint 1 filed against the Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said complaint sought (1) the declaration of nullity of DBP's appropriation of CUBA's rights, title, and interests over a 44hectare fishpond located in Bolinao, Pangasinan, for being violative of Article 2088 of the Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP; (3) the annulment of DBP's sale of the subject fishpond to Caperal; (4) the restoration of her rights, title, and interests over the fishpond; and (5) the recovery of damages, attorney's fees, and expenses of litigation. LLjur After the joinder of issues following the filing by the parties of their respective pleadings, the trial court conducted a pre-trial where CUBA and DBP agreed on the following facts, which were embodied in the pre-trial order: 2 1.Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government; 2.Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977; 3.As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights; 4.Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes; 5.Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the leasehold Rights of plaintiff Lydia Cuba over the fishpond in question; 6.After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question; 7.In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982; 8.After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband; 9.Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale; 10.After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982; 11.Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba; 12.After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question;

13.That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property; 14.That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 6, 1984; 15.Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food. Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order. 3 Trial was thereafter had on other matters. The principal issue presented was whether the act of DBP in appropriating to itself CUBA's leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative resolution. DBP stressed that it merely exercised its contractual right under the Assignments of Leasehold Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP. The trial court resolved the issue in favor of CUBA by declaring that DBP's taking possession and ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil Code which provides as follows: ART. 2088.The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. It disagreed with DBP's stand that the Assignments of Leasehold Rights were not contracts of mortgage because (1) they were given as security for loans (2) although the "'fishpond land"' in question is still a public land, CUBA's leasehold rights and interest thereon are alienable rights which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence, upon CUBA's default, DBP's only right was to foreclose the Assignment in accordance with law. The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for being a clear case of pactum commissorium expressly prohibited and declared null and void by Article 2088 of the Civil Code. It then concluded that since DBP never acquired lawful ownership of CUBA's leasehold rights, all acts of ownership and possession by the said bank were void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission of such sale, and the Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed by Caperal in favor of DBP, were also void and ineffective. As to damages, the trial court found "ample evidence on record" that in 1984 the representatives of DBP ejected CUBA and her caretakers not only from the fishpond area but also from the adjoining big house; and that when CUBA's son and caretaker went there on 15 September 1985, they found the said house unoccupied and destroyed and CUBA's personal belongings, machineries, equipment, tools, and other articles used in fishpond operation which were kept in the house were missing. The missing items were valued at about P550,000. It further found that when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had stocked the fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP representatives prevented CUBA's men from feeding the fish. At the conservative price of P3.00 per fish, the gross value would have been P690,000, and after deducting 25% of said value as reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the aggregate of the actual damages sustained by CUBA at P1,067,500. The trial court further found that DBP was guilty of gross bad faith in falsely representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBA's leasehold rights. Such representation induced the said Bureau to terminate CUBA's leasehold rights and to approve the Deed of Conditional Sale in favor of CUBA. And considering that by reason of her unlawful ejectment by DBP, CUBA "suffered moral shock, degradation, social humiliation, and serious anxieties for which she became sick and had to be hospitalized" the trial court found her entitled to moral and exemplary damages. The trial court also held that CUBA was entitled to P100,000 attorney's fees in view of the considerable expenses she incurred for lawyers' fees and in view of the finding that she was entitled to exemplary damages. In its decision of 31 January 1990, 4 the trial court disposed as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff: 1.DECLARING null and void and without any legal effect the act of defendant Development Bank of

the Philippines in appropriating for its own interest, without any judicial or extra-judicial foreclosure, plaintiffs leasehold rights and interest over the fishpond land in question under her Fishpond Lease Agreement No. 2083 (new); 2.DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between the defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and the acts of notarial rescission of the Development Bank of the Philippines relative to said sale (Exhs. 16 and 26) as void and ineffective; 3.DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh. 21), the Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant Agripina Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12, 1985 executed by defendant Agripina Caperal in favor of the defendant Development Bank of the Philippines (Exh. 24) as void ab initio; cdtai 4.ORDERING defendant Development Bank of the Philippines and defendant Agripina Caperal, jointly and severally, to restore to plaintiff the latter's leasehold rights and interests and right of possession over the fishpond land in question, without prejudice to the right of defendant Development Bank of the Philippines to foreclose the securities given by plaintiff; 5.ORDERING defendant Development Bank of the Philippines to pay to plaintiff the following amounts: a)The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE HUNDRED PESOS (P1,067,500.00), as and for actual damages; b)The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral damages; c)The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary damages; d)And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and for attorney's fees; 6.And ORDERING defendant Development Bank of the Philippines to reimburse and pay to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1,532,610.75) representing the amounts paid by defendant Agripina Caperal to defendant Development Bank of the Philippines under their Deed of Conditional Sale. CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The former sought an increase in the amount of damages, while the latter questioned the findings of fact and law of the lower court. In its decision 5 of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in declaring that the deed of assignment was null and void and that defendant Caperal could not validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole creditor to CUBA cession presupposes plurality of debts and creditors; (3) the deeds of assignment represented the voluntary act of CUBA in assigning her property rights in payment of her debts, which amounted to a novation of the promissory notes executed by CUBA in favor of DBP; (4) CUBA was estopped from questioning the assignment of the leasehold rights, since she agreed to repurchase the said rights under a deed of conditional sale; and (5) condition no. 12 of the deed of assignment was an express authority from CUBA for DBP to sell whatever right she had over the fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of evidence, but agreed with the trial court as to the actual damages of P1,067,500. It, however, deleted the amount of exemplary damages and reduced the award of moral damages from P100,000 to P50,000 and attorney's fees, from P100.00 to P50,000. The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating Cuba's leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale between CUBA and DBP; and (4) the deed of conditional sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn over possession of the property to Caperal as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500 as actual damages; P50,000 as moral damages; and P50,000 as attorney's fees. Since their motions for reconsideration were denied, 6 DBP and CUBA filed separate petitions for review.

In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and attorney's fees in favor of CUBA. Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of Appeals erred (1) in not holding that the questioned deed of assignment was a pactum commissorium contrary to Article 2088 of the Civil Code; (b) in holding that the deed of assignment effected a novation of the promissory notes; (c) in holding that CUBA was estopped from questioning the validity of the deed of assignment when she agreed to repurchase her leasehold rights under a deed of conditional sale; and (d) in reducing the amounts of moral damages and attorney's fees, in deleting the award of exemplary damages, and in not increasing the amount of damages. We agree with CUBA that the assignment of leasehold rights was mortgage contract. It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of which was covered by a promissory note. In all of these notes, there was a provision that: "In the event of foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, if any." 7 Simultaneous with the execution of the notes was the execution of "Assignments of Leasehold Rights" 8 where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed." And, condition no. 33 provided that if " foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." There is, therefore, no shred of doubt that a mortgage was intended. Besides, in their stipulation of facts the parties admitted that the assignment was by way of security for the payment of the loans; thus: 3.As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights. LibLex In People's Bank & Trust Co. vs. Odom, 9 this Court had the occasion to rule that an assignment to guarantee an obligation is in effect a mortgage. We find no merit in DBP's contention that the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed of assignment). As correctly pointed out by CUBA, the said assignment merely complemented or supplemented the notes; both could stand together. The former was only an accessory to the latter. Contrary to DBP's submission, the obligation to pay a sum of money remained, and the assignment merely served as security for the loans covered by the promissory notes. Significantly, both the deeds of assignment and the promissory notes were executed on the same dates the loans were granted. Also, the last paragraph of the assignment stated: "The assignor further reiterates and states all terms, covenants and conditions stipulated in the promissory note or notes covering the proceeds of this loan, making said promissory note or notes, to all intent and purposes, an integral part hereof." Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtor's property. Nor did the assignment constitute dation in payment under Article 1245 of the Civil Code, which reads: "Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness. 10 We do not, however, buy CUBA's argument that condition no. 12 of the deed of assignment constituted pactum commissorium. Said condition reads: 12.That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property above-described, together with all improvements thereon, subject to the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or might have over said property and/or its improvements and

perform any other act which the Assignee may deem convenient to protect its interest. All expenses advanced by the Assignee in connection with purpose above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this Assignment. Any amount received from rents, administration, sale or disposal of said property may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts received there shall remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all interest thereon until fully paid. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are hereby ratified. The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. 11 Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation. dctai DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As admitted by it during the pre-trial, it had "without foreclosure proceedings, whether judicial or extrajudicial, . . . appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question." Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA. The deed stated: WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the herein vendees [Cuba spouses] the former acquired all the rights and interest of the latter over the abovedescribed property; xxx xxx xxx The title to the real estate property [sic] and all improvements thereon shall remain the name of the Vendor until after the purchase price, advances and interest shall have been fully paid. (Emphasis supplied). It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership of CUBA's leasehold rights merely on the strength of the deed of assignment. DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBA's default would operate to vest in DBP ownership of the said rights. Besides an assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee. 12 At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of a debt. The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBP's act of appropriation. Estoppel is unavailing in this case. As held by this Court in some cases, 13 estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet in its letter dated 26 October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it "had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba spouses] to pay their loan amortizations." 14 This only goes to show that DBP was aware of

the necessity of foreclosure proceedings. In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries canceled CUBA's original lease permit, approved the deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the subsequent acts emanating from DBP's appropriation of the leasehold rights, should therefore be set aside. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code. Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the consequent auction sale for failure to comply with the requirements laid down by law, such as Act No. 3135, as amended. 15 With more reason that the sale of property given as security for the payment of a debt be set aside if there was no prior foreclosure proceeding. Hence, DBP should render an accounting of the income derived from the operation of the fishpond in question and apply the said income in accordance with condition no. 12 of the deed of assignment which provided: "Any amount received from rents, administration, . . . may be applied to the payment of repairs, improvements, taxes, assessment, and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness . . ." We shall now take up the issue of damages. Article 2199 provides: Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. 16 A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. 17 It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne. 18 In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals. We find that the alleged loss of personal belongings and equipment was not proved by clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in question. As pointed out by DBP, there was no "inventory of the alleged lost items before the loss which is normal in a project which sometimes, if not most often, is left to the care of other persons." Neither was a single receipt or record of acquisition presented. Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as among the damages resulting from DBP's take-over of the fishpond. Yet, it was only in September 1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss of several articles. Such claim for "losses of property," having been made before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could have been a mere afterthought or subterfuge to justify her claim for actual damages. With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same was not called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979, 19 she declared: 1.That from February to May 1978, I was then seriously ill in Manila and within the same period I neglected the management and supervision of the cultivation and harvest of the produce of the aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the amount of about P500,000.00 to my great damage and prejudice due to fraudulent acts of some of my fishpond workers. Nowhere in the said letter, which was written seven months after DBP took possession of the

fishpond, did CUBA intimate that upon DBP's take-over there was a total of 230,000 pieces of bangus, but all of which died because of DBP's representatives prevented her men from feeding the fish. The award of actual damages should, therefore, be struck down for lack of sufficient basis. In view however, of DBP's act of appropriating CUBA's leasehold rights which was contrary to law and public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21 of the Civil Code. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of example or correction for the public good. 20 There being an award of exemplary damages, attorney's fees are also recoverable. 21 WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum commissorium and the award of actual damages; and by reducing the amounts of moral damages from P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorney's fees, from P100,000 to P20,000. The Development Bank of the Philippines is hereby ordered to render an accounting of the income derived from the operation of the fishpond in question. Let this case be REMANDED to the trial court for the reception of the income statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the determination of each party's financial obligation to one another. SO ORDERED. ---------------------------------------------------------SPOUSES TEOFILO and SIMEONA RAYOS, and GEORGE RAYOS, petitioners, vs. DONATO REYES, SATURNINO REYES, TOMASA R. BUSTAMANTE and TORIBIA R. CAMELO, respondents. . [G.R. No. 150913. February 20, 2003.] SYNOPSIS Petitioner assailed the decision of the Court of Appeals which affirmed in toto the Decision of the Regional Trial Court of Alaminos, Pangasinan declaring void the separate Deeds of Absolute Sale executed by Francisco Tazal in favor of Blas Rayos, and to spouses Teofilo and Simeona Rayos and by Blas Rayos to the same spouses, all encompassing the three parcels of land sold under the Deed of Sale with Right to Repurchase in favor of Mamerto Reyes, predecessor-in-interest of the respondents. In its Decision, the trial court declared the respondents, heirs of Mamerto Reyes, as absolute owners of the subject property and ordered petitioner-spouses to vacate and surrender the subject lot in favor of the respondents. It rationalized that petitioners did not present any evidence to prove that they and their predecessor-in-interest were able to repurchase the property within the period of redemption. Among others, petitioners argued that the consignation of P724.00 in the civil case provides the best evidence of the repurchase of the subject property and had the full effect of redeeming the properties from respondents and their predecessors-in-interest. The Court denied the petition and affirmed the decision of the Court of Appeals affirming in toto the decision of the court a quo, except for the sole modification to delete and set aside the award of damages. The Court found no evidence to prove that petitioners paid at any time the repurchase price for the three parcels of land in dispute except for the deposit of P724.00 in the then Court of First Instance which, however, fell short of all the acts necessary for a valid consignation and discharge of their obligation to respondents. First, petitioners failed to offer a valid and unconditional tender of payment. Consignation and tender of payment must not be encumbered by conditions if they are to produce the intended result of fulfilling the obligation. Here, petitioners' tender of payment of P724.00 was conditional upon his waiver of the two-year redemption period stipulated in the deed of sale with right to repurchase. Second, petitioners failed to notify respondents of the intention to deposit the amount with the court. The consignation as a means of payment is void without any announcement of the intention to resort to consignation first being made to the persons interested in the fulfillment of the obligation. Third, petitioners failed to show the

acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the alternative, a declaration by the court of the validity of the consignation. While it was held that the approval of the court or the obligee's acceptance of the deposit is not necessary where the obligor has performed all acts necessary to a valid consignation such that court approval thereof cannot be doubted, the ruling is, however, applicable only where there is unmistakable evidence on record that the prerequisites of a valid consignation are present, especially the conformity of the proffered payment to the terms of the obligation which is to be paid. In the instant case, there was no clear and preponderant evidence that the consignation of P724.00 satisfied all the requirements for validity and enforceability. Mamerto Reyes likewise vehemently contested the propriety of the consignation. Petitioners, therefore, cannot rely upon sheer speculation and unfounded inference to construe the Decision of the then Court of First Instance as one impliedly approving the consignation and perfecting the redemption of the three parcels of land. Thus, the Court held that the failure of the petitioners to comply with the requirements rendered the consignation ineffective. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS; CONSIGNATION; PREREQUISITES TO BE EFFECTIVE; NOT COMPLIED WITH IN CASE AT BAR. In order that consignation may be effective the debtor must show that (a) there was a debt due; (b) the consignation of the obligation had been made because the creditor to whom a valid tender of payment was made refused to accept it; (c) previous notice of the consignation had been given to the person interested in the performance of the obligation; (d) the amount due was placed at the disposal of the court; and, (e) after the consignation had been made the person interested was notified thereof. In the instant case, petitioners failed, first, to offer a valid and unconditional tender of payment; second, to notify respondents of the intention to deposit the amount with the court; and third, to show the acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the alternative, a declaration by the court of the validity of the consignation. The failure of petitioners to comply with any of these requirements rendered the consignation ineffective. AaDSTH 2.ID.; ID.; ID.; CONSIGNATION AND TENDER OF PAYMENT; MUST NOT BE ENCUMBERED BY CONDITIONS IF THEY ARE TO PRODUCE THE INTENDED RESULT OF FULFILLING THE OBLIGATION; CASE AT BAR. Consignation and tender of payment must not be encumbered by conditions if they are to produce the intended result of fulfilling the obligation. In the instant case, the tender of payment of P724.00 was conditional and void as it was predicated upon the argument of Francisco Tazal that he was paying a debt which he could do at any time allegedly because the 1 September 1957 transaction was a contract of equitable mortgage and not a deed of sale with right to repurchase. The ostensible purposes of offering the amount in connection with a purported outstanding debt were to evade the stipulated redemption period in the deed of sale which had already expired when the tender of payment was made and Civil Case No. A-245 was instituted, and as a corollary, to avail of the thirty (30)-day grace period under Art. 1606 of the Civil Code within which to exercise the right to repurchase. Mamerto Reyes was therefore within his right to refuse the tender of payment offered by petitioners because it was conditional upon his waiver of the two (2)-year redemption period stipulated in the deed of sale with right to repurchase. 3.ID.; ID.; ID.; CONSIGNATION; WITHOUT ANY ANNOUNCEMENT OF THE INTENTION TO RESORT TO CONSIGNATION FIRST BEING MADE TO THE PERSONS INTERESTED IN THE FULFILLMENT OF OBLIGATION, THE CONSIGNATION AS A MEANS OF PAYMENT IS VOID; CASE AT BAR. Moreover, petitioners failed to prove in Civil Cases Nos. A-245 and A-2032 that any form of notice regarding their intention to deposit the amount of P724.00 with the Court of First Instance had been served upon respondents. This requirement is not fulfilled by the notice which could have ensued from the filing of the complaint in Civil Case No. A-245 or the stipulation made between Francisco Tazal and Mamerto Reyes regarding the consignation of P724.00. The latter constitutes the second notice required by law as it already concerns the actual deposit or consignation of the amount and is different from the first notice that makes known the debtor's intention to deposit the amount, a requirement missing in the instant case. Without any announcement of the intention to resort to consignation first being made to the persons interested in the fulfillment of the obligation, the consignation as a means of payment is void. 4.ID.; ID.; ID.;ID.; APPROVAL OF THE COURT OR THE OBLIGEE'S ACCEPTANCE OF THE DEPOSIT IS NOT NECESSARY WHERE ALL THE PREREQUISITES FOR VALIDITY THEREOF

ARE PRESENT; CASE AT BAR. To be sure, while it has been held that approval of the court or the obligee's acceptance of the deposit is not necessary where the obligor has performed all acts necessary to a valid consignation such that court approval thereof cannot be doubted, Sia v. Court of Appeals clearly advises that this ruling is applicable only where there is unmistakable evidence on record that the prerequisites of a valid consignation are present, especially the conformity of the proffered payment to the terms of the obligation which is to be paid. In the instant case, since there is no clear and preponderant evidence that the consignation of P724.00 satisfied all the requirements for validity and enforceability, and since Mamerto Reyes vehemently contested the propriety of the consignation, petitioners cannot rely upon sheer speculation and unfounded inference to construe the Decision of the Court of First Instance as one impliedly approving the consignation of P724.00 and perfecting the redemption of the three (3) parcels of land. 5.ID.; ID.; ID.; ID.; COURT'S DECLARATION THAT THE CONSIGNATION HAS BEEN PROPERLY MADE WILL RELEASE THE DEBTOR FROM LIABILITY; CASE AT BAR. It should be recalled that one of the requisites of consignation is the filing of the complaint by the debtor against the creditor. Hence it is the judgment on the complaint where the court declares that the consignation has been properly made that will release the debtor from liability. Should the consignation be disapproved by the court and the case dismissed, there is no payment and the debtor is in mora and he shall be liable for the expenses and bear the risk of loss of the thing. To sanction the argument of petitioners and in the process excuse them from their responsibility of securing from the trial court in Civil Case No. A-245 a categorical declaration that the consignation of P724.00 had complied with all the essential elements for its validity would only dilute the rule requiring absolute compliance with the requisites of consignation. It also disturbs a steady and stable status of proprietary rights, i.e., ". . . el acreedor tan solo, y no el juez, puede autorizar la variacion que para los derechos de aquel suponga la que se intente en el objeto, cuantia o forma de las obligaciones," since parties are left guessing on whether the repurchase of the properties had been effected. In a broader sense, this uncertain state will only depress the market value of the land and virtually paralyze efforts of the landowner to meet his needs and obligations and realize the full value of his land. D E C IS IO N BELLOSILLO, J p: AT STAKE IN THIS PETITION FOR REVIEW is the ownership of three (3) parcels of unregistered land with an area of approximately 130,947 square meters situated in Brgy. Sapa, Burgos, Pangasinan, the identities of which are not disputed. The three (3) parcels were formerly owned by the spouses Francisco and Asuncion Tazal who on 1 September 1957 sold them for P724.00 to respondents' predecessor-in-interest, one Mamerto Reyes, with right to repurchase within two (2) years from date thereof by paying to the vendee the purchase price and all expenses incident to their reconveyance. After the sale the vendee a retro took physical possession of the properties and paid the taxes thereon. 1 The otherwise inconsequential sale became controversial when two (2) of the three (3) parcels were again sold on 24 December 1958 by Francisco Tazal for P420.00 in favor of petitioners' predecessor-in-interest Blas Rayos without first availing of his right to repurchase the properties. In the meantime, on 1 September 1959 the conventional right of redemption in favor of spouses Francisco and Asuncion Tazal expired without the right being exercised by either the Tazal spouses or the vendee Blas Rayos. After the expiration of the redemption period, Francisco Tazal attempted to repurchase the properties from Mamerto Reyes by asserting that the 1 September 1957 deed of sale with right of repurchase was actually an equitable mortgage and offering the amount of P724.00 to pay for the alleged debt. 2 But Mamerto Reyes refused the tender of payment and vigorously claimed that their agreement was not an equitable mortgage. 3 On 9 May 1960 Francisco Tazal filed a complaint with the Court of First Instance of Pangasinan against Mamerto Reyes, docketed as Civil Case No. A-245, for the declaration of the 1 September 1957 transaction as a contract of equitable mortgage. He also prayed for an order requiring defendant Mamerto Reyes to accept the amount of P724.00 which he had deposited on 31 May 1960 with the trial court as full payment for his debt, and canceling the supposed mortgage on the three (3) parcels of land with the execution of the corresponding documents of reconveyance in his favor. 4 Defendant denied plaintiff's allegations and maintained that their contract was a sale with

right of repurchase that had long expired. On 22 June 1961 Francisco Tazal again sold the third parcel of land previously purchased by Mamerto Reyes to petitioner-spouses Teofilo and Simeona Rayos for P400.00. On 1 July 1961 petitioner spouses bought from Blas Rayos for P400.00 the two (2) lots that Tazal had sold at the first instance to Mamerto Reyes and thereafter to Blas Rayos. Curiously, these contracts of sale in favor of petitioner-spouses were perfected while Civil Case No. A-245 was pending before the trial court. On 26 September 1962 the parties in Civil Case No. A-245 submitted a stipulation of facts upon which the Court of First Instance would decide the case. They admitted the genuineness and due execution of the 1 September 1957 deed of sale with right of repurchase although they were in disagreement as to its true character. They also acknowledged the consignation of P724.00 in the Court of First Instance on 31 May 1960 and the payment of taxes by Mamerto Reyes on the three (3) parcels of land from 1958 to 1962. 5 On 5 January 1963 the trial court in Civil Case No. A-245 rejected the contention of Francisco Tazal that the deed of sale executed on 1 September 1957 was an equitable mortgage but held that Tazal could nonetheless redeem the three (3) parcels of land within thirty (30) days from finality of judgment by paying to Mamerto Reyes the purchase price of P724.00 and all expenses to execute the reconveyance, i.e., the expenses of the contract and the necessary and useful expenses made on the properties as required by Art. 1616 of the Civil Code. The dispositive portion of the trial court's decision reads WHEREFORE, the Court, hereby renders judgment declaring the contract . . . entered into by the plaintiffs and the defendant and captioned 'Deed of Sale with Right to Repurchase' as a true sale with right to repurchase . . . and not an equitable mortgage . . . and declaring the plaintiffs entitled to repurchase the property in question within thirty (30) days from finality of this decision, without pronouncement as to cost. 6 Mamerto Reyes appealed the Decision to the Court of Appeals, 7 which in turn elevated the appeal to this Court 8 since only questions of law were involved. 9 When Mamerto Reyes died in 1986, petitioner-spouses Teofilo and Simeona Rayos wrested physical possession of the disputed properties from Reyes's heirs. On 16 May 1990 this Court considered the case closed and terminated for failure of the parties therein to manifest their interest to further prosecute the case. On 20 June 1990 the judgment in Civil Case No. A-245 became final and executory. Subsequent to the finality of judgment in Civil Case No. A-245 petitioner-spouses did nothing to repurchase the three (3) parcels of land within the thirty (30)-day grace period from finality of judgment since, according to them, they believed that the consignation of P724.00 in the civil case had perfected the repurchase of the disputed properties. On 6 July 1992 respondents as heirs of Mamerto Reyes executed an affidavit adjudicating to themselves the ownership of the parcels of land and declared the properties in their names for assessment and collection of real estate taxes. On 19 January 1993 respondents registered the 1 September 1957 deed of sale with right of repurchase with the register of deeds. On 8 July 1993 respondents filed a complaint for damages and recovery of ownership and possession of the three (3) parcels of land in dispute against herein petitioner-spouses Teofilo and Simeona Rayos and petitioner George Rayos as administrator thereof before the Regional Trial Court of Alaminos, Pangasinan. 10 It was respondents' theory that neither petitioners nor their predecessors-in-interest Francisco Tazal and Blas Rayos repurchased the properties before buying them in 1958 and 1961 or when the judgment in Civil Case No. A-245 became final and executory in 1990, hence the sale of the three (3) parcels of land to petitioner-spouses did not transfer ownership thereof to them. Petitioners argued on the other hand that the consignation of P724.00 in Civil Case No. A-245 had the full effect of redeeming the properties from respondents and their predecessor-in-interest, and that respondents were guilty of estoppel and laches since Mamerto Reyes as their predecessor-ininterest did not oppose the sale to Blas Rayos and to petitioner-spouses Teofilo and Simeona Rayos. The parties then filed their respective memoranda after which the case was submitted for decision. On 15 November 1996 the trial court promulgated its Decision in Civil Case No. A-2032 finding merit in respondents' claim for damages as well as ownership and possession of the disputed

parcels of land from petitioners. 11 The court declared void the separate deeds of absolute sale thereof executed by Francisco Tazal in favor of Blas Rayos and to spouses Teofilo and Simeona Rayos and by Blas Rayos to the same spouses, and ordered herein petitioners and Francisco Tazal to vacate and reconvey the lands to respondents as heirs of Mamerto Reyes and to pay actual damages for litigation expenses in the sum of P20,000.00, attorney's fees of P10,000.00, and exemplary damages of P50,000.00 plus costs. The court a quo rationalized that petitioners did not present evidence to prove that they and their predecessor-in-interest were able to repurchase the property within the period of redemption set forth by the Court of First Instance in Civil Case No. A245. 12 Petitioners appealed the Decision to the Court of Appeals. 13 On 31 May 2001 the appellate court promulgated its Decision affirming in toto the judgment appealed from. 14 The Court of Appeals held that the deposit of P724.00 on 31 May 1960 in Civil Case No. A-245 was done belatedly, i.e., after the two (2) year-period from 1 September 1957, the date of the sale as stated in the deed of sale between the spouses Francisco and Asuncion Tazal and Mamerto Reyes, and did not cover the entire redemption price, i.e., the selling price of P724.00 plus the expenses of executing the contract and the necessary and useful expenses made on the properties. The appellate court further ruled that estoppel and laches did not bar the cause of action of respondents as plaintiffs in Civil Case No. A-2032 since Mamerto Reyes as their predecessorin-interest actively resisted the claim of Francisco Tazal in Civil Case No. A-245 to treat the 1 September 1957 sale as an equitable mortgage and to authorize the redemption of the parcels of land in dispute beyond the two (2)-year period stipulated in the sale with right to repurchase. Hence, the instant petition for review. Petitioners argue that the consignation of P724.00 in Civil Case No. A-245 provides the best evidence of the repurchase of the three (3) parcels of land; that the consignation was admitted by Mamerto Reyes himself in the stipulation of facts and approved implicitly by the Court of First Instance when it held the 1 September 1957 transaction as a contract of sale with right of repurchase; that respondents failed to prove the existence of other expenses, i.e., the expenses of the contract and the necessary and useful expenses made on the properties, required by Art. 1616 of the Civil Code to be paid in addition to the purchase price of P724.00 so that petitioners may validly exercise the right to repurchase the real estate; that Mamerto Reyes as respondents' predecessor-in-interest was guilty of estoppel and laches for not seeking the annulment of the contracts of sale in favor of Blas Rayos and petitioner-spouses Teofilo and Simeona Rayos; that petitioner-spouses are buyers in good faith and for value of the three (3) parcels of land; and finally, that there is no legal basis for awarding damages since Civil Case No. A-2032 was decided solely on the basis of the parties' memoranda and not upon any evidence offered. It appears that petitioners hinge their arguments upon the validity of the consignation of P724.00 and accept the proposition that if the consignation is declared void the subsequent sales to Blas Rayos and petitioner-spouses would be ineffective to transfer ownership of the disputed parcels and concomitantly would vest respondents with the ownership and possession thereof. On the other hand, respondents maintain that the absence of an express or at least discernible court approval of the consignation of P724.00 in Civil Case No. A-245 prevented the repurchase of the parcels of land in question; that the deposit of only P724.00 did not cover all the expenses required by Art. 1616 of the Civil Code for a valid repurchase of the properties; that Mamerto Reyes as their predecessor-in-interest was not guilty of estoppel and laches in not filing a complaint to annul the contracts of sale in favor of Blas Rayos and petitioner-spouses Teofilo and Simeona Rayos since during that time Civil Case No. A-245 was pending before the courts; that petitionerspouses are not buyers in good faith and for value since they knew that the parcels of land had been previously sold to Mamerto Reyes and that, in any event, the rule protecting buyers in good faith and for value applies only to transactions involving registered lands and not to unregistered lands as in the instant case; and finally, that the award of damages is amply supported by their pleadings in the trial court. We deny the instant petition for review and affirm the decision of the court a quo, except for the sole modification to delete and set aside the award of damages. There is no evidence to prove that petitioners paid at any time the repurchase price for the three (3) parcels of land in dispute except for the deposit of P724.00 in the Court of First Instance which however fell short of all the acts necessary for a valid consignation and discharge of their obligation to respondents. In order that consignation may be effective the debtor must show that (a) there was a debt due; (b)

the consignation of the obligation had been made because the creditor to whom a valid tender of payment was made refused to accept it; (c) previous notice of the consignation had been given to the person interested in the performance of the obligation; (d) the amount due was placed at the disposal of the court; and, (e) after the consignation had been made the person interested was notified thereof. 15 In the instant case, petitioners failed, first to offer a valid and unconditional tender of payment; second, to notify respondents of the intention to deposit the amount with the court; and third, to show the acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the alternative, a declaration by the court of the validity of the consignation. The failure of petitioners to comply with any of these requirements rendered the consignation ineffective. 16 Consignation and tender of payment must not be encumbered by conditions if they are to produce the intended result of fulfilling the obligation. 17 In the instant case, the tender of payment of P724.00 was conditional and void as it was predicated upon the argument of Francisco Tazal that he was paying a debt which he could do at any time allegedly because the 1 September 1957 transaction was a contract of equitable mortgage and not a deed of sale with right to repurchase. The ostensible purposes of offering the amount in connection with a purported outstanding debt were to evade the stipulated redemption period in the deed of sale which had already expired when the tender of payment was made and Civil Case No. A-245 was instituted, and as a corollary, to avail of the thirty (30)-day grace period under Art. 1606 of the Civil Code within which to exercise the right to repurchase. 18 Mamerto Reyes was therefore within his right to refuse the tender of payment offered by petitioners because it was conditional upon his waiver of the two (2)-year redemption period stipulated in the deed of sale with right to repurchase. Moreover, petitioners failed to prove in Civil Cases Nos. A-245 and A-2032 that any form of notice regarding their intention to deposit the amount of P724.00 with the Court of First Instance had been served upon respondents. This requirement is not fulfilled by the notice which could have ensued from the filing of the complaint in Civil Case No. A-245 or the stipulation made between Francisco Tazal and Mamerto Reyes regarding the consignation of P724.00. The latter constitutes the second notice required by law as it already concerns the actual deposit or consignation of the amount and is different from the first notice that makes known the debtor's intention to deposit the amount, a requirement missing in the instant case. 19 Without any announcement of the intention to resort to consignation first being made to the persons interested in the fulfillment of the obligation, the consignation as a means of payment is void. 20 It is also futile to argue that the deposit of P724.00 with the Court of First Instance could have perfected the redemption of the three (3) parcels of land because it was not approved by the trial court, much less accepted by Mamerto Reyes or his heirs, herein respondents. The dispositive portion of the Decision in Civil Case No. A-245, which reads ". . . the Court, hereby renders judgment declaring the contract . . . entered into by the plaintiffs and the defendant and captioned 'Deed of Sale with Right to Repurchase' as a true sale with right to repurchase . . . and not an equitable mortgage . . . and declaring the plaintiffs entitled to repurchase the property in question within thirty (30) days from finality of this decision . . . " plainly rejected the complaint for lack of merit and necessarily also the consignation done pursuant thereto. This conclusion is buttressed by the directive of the trial court in the body of the Decision that Francisco Tazal "may still exercise the right to repurchase the property in question by returning to the [Mamerto Reyes] the purchase price of P724.00 plus all expenses incident to the reconveyance within the period of thirty (30)-days from the time this decision becomes final . . . " 21 The obvious reference of this statement was the stipulation made by the parties therein that "the defendant [Mamerto Reyes] has been paying the taxes on said properties from 1958 to 1969 . . ." 22 where the taxes paid constituted necessary expenses that petitioners had to reimburse to respondents' predecessor-in-interest aside from the P724.00 earlier deposited by Tazal. To be sure, while it has been held that approval of the court or the obligee's acceptance of the deposit is not necessary where the obligor has performed all acts necessary to a valid consignation such that court approval thereof cannot be doubted, Sia v. Court of Appeals 23 clearly advises that this ruling is applicable only where there is unmistakable evidence on record that the prerequisites of a valid consignation are present, especially the conformity of the proffered payment to the terms of the obligation which is to be paid. 24 In the instant case, since there is no clear and preponderant evidence that the consignation of P724.00 satisfied all the requirements for validity and

enforceability, and since Mamerto Reyes vehemently contested the propriety of the consignation, petitioners cannot rely upon sheer speculation and unfounded inference to construe the Decision of the Court of First Instance as one impliedly approving the consignation of P724.00 and perfecting the redemption of the three (3) parcels of land. It should be recalled that one of the requisites of consignation is the filing of the complaint by the debtor against the creditor. Hence it is the judgment on the complaint where the court declares that the consignation has been properly made that will release the debtor from liability. Should the consignation be disapproved by the court and the case dismissed, there is no payment and the debtor is in mora and he shall be liable for the expenses and bear the risk of loss of the thing. 25 To sanction the argument of petitioners and in the process excuse them from their responsibility of securing from the trial court in Civil Case No. A-245 a categorical declaration that the consignation of P724.00 had complied with all the essential elements for its validity would only dilute the rule requiring absolute compliance with the requisites of consignation. 26 It also disturbs a steady and stable status of proprietary rights, i.e., ". . . el acreedor tan solo, y no el juez, puede autorizar la variacion que para los derechos de aquel suponga la que se intente en el objeto, cuantia o forma de las obligaciones," 27 since parties are left guessing on whether the repurchase of the properties had been effected. In a broader sense, this uncertain state will only depress the market value of the land and virtually paralyze efforts of the landowner to meet his needs and obligations and realize the full value of his land. Moreover, we do not think that respondents' causes of action in Civil Case No. A-2032 are now barred by estoppel and laches. The essence of estoppel and laches is the failure or neglect for an unreasonable and unexplained length of time to do that which by exercising due diligence could or should have been done earlier; it is the negligence or omission to assert a right within a reasonable time warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it although there is no absolute rule as to what constitutes staleness of demand as each case is to be determined according to its particular circumstances. 28 In the instant case, it was prudent and discerning for respondents and their predecessor-in-interest Mamerto Reyes that they deferred any action against petitioners, i.e., Civil Case No. A-2032, to recover ownership and possession of the three (3) pieces of real estate, until the finality of judgment in Civil Case No. A-245. For patiently electing not to inundate our courts of justice with cases the outcome of which may well depend upon the then pending civil suit, respondents cannot now be penalized by barring their complaint in Civil Case No. A-2032 on the equitable grounds of estoppel and laches. We also find no reason to disturb our findings upon petitioners' assertion that they were purchasers of the three (3) parcels of land in good faith and for value. As we held in David v. Bandin, "the issue of good faith or bad faith of the buyer is relevant only where the subject of the sale is registered land and the purchaser is buying the same from the registered owner whose title to the land is clean . . . in such case the purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith for value." 29 Since the properties in question are unregistered lands, petitioners as subsequent buyers thereof did so at their peril. Their claim of having bought the land in good faith, i.e., without notice that some other person has a right to or interest in the property, would not protect them if it turns out, as it actually did in this case, that their seller did not own the property at the time of the sale. At any rate, petitioners failed to discharge their burden of proof that they were purchasers of the three (3) parcels of land in good faith. For, as we ruled in Embrado v. Court of Appeals, 30 the burden of proving the status of a purchaser in good faith and for value lies upon him who asserts that status, which is not discharged by simply invoking the ordinary presumption of good faith, i.e., that everyone is presumed to act in good faith, since the good faith that is here essential is integral with the very status which must be established. In the proceedings a quo, what is evident is the admitted fact of payment made by Mamerto Reyes as respondents' predecessor-in-interest of the taxes on the properties prior to and at the time when the contracts of sale in favor of petitioner-spouses were perfected, which undoubtedly confirms the precedence of respondents' possession of the parcels of land in question. This situation should have compelled petitioners to investigate the right of respondents over the properties before buying them, and in the absence of such inquiry, the rule is settled that a buyer in the same circumstances herein involved cannot claim to be a purchaser in good faith.

The absence of good faith on the part of petitioner-spouses Teofilo and Simeona Rayos in purchasing the three (3) parcels of unregistered land precludes the application of the rule on double sales enunciated in Art. 1544 of the Civil Code. 31 In any event, even if we apply Art. 1544, the facts would nonetheless show that respondents and their predecessor-in-interest registered first the source of their ownership and possession, i.e., the 1 September 1957 deed of sale with right to repurchase, held the oldest title, and possessed the real properties at the earliest time. Applying the doctrine of "priority in time, priority in rights" or "prius tempore, potior jure," respondents are entitled to the ownership and possession of the parcels of land in dispute. Finally, on the issue of damages, we agree with petitioners that respondents failed to prove their entitlement to actual damages for litigation expenses of P20,000.00, attorney's fees of P10,000.00 and exemplary damages of P50,000.00 plus costs. No evidence to prove actual damages was offered in Civil Case No. A-2032 since the parties therein submitted the case for decision on the basis of their respective memoranda, hence no actual damages can be awarded. 32 In the same manner, there is no clear and convincing showing that petitioners acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner to warrant the imposition of exemplary damages in respondents' favor. 33 In any event, exemplary damages cannot be adjudicated in the instant case since there is no award of moral, temperate or compensatory damages. 34 Similarly, we cannot award attorney's fees since there is no stipulation to grant the same nor were exemplary damages awarded or were improperly imposed as in the instant case. 35 It is appropriate to stress that the mere filing of a complaint does not ipso facto entitle a party to attorney's fees since this act is a means sanctioned by law to protect rights and interests even if found subsequently to be unmeritorious. WHEREFORE, the instant Petition for Review is DENIED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 55789 affirming in toto the Decision of the Regional Trial Court, Branch 54, Alaminos, Pangasinan in Civil Case No. A-2032, i.e., declaring void the Deeds of Absolute Sale executed by Francisco Tazal in favor of Blas Rayos, and by the latter in favor of Teofilo Rayos, and by Francisco Tazal in favor of Teofilo Rayos dated 22 June 1961, all encompassing the three (3) parcels of land sold under the Deeds of Sale with the Right to Repurchase, insofar as they authorized the transfer of ownership and possession thereof to petitioner-spouses Teofilo and Simeona Rayos; proclaiming respondents Donato Reyes, Saturnino Reyes, Tomasa R. Bustamante and Toribia R. Camelo who are heirs of Mamerto Reyes as absolute owners of the property in question free from all liens and encumbrances; and, ordering petitioner-spouses Teofilo and Simeona Rayos, petitioner George Rayos and Francisco Tazal and/or their agents or representatives to vacate and surrender the parcels of land in favor of respondents Donato Reyes, Saturnino Reyes, Tomasa R. Bustamante and Toribia R. Camelo, are AFFIRMED with the SOLE MODIFICATION that the award of actual damages for litigation expenses, attorney's fees and exemplary damages plus costs is DELETED and SET ASIDE. No costs. SaICcT SO ORDERED. ---------------------------------------------------------JUAN S. RUSTIA and FILOMENA D. DE RUSTIA, plaintiffs-appellees, vs. AGUINALDO & AGUINALDO, defendant-appellant. G.R. No. L-4005. September 16, 1953.] SYLLABUS 1.OBLIGATIONS AND CONTRACTS; FULFILMENT OF OBLIGATION; TENDER OF PAYMENT AND CONSIGNATION. Tender of payment and consignation complement each other, tender being but a step preliminary to consignation, and neither must be encumbered by conditions if it is to produce the intended result. The thing tendered or consigned not only must be due and demandable, but put before the creditor in such wise that he could have no valid excuse for refusing; no choice but to accept it or run the risk for its loss. Conditional tender or consignation is a contradiction, self-nullifying, in the juristic sense. D E C IS IO N TUASON, J p: This action was commenced in the Court of First Instance of Manila by a complaint captioned "Demanda con Consignacin de Cantidad de Pesos en Pago" and filed by Juan S. Rustia and Filomena D. de Rustia, man and wife, against Aguinaldo & Aguinaldo. After trial, the following judgment was handed down: "For all the foregoing, the Court hereby holds that the plaintiffs have substantially complied with the requirements of the law when, on September 11, 1944, they

consigned with the Court of First Instance the sum of P4,395.90 in payment of the judgment against them in the aforesaid Civil Case No. 52786. It is therefore the judgment of this Court that said consignation has completely relieved the plaintiffs from any liability arising out of the judgment afore-quoted. The defendant is also hereby ordered to forthwith deliver unto the plaintiffs their shares of stock, to wit: Antamok, 1,000; Gold Creek Company, 5,000; Northern Mining, 5,000; Itogon, 1,000; Northern Mining and Development, 5,000; Suyoc, 5,000; and Macawiwili, 6,682, and pay unto the plaintiffs the total sum of P657.50 representing dividends that have accrued on the said mining stocks and to pay the costs of this suit. The plaintiffs' claim for damages is hereby denied." Only questions of law are raised. Of the facts, set forth in detail in the trial court's decision, only the following need be mentioned as a preliminary statement; others will be cited in the course of this opinion. The judgment in Civil Case No. 52786 the amount of which, with interest, was consigned, had been rendered in May, 1941, by Judge Arsenio Locsin, but it became final only in 1944, when, having been appealed, it was affirmed by the Court of Appeals. It sentenced the defendants, Mr. and Mrs. Rustia, to pay unto plaintiff P3,100.40 with 6 per cent interest per annum, and the plaintiff to surrender unto defendants the shares of stock which they had purchased through Aguinaldo & Aguinaldo. A new hitch developed after the termination of that case mainly by reason of Aguinaldo & Aguinaldo's inability to surrender to Mr. and Mrs. Rustia their Suyoc and Antamok shares because these were covered by bigger lots which could not be split on account of the mining companies' offices being closed due to the current war. Aguinaldo & Aguinaldo offered to guarantee with proper security the delivery of those shares when conditions became normal, but Mr. and Mrs. Rustia were not agreeable to that; they insisted that the certificates of stock which included shares belonging to other customers be entrusted to them for safekeeping, or that either Aguinaldo & Aguinaldo buy their shares or sell to them others' shares. Following this impasse Mr. and Mrs. Rustia brought the action at bar, in which, besides consigning P4,395.90 in Japanese war notes, they filed cross-claims for dividends on their shares, for accounting, and damages, among other things. As may be seen from the judgment transcribed above, none of these cross-claims were allowed, except a small dividend. The controversy would, in all probability, have ended with that judgment had it not been for the fact that by it Aguinaldo & Aguinaldo was to bear the loss of the money which had been deposited with the court and perished, physically and intrinsically, with the advent of liberation. Basically, that is the sole question for decision now. Aguinaldo & Aguinaldo, the appellant, assails the sufficiency and validity of the tender and consignation made by the appellees, assigning several grounds and errors only one of which, however, will be discussed, the rest being subordinate thereto, as we view the case. Article 1176 of the Civil Code of 1889 still in force at the time the present action was begun, provides: "ART. 1176.If a creditor to whom tender of payment has been made should refuse without reason to accept it, the debtor may relieve himself of liability by the consignation of the thing due. xxx xxx xxx The evidence set forth in the appealed decision does not bear out what seems to have been the finding below, that the creditor had refused to receive the amount of the judgment rendered in Civil Case No. 52786. It never had. As early as May 8, 1944, Aguinaldo & Aguinaldo's manager wrote its attorney (Exhibit 5) urging him to have the judgment executed, and all the conversations and correspondence between the parties or their representatives on the matter, as related in the decision, reveal plainly that it (creditor) was only too willing and ready to have the judgment effected. Actually, it was the judgment debtors who put obstacles in the way of a settlement, as the lower court's recital of the evidence also shows. To cite only one instance, in one of the very letters (Exhibit 4) quoted in part by the trial court, Mr. Rustia said that he and his wife could not pay Aguinaldo & Aguinaldo's collector, who had come in obedience to the debtors' own indication, because the messenger "does not carry any credential or authority to receive legally the payment and issue, on his part, corresponding receipt," and because "it results that that entity 'Aguinaldo & Aguinaldo' is not legally ready (en disposicin legal) to comply with its obligation, as broker or agent, to return to us immediately our shares of stock, claims, funds, and their interest or earnings,

etc." What the "etcetera" referred to was not disclosed. Whether Mr. and Mrs. Rustia had good cause for their counter-demands was beside the point. Parenthetically, none of them, as seen, were allowed in the appealed judgment, with which the plaintiffs apparently were satisfied. The point is that, because of the said counter demands, irrespective of their merit or lack of merit, there was neither tender of payment in the legal concept of the term, on the part of the debtors, nor refused to accept payment on the part of the creditor. And there being no tender, the subsequent consignation must fall, even if the consignation had not suffered from fatal defects of its own, which it did. Consignation and tender complement each other, tender being but a step preliminary to consignation, and neither must be encumbered by conditions if it is to produce the intended result. The thing tendered or consigned not only must be due and demandable, but put before the creditor in such wise that he could have no valid excuse for refusing; no choice but to accept it or run the risk for its loss. Conditional tender or consignation is a contradiction, self-nullifying, in the juristic sense. It will be noticed, at this juncture, that the so-called suit of consignation was cluttered with counterpropositions and demands more onerous and more numerous than the conditions of the first offer to pay. It contained three separate causes of action, the first of which embodied the terms of the purported tender in a more detailed fashion. On the second cause of action, plaintiff's demanded immediate payment of P632.50 as dividends up to October 11, 1941, on their shares of stock; rendition of "cuenta exacta y comprobada de sus reditos y ganancias por las inversiones a que ha dedicado dichos fondos hasta su completo pago juntamente con dichos reditos y ganancias;" immediate delivery of the said shares of stock including those of Antamok and Suyoc, etc.; and on the third cause of action, damages in the amount of P11,377.05 exclusive of interest. With these counter-propositions and cross-claims it is utterly contrary to Article 1176 of the Civil Code, not to say unfair, to charge to the defendant the loss of the deposit. Did the plaintiffs by their complaint tell the creditor, "Your money has been deposited with the court; it is yours, go get it," as they should have done? Indeed, would the plaintiffs and the court have allowed the defendant to withdraw, if it had wanted, the amount deposited before the case was tried and decided? Was the creditor under obligation to accept the plaintiffs' complicated cross-claims, cross-claims which more than wiped out the consignation, one of which cross-claims was impossible of accomplishment at that time, and all of which the defendant believed baseless and unmeritorious, as the court subsequently found? The answers to all these questions are, of course, no. And in the meantime that the defendant was prevented from taking the money on deposit, it was fast dwindling in value, to become absolutely worthless in a few months; while the same deposit remained at the plaintiffs' free disposal, at their pleasure to withdraw or spend. One cannot eat his cake and have it, too, as the saying goes. Yet, that in effect is what the appellees would have the court sanction. Having placed in the hands of the court the amount which was due to the appellant, and retaining sole control and disposition thereof while the action lasted, they would have the creditor suffer all the consequences for the deterioration and final outlawing of the deposit. Irony of the situation was that the supposed necessity for the present suit, which has produced nothing but delay, harassment and expense, was brought about by circumstances of plaintiffs' own choosing. It should be remembered that Aguinaldo & Aguinaldo's action against Mr. and Mrs. Rustia to recover the debt now in question was commenced as early as May 29, 1938; that the debt was incurred from 1936 to 1937; and that the judgment in the case was promulgated on May 15, 1941, more than six months before the outbreak of the late war. Even at that late date there would have been no difficulty in arranging for the issuance of all the certificates of stock which Aguinaldo & Aguinaldo was to deliver over to the defendant and there would have been no unliquidated dividends to compute and no accounting to render, if only the debtors had not unjustifiably resisted Judge Locsin's judgment. But they appealed to the Court of Appeals only to lose, and after the affirmance of the judgment, attempted to take the case by certiorari to the Supreme Court only to abandon the latter attempt after they were denied a long extension of time which they had asked purportedly to perfect their petition for review. In conclusion, it is our considered opinion that the so-called tender and consignation by the plaintiffs were not tender and consignation at all within the purview of the applicable provisions of the old Civil Code, and did not discharge their obligation to the defendant; that the plaintiffs should be condemned to pay the defendant the sum of P3,100.40, the amount which they were sentenced to pay in Civil Case No. 52786, with legal interest from the date of the institution of that action; that the

defendant should deliver to the plaintiffs the shares of stock listed in the decision on appeal plus dividends on said shares in the sum of P387.50 found by Judge Locsin and such additional dividends as said shares may have earned from May 15, 1941. These additional dividends are just and legal upon the same principle that the plaintiffs are made to pay interest on the debt from that date. It is accordingly ordered that judgment be entered in accordance with the tenor of the immediately preceding paragraph, and that the plaintiffs and appellees pay the costs of suit of both instances. ---------------------------------------------------------[G.R. No. L-58961. June 28, 1983.] SOLEDAD SOCO, petitioner, vs. HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First Instance of Cebu, Branch XII, Cebu City and REGINO FRANCISCO, JR., respondents. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONSIGNATION; DEFINED. Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment (Limkako vs. Teodoro, 74 Phil. 313). 2.ID.; ID.; ID.; REQUISITES. In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show: (1) that there was a debt due; (2) that the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and(5) that after the consignation had been made the person interested was notified thereof (Art. 1:78, Civil Code). Failure in any of these requirements is enough ground to render a consignation ineffective (Jose Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil. 311) 3.ID.; ID.; ID.; ID.; NOTICE, INDISPENSABLE. Without the notice first announced to the persons interested in the fulfillment of the obligation. she consignation as a payment is void (Limkako vs. Teodoro. 74 Phil. 313). In this connection, the purpose of the notice is in order to give the creditor an opportunity to reconsider his unjustified refusal and to accept payment thereby avoiding consignation and the subsequent litigation. This previous notice is essential to the validity of the consignation and its lack invalidates the same (Cabanos "s. Calo, 104 Phil. 1058; Limkako vs. Teodoro. 74 Phil. 313). 4.ID.; ID.; ID.; ID.; ID.; TENDER OF PAYMENT; MUST BE MADE IN LAWFUL CURRENCY In . order to be valid. the tender of payment must he made in lawful currency. While payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956) the fact that in previous years payment in check was accepted does not place its creditor in estoppel from requiring the debtor to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958). Thus, the tender of a check to pay for an obligation is not a valid tender of payment thereof (Desbarats vs. Vda. de Mortera, supra). See annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA 174-179. 5.ID.; ID.; TENDER OF PAYMENT DIFFERENTIATED FROM CONSIGNATION. Tender of payment must he distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extra judicial. while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation (8 Manresa 325). 6.ID.; ID.; CONSIGNATION; BEST EVIDENCE OF RENTAL DEPOSIT. The best evidence of the rental deposits with the Clerk of Court are the official receipts issued by the Clerk of Court. These the respondent lessee utterly failed to present and produce during the trial of the case. As pointed out in petitioner's Memorandum, no single official receipt was presented in the trial court as no here in the formal offer of exhibits for lessee Francisco can a single official receipt of any deposit made he found. 7.ID.; ID.; ID.; PRIOR AND AFTER NOTICE TO CREDITOR. There should be notice to the

creditor p nor and after consignation as required by the Civil Code. The reason for this is obvious, namely, to enable the creditor to withdraw the goods or money deposited. Indeed, it would be unjust to make him suffer the risk for any deterioration, depreciation or loss of such goods or money by reason of Lack of knowledge of the consignation (Cabanos vs. Calo, supra). 8.REMEDIAL LAW; CIVIL ACTIONS; APPEALS; AUTHORITY OF COURT TO REVIEW MATTERS EVEN IF THEY ARE NOT ASSIGNED AS ERRORS. This Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal. if it finds that their consideration is necessary in arriving at a just decision of the case. Also an unassigned error closely related to an error properly assigned or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error (Ortigas, Jr. vs. Lufthansa German Airlines, L28773, June 30, 1975, 64 SCRA 610). Under Sections of Rule 53 of the Rules of Court, the appellate court is authorized to consider a plain error, although it was not specifically assigned by the appellant (Dilag vs. Heirs of Resurreccion, 76 Phil. 649). D E C IS IO N GUERRERO, J p: The decision subject of the present petition for review holds the view that there was substantial compliance with the requisites of consignation and so ruled in favor of private respondent, Regino Francisco, Jr., lessee of the building owned by petitioner lessor, Soledad Soco, in the case for illegal detainer originally filed in the City Court of Cebu City, declaring the payments of the rentals valid and effective, dismissed the complaint and ordered the lessor to pay the lessee moral and exemplary damages in the amount of P10,000.00 and the further sum of P3,000.00 as attorney's fees. We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein provided. Substantial compliance is not enough for that would render only a directory construction to the law. The use of the words "shall" and "must" which are imperative, operating to impose a duty which may be enforced, positively indicate that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual. Thus, the law provides: llcd "Art. 1257.In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment." "Art. 1258.Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof." "Art. 1249.The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance." We have a long line of established precedents and doctrines that sustain the mandatory nature of the above provisions. The decision appealed from must, therefore, be reversed. The antecedent facts are substantially recited in the decision under review, as follows: "It appears from the evidence that the plaintiff-appellee Soco, for short and the 'defendantappellant Francisco, for brevity entered into a contract of lease on January 17, 1973, whereby Soco leased her commercial building and lot situated at Manalili Street, Cebu City, to Francisco for a monthly rental of P800.00 for a period of 10 years renewable for another 10 years at the option of the lessee. The terms of the contract are embodied in the Contract of Lease (Exhibit "A" for Soco and Exhibit "2" for Francisco). It can readily be discerned from Exhibit "A" that paragraphs 10 and

11 appear to have been cancelled while in Exhibit "2" only paragraph 10 has been cancelled. Claiming that paragraph 11 of the Contract of Lease was in fact not part of the contract because it was cancelled, Soco filed Civil Case No. R-16261 in the Court of First Instance of Cebu seeking the annulment and/or reformation of the Contract of Lease . . . "Sometime before the filing of Civil Case No. R-16261 Francisco noticed that Soco did not anymore send her collector for the payment of rentals and at times there were payments made but no receipts were issued. This situation prompted Francisco to write Soco the letter dated February 7, 1975 (Exhibit "3") which the latter received as shown in Exhibit "3-A". After writing this letter, Francisco sent his payment for rentals by checks issued by the Commercial Bank and Trust Company. Obviously, these payments in checks were received because Soco admitted that prior to May, 1977, defendant had been religiously paying the rental . . . "1.The factual background setting of this case clearly indicates that soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of more than P3,000.00 which is definitely very much higher than what Francisco was paying to Soco under the Contract of Lease, the latter felt that she was on the losing end of the lease agreement so she tried to look for ways and means to terminate the contract . . . "In view of this alleged non-payment of rental of the leased premises beginning May, 1977, Soco through her lawyer sent a letter dated November 23, 1978 (Exhibit "B") to Francisco serving notice to the latter 'to vacate the premises leased.' In answer to this letter, Francisco through his lawyer informed Soco and her lawyer that all payments of rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of the City Court of Cebu (Exhibit "1"). Despite this explanation, Soco filed this instant case of Illegal Detainer on January 8, 1979 . . . "2.Pursuant to his letter dated February 7, 1975 (Exhibit "3") and for reasons stated therein, Francisco paid his monthly rentals to Soco by issuing checks of the Commercial Bank and Trust Company where he had a checking account. On May 13, 1975, Francisco wrote the Vice-President of Comtrust, Cebu Branch (Exhibit "4") requesting the latter to issue checks to Soco in the amount of P840.00 every 10th of the month, obviously for payment of his monthly rentals. This request of Francisco was complied with by Comtrust in its letter dated June 4, 1975 (Exhibit "5"). Obviously, these payments by checks through Comtrust were received by Soco from June, 1975 to April, 1977 because Soco admitted that all rentals due her were paid except the rentals beginning May, 1977. While Soco alleged in her direct examination that 'since May, 1977 he (meaning Francisco) stopped paying the monthly rentals' (TSN, Palicte, p. 6, Hearing of October 24, 1979), yet on cross examination she admitted that before the filing of her complaint in the instant case, she knew that payments for monthly rentals were deposited with the Clerk of Court except rentals for the months of May, June, July and August, 1977 . . . "Pressing her point, Soco alleged that 'we personally demanded from Engr. Francisco for the months of May, June, July and August, but Engr. Francisco did not pay for the reason that he had no funds available at that time.' (TSN-Palicte, p. 28, Hearing October 24, 1979). This allegation of Soco is denied by Francisco because per his instructions, the Commercial Bank and Trust Company, Cebu Branch, in fact, issued checks in favor of Soco representing payments for monthly rentals for the months of May, June, July and August, 1977 as shown in Debit Memorandum issued by Comtrust as follows: (a)Exhibit "6" Debit Memo dated May 11, 1977 for P926.10 as payment for May, 1977; (b)Exhibit "7" Debit Memo dated June 15, 1977 for P926.10 as payment for June, 1977; (c)Exhibit "8" Debit Memo dated July 11, 1977 for P926.10 as payment for July, 1977; (d)Exhibit "9" Debit Memo dated August 10, 1977 for P926.10 as payment for August, 1977. These payments are further bolstered by the certification issued by Comtrust dated October 29, 1979 (Exhibit "13"). Indeed the Court is convinced that payments for rentals for the months of May, June, July and August, 1977 were made by Francisco to Soco thru Comtrust and deposited with the Clerk of Court of the City Court of Cebu. There is no need to determine whether payments by consignation were made from September, 1977 up to the filing of the complaint in January, 1979 because as earlier stated Soco admitted that the rentals for these months were deposited with the Clerk of Court . . . "Taking into account the factual background setting of this case, the Court holds that there was in fact a tender of payment of the rentals made by Francisco to Soco through Comtrust and since these payments were not accepted by Soco evidently because of her intention to evict Francisco,

by all means, culminating in the filing of Civil Case R-16261, Francisco was impelled to deposit the rentals with the Clerk of Court of the City Court of Cebu. Soco was notified of this deposit by virtue of the letter of Atty. Pampio Abarientos dated June 9, 1977 (Exhibit "10") and the letter of Atty. Pampio Abarientos dated July 6, 1977 (Exhibit "12") as well as in the answer of Francisco in Civil Case R-16261 (Exhibit "14") particularly paragraph 7 of the Special and Affirmative Defenses. She was further notified of these payments by consignation in the letter of Atty. Menchavez dated November 28, 1978 (Exhibit "1"). There was therefore substantial compliance of the requisites of consignation, hence his payments were valid and effective. Consequently, Francisco cannot be ejected from the leased premises for non-payment of rentals . . . As indicated earlier, the above decision of the Court of First Instance reversed the judgment of the City Court of Cebu, Branch II, the dispositive portion of the latter reading as follows: LexLib "WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendant, Regino Francisco, Jr.: (1)To vacate immediately the premises in question, consisting of a building located at Manalili St., Cebu City; (2)To pay to the plaintiff the sum of P40,490.46 for the rentals, covering the period from May, 1977 to August, 1980, and starting with the month of September, 1980, to pay to the plaintiff for one (1) year a monthly rental of P1,072.076 and an additional amount of 5 per cent of said amount, and for so much amount every month thereafter equivalent to the rental of the month of every preceding year plus 5 percent of same monthly rental until the defendant shall finally vacate said premises and possession thereof wholly restored to the plaintiff -all plus legal interest from date of filing of the complaint; (3)To pay to the plaintiff the sum of P9,000.00 for attorney's fee; (4)To pay to the plaintiff the sum of P5,000.00 for damages and incidental litigation expenses; and (5)To pay the costs. SO ORDERED. Cebu City, Philippines, November 21, 1980. (SGD.) PATERNO D. MONTESCLAROS Acting Presiding Judge" According to the findings of fact made by the City Court, the defendant Francisco had religiously paid to the plaintiff Soco the corresponding rentals according to the terms of the Lease Contract while enjoying the leased premises until one day the plaintiff had to demand upon the defendant for the payment of the rentals for the month of May, 1977 and of the succeeding months. The plaintiff also demanded upon the defendant to vacate the premises and from that time he failed or refused to vacate his possession thereof; that beginning with the month of May, 1977 until at present, the defendant has not made valid payments of rentals to the plaintiff who, as a consequence, has not received any rental payment from the defendant or anybody else; that for the months of May to August, 1977, evidence shows that the plaintiff through her daughter, Teolita Soco, and salesgirl, Vilma Arong, went to the office or residence of defendant at Sanciangko St., Cebu City, on various occasions to effect payment of rentals but were unable to collect on account of the defendant's refusal to pay; that defendant contended that payments of rental thru checks for said four months were made to the plaintiff but the latter refused to accept them; that in 1975, defendant authorized the Commercial Bank and Trust Company to issue checks to the plaintiff chargeable against his bank account, for the payment of said rentals, and the delivery of said checks was coursed by the bank thru the messengerial services of the FAR Corporation, but the plaintiff refused to accept them and because of such refusal, defendant instructed said bank to make consignation with the Clerk of Court of the City Court of Cebu as regard said rentals for May to August, 1977 and for subsequent months. Cdpr The City Court further found that there is no showing that the letter allegedly delivered to the plaintiff in May, 1977 by Filomeno Soon, messenger of the FAR Corporation contained cash money, check, money order, or any other form of note of value, hence there could never be any tender of payment, and even granting that there was, but plaintiff refused to accept it without any reason, still no consignation for May, 1977 rental could be considered in favor of the defendant unless evidence is presented to establish that he actually made rental deposit with the court in cash money and prior and subsequent to such deposit, he notified the plaintiff thereof. Notwithstanding the contradictory findings of fact and the resulting opposite conclusions of law by

the City Court and the Court of First Instance, both are agreed, however, that the case presents the issue of whether the lessee failed to pay the monthly rentals beginning May, 1977 up to the time the complaint for eviction was filed on January 8, 1979. This issue in turn revolves on whether the consignation of the rentals was valid or not to discharge effectively the lessee's obligation to pay the same. The City Court ruled that the consignation was not valid. The Court of First Instance, on the other hand, held that there was substantial compliance with the requisites of the law on consignation. Let us examine the law and consider Our jurisprudence on the matter, aside from the codal provisions already cited herein. According to Article 1256, New Civil Code, if the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3) When, without just cause, he refuses to give a receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. (Limkako vs. Teodoro, 74 Phil. 313). In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is enough ground to render a consignation ineffective. (Jose Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil. 311). LLjur Without the notice first announced to the persons interested in the fulfillment of the obligation, the consignation as a payment is void. (Limkako vs. Teodoro, 74 Phil. 313). In order to be valid, the tender of payment must be made in lawful currency. While payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956) the fact that in previous years payment in check was accepted does not place its creditor in estoppel from requiring the debtor to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958). Thus, the tender of a check to pay for an obligation is not a valid tender of payment thereof (Desbarats vs. Vda. de Mortera, supra). See Annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA 174-179. Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. (8 Manresa 325). Reviewing carefully the evidence presented by respondent lessee at the trial of the case to prove his compliance with all the requirements of a valid tender of payment and consignation and from which the respondent Judge based his conclusion that there was substantial compliance with the law on consignation, We note from the assailed decision hereinbefore quoted that these evidences are: Exhibit 10, the letter of Atty. Pampio Abarintos dated June 9, 1977: Exhibit 12, letter of Atty. Pampio Abarintos dated July 6, 1977; Exhibit 14, the Answer of respondent Francisco in Civil Case R-16261, particularly paragraph 7 of the Special and Affirmative Defenses; and Exhibit 1, letter of Atty. Eric Menchavez dated November 28, 1978. All these evidences, according to respondent Judge, proved that petitioner lessor was notified of the deposit of the monthly rentals. We have analyzed and scrutinized closely the above exhibits and We find that the respondent Judge's conclusion is manifestly wrong and based on misapprehension of facts. Thus (1)Exhibit 10 reads: (see p. 17, Records)

"June 9, 1977 Miss Soledad Soco Soledad Soco Retazo P. Gullas St., Cebu City Dear Miss Soco: This is in connection with the payment of rental of my client, Engr. Regino Francisco, Jr., of your building situated at Manalili St., Cebu City. It appears that twice you refused acceptance of the said payment made by my client. It appears further that my client had called your office several times and left a message for you to get this payment of rental but until the present you have not sent somebody to get it. In this connection, therefore, in behalf of my client, you are hereby requested to please get and claim the rental payment aforestated from the Office of my client at Tagalog Hotel and Restaurant, Sanciangko St., Cebu City, within three (3) days from receipt hereof otherwise we would be constrained to make a consignation of the same with the Court in accordance with law. Hoping for your cooperation on this matter, we remain. Very truly yours, (SGD.) PAMPIO A. ABARINTOS Counsel for Engr. REGINO FRANCISCO, JR." We may agree that the above exhibit proves tender of payment of the particular monthly rental referred to (the letter does not, however, indicate for what month and also the intention to deposit the rental with the court, which is the first notice. But certainly, it is no proof of tender of payment of other or subsequent monthly rentals. Neither is it proof that notice of the actual deposit or consignation was given to the lessor, which is the second notice required by law. (2)Exhibit 12 (see p. 237, Records) states: "July 6, 1977 Miss Soledad Soco Soledad Soco Retazo P. Gullas St., Cebu City Dear Miss Soco: This is to advise and inform you that my client, Engr. Regino Francisco, Jr., has consigned to you, through the Clerk of Court, City Court of Cebu, Cebu City, the total amount of P1,852.20, as evidenced by cashier's checks No. 478439 and 47907 issued by the Commercial Bank and Trust Company (CBTC) Cebu City Branch, dated May 11, 1977 and June 15, 1977 respectively and payable to your order, under Official Receipt No. 0436936 dated July 6, 1977. This amount represents payment of the rental of your building situated at Manalili St., Cebu City which my client, Engr. Regino Francisco, Jr., is renting. You can withdraw the said amount from the Clerk of Court, City Court of Cebu, Cebu City at any time. Please be further notified that all subsequent monthly rentals will be deposited to the Clerk of Court, City Court of Cebu, Cebu City. Very truly yours, (SGD.) PAMPIO A. ABARINTOS Counsel for ENGR. REGINO FRANCISCO, JR." The above evidence is, of course, proof of notice to the lessor of the deposit or consignation of only the two payments by cashier's checks indicated therein. But surely, it does not prove any other deposit nor the notice thereof to the lessor. It is not even proof of the tender of payment that would have preceded the consignation. (3)Exhibit 14, paragraph 7 of the Answer (see p. 246, Records) alleges: "7.That ever since, defendant had been religiously paying his rentals without any delay which, however, the plaintiff had in so many occasions refused to accept obviously in the hope that she may declare non-payment of rentals and claim it as a ground for the cancellation of the contract of lease. This, after seeing the improvements in the area which were effected, at no small expense by the defendant. To preserve defendant's rights and to show good faith in up to date payment of rentals, defendant had authorized his bank to issue regularly cashier's check in favor of the plaintiff as payment of rentals which the plaintiff had been accepting during the past years and even for the months of January up to May of this year, 1977 way past plaintiff's claim of lease expiration. For the months of June and July, however, plaintiff again started refusing to accept the payments in going

back to her previous strategy which forced the defendant to consign his monthly rental with the City Clerk of Court and which is now the present state of affairs in so far as payment of rentals is concerned. These events only goes to show that the wily plaintiff had thought of this mischievous scheme only very recently and filed herein malicious and unfounded complaint." The above exhibit which is lifted from Civil Case No. R-16261 between the parties for annulment of the lease contract, is self-serving. The statements therein are mere allegations of conclusions which are not evidentiary. (4)Exhibit 1 (see p. 15, Records) is quoted thus: "November 28, 1978 Atty. Luis V. Diores Suite 604, SSS Bldg Jones Avenue, Cebu City Dear Compaero: Your letter dated November 23, 1978 which was addressed to my client, Engr. Regino Francisco, Jr. has been referred to me for reply. It is not true that my client has not paid the rentals as claimed in your letter. As a matter of fact, he has been religiously paying the rentals in advance. Payment was made by Commercial Bank and Trust Company to the Clerk of Court, Cebu City. Attached herewith is the receipt of payment made by him for the month of November, 1978 which is dated November 16, 1978. You can check this up with the City Clerk of Court for your satisfaction. Regards. (SGD.) ERIC MENCHAVEZ Counsel for Regino Francisco, Jr. 377-B Junquera St., Cebu City (new address)" Again, Exhibit 1 merely proves rental deposit for the particular month of November, 1978 and no other. It is no proof of tender of payment to the lessor, not even proof of notice to consign. We hold that the best evidence of the rental deposits with the Clerk of Court are the official receipts issued by the Clerk of Court. These the respondent lessee utterly failed to present and produce during the trial of the case: As pointed out in petitioner's Memorandum, no single official receipt was presented in the trial court as nowhere in the formal offer of exhibits for lessee Francisco can a single official receipt of any deposit made be found (pp. 8-9, Memorandum for Petitioner; pp. 163164, Records). prLL Summing up Our review of the above four (4) exhibits, We hold that the respondent lessee has utterly failed to prove the following requisites of a valid consignation: First, tender of payment of the monthly rentals to the lessor except that indicated in the June 9, 1977 Letter, Exhibit 10. In the original records of the case, We note that the certification, Exhibit 11, of Filemon Soon, messenger of the FAR Corporation, certifying that the letter of Soledad Soco sent last May 10 by Commercial Bank and Trust Co. was marked RTS (return to sender) for the reason that the addressee refused to receive it, was rejected by the court for being immaterial, irrelevant and impertinent per its Order dated November 20, 1980. (See p. 117, CFI Records). Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation, except the payment referred to in Exhibit 10. In this connection, the purpose of the notice is in order to give the creditor an opportunity to reconsider his unjustified refusal and to accept payment thereby avoiding consignation and the subsequent litigation. This previous notice is essential to the validity of the consignation and its lack invalidates the same. (Cabanos vs. Calo, 104 Phil, 1058; Limkako vs. Teodoro, 74 Phil. 313). There is no factual basis for the lower court's finding that the lessee had tendered payment of the monthly rentals, thru his bank, citing the lessee's letter (Exh. 4) requesting the bank to issue checks in favor of Soco in the amount of P840.00 every 10th of each month and to deduct the full amount and service fee from his current account, as well as Exhibit 5, letter of the Vice President agreeing with the request. But scrutinizing carefully Exhibit 4, this is what the lessee also wrote: "Please immediately notify us everytime you have the check ready so we may send somebody over to get it." And this is exactly what the bank agreed: "Please be advised that we are in conformity to the above arrangement with the understanding that you shall send somebody over to pick up the cashier's check from us." (Exhibit 4, see p. 230, Original Records; Exhibit 5, p. 231, Original

Records). Evidently, from this arrangement, it was the lessee's duty to send someone to get the cashier's check from the bank and logically, the lessee has the obligation to make and tender the check to the lessor. This the lessee failed to do, which is fatal to his defense. Third, respondent lessee likewise failed to prove the second notice, that is after consignation has been made, to the lessor except the consignation referred to in Exhibit 12 which are the cashier's check Nos. 478439 and 47907 CBTC dated May 11, 1977 and June 15, 1977 under Official Receipt No. 04369 dated July 6, 1977. Cdpr Respondent lessee, attempting to prove compliance with the requisites of valid consignation, presented the representative of the Commercial Bank and Trust Co., Edgar Ocaada, Bank Comptroller, who unfortunately belied respondent's claim. We quote below excerpts from his testimony, as follows: "ATTY LUIS DIORES: . QWhat month did you say you made, you started making the deposit? When you first deposited the check to the Clerk of Court? AThe payment of cashier's check in favor of Miss Soledad Soco was coursed thru the City Clerk of Court from the letter of request by our client Regino Francisco, Jr., dated September 8, 1977. From that time on, based on his request, we delivered the check direct to the City Clerk of Court. QWhat date, what month was that, you first delivered the check to the Clerk of Court.? AWe started September 12, 1977. QSeptember 1977 up to the present time, you delivered the cashier's check to the City Clerk of Court? AYes. QYou were issued the receipts of those checks? AWell, we have an acknowledgment letter to be signed by the one who received the check. QYou mean you were issued, or you were not issued any official receipt? My question is whether you were issued any official receipt? So, were you issued, or you were not issued? AWe were not issued. QOn September, 1977, after you deposited the manager's check for that month with the Clerk of Court, did you serve notice upon Soledad Soco that the deposit was made on such amount for the month of September, 1977 and now to the Clerk of Court? Did you or did you not.? AWell, we only act on something upon the request of our client. QPlease answer my question. I know that you are acting upon instruction of your client. My question was - after you made the deposit of the manager's check whether or not you notified Soledad Soco that such manager's check was deposited in the Clerk of Court from the month of September, 1977? AWe are not bound to. QI am not asking whether you are bound to or not. I'm asking whether you did or you did not? AI did not. QAlright, for October, 1977, alter having made a deposit for that particular month, did you notify Miss Soledad Soco that the deposit was in the Clerk of Court? ANo, we did not. QNow, on November, 1977, did you notify Soledad Soco that you deposited the manager's check to the City Clerk of Court for that month? AI did not. QYou did not also notify Soledad Soco for the month of December, 1977, so also from January, February, March, April, May, June, July until December, 1978, you did not also notify Miss Soledad Soco all the deposits of the manager's check which you said you deposited with the Clerk of Court in every end of the month? So also from each and every month from January 1979 up to December 1979, you did not also serve notice upon Soledad Soco of the deposit in the Clerk of Court, is that correct? AYes. QSo also in January 1980 up to this month 1980, you did not also serve notice upon Soledad Soco of the Manager's check which you said you deposited to the Clerk of Court? AI did not. QNow, you did not make such notices because you were not instructed by your client Mr. and Mrs.

Regino Francisco, Jr. to make such notices after the deposits you made, is that correct? AYes, sir. QNow, from 1977, September up to the present time, before the deposit was made with the Clerk of Court, did you serve notice to Soledad Soco that a deposit was going to be made in each and every month? ANot. QIn other words, from September 1977 up to the present time, you did not notify Soledad Soco that you were going to make the deposit with the Clerk of Court, and you did not also notify Soledad Soco after the deposit was made, that a deposit has been made in each and every month during that period, is that correct? AYes. QAnd the reason was because you were not instructed by Mr. and Mrs. Regino Francisco, Jr. that such notification should be made before the deposit and after the deposit was made, is that correct? A.No, I did not." (Testimony of Ocaada, pp. 32-41, Hearing on June 3, 1980). Recapitulating the above testimony of the Bank Comptroller, it is clear that the bank did not send notice to Soco that the checks will be deposited in consignation with the Clerk of Court (the first notice) and also, the bank did not send notice to Soco that the checks were in fact deposited (the second notice) because no instructions were given by its depositor, the lessee, to this effect, and this lack of notices started from September, 1977 to the time of the trial, that is June 3, 1980. llcd The reason for the notification to the persons interested in the fulfillment of the obligation after consignation had been made, which is separate and distinct from the notification which is made prior to the consignation, is stated in Cabanos vs. Calo, G.R. No. L-10927, October 30, 1958, 104 Phil. 1058, thus: "There should be notice to the creditor prior and after consignation as required by the Civil Code. The reason for this is obvious, namely, to enable the creditor to withdraw the goods or money deposited. Indeed, it would be unjust to make him suffer the risk for any deterioration, depreciation or loss of such goods or money by reason of lack of knowledge of the consignation." And the fourth requisite that respondent lessee failed to prove is the actual deposit or consignation of the monthly rentals except the two cashier's checks referred to in Exhibit 12. As indicated earlier, not a single copy of the official receipts issued by the Clerk of Court was presented at the trial of the case to prove the actual deposit or consignation. We find, however, reference to some 45 copies of official receipts issued by the Clerk of Court marked Annexes "B-1" to "B-40" to the Motion for Reconsideration of the Order granting execution pending appeal filed by defendant Francisco in the City Court of Cebu (pp. 150-194, CFI Original Records) as well as in the Motion for Reconsideration of the CFI decision, filed by plaintiff lessor (pp. 39-50. Records, marked Annex "E") the allegation that "there was no receipt at all showing that defendant Francisco has deposited with the Clerk of Court the monthly rentals corresponding to the months of May and June, 1977. And for the months of July and August, 1977, the rentals were only deposited with the Clerk of Court on 20 November 1979 (or more than two years later)." . . . The deposits of these monthly rentals for July and August, 1977 on 20 November 1979, is very significant because on 24 October 1979, plaintiff Soco had testified before the trial court that defendant had not paid the monthly rentals for these months. Thus, defendant had to make a hurried deposit on the following month to repair his failure." (pp. 43-44, Records). We have verified the truth of the above claim or allegation and We find that indeed, under Official Receipt No. 1697161Z, the rental deposit for August, 1977 in cashier's check No. 502782 dated 810-77 was deposited on November 20, 1979 (Annex "B-15", p. 169, Original CFI Records) and under Official Receipt No. 1697159Z, the rental deposit for July under Check No. 479647 was deposited on November 20, 1979 (Annex "B-16", p. 170, Original CFI Records). Indeed, these two rental deposits were made on November 20, 1979, two years late and after the filing of the complaint for illegal detainer. The decision under review cites Exhibits 6, 7, 8 and 9, the Debit Memorandum issued by Comtrust Bank deducting the amounts of the checks therein indicated from the account of the lessee, to prove payment of the monthly rentals. But these Debit Memorandums are merely internal banking practices or office procedures involving the bank and its depositor which is not binding upon a third person such as the lessor. What is important is whether the checks were picked up by the lessee as per the arrangement indicated in Exhibits 4 and 5 wherein the lessee had to pick up the checks

issued by CBTC or to send somebody to pick them up, and logically, for the lessee to tender the same to the lessor. On this vital point, the lessee miserably failed to present any proof that he complied with the arrangement. We, therefore, find and rule that the lessee has failed to prove tender of payment except that in Exh. 10; he has failed to prove the first notice to the lessor prior to consignation except that given in Exh. 10; he has failed to prove the second notice after consignation except the two made in Exh. 12; and he has failed to pay the rentals for the months of July and August, 1977 as of the time the complaint was filed for the eviction of the lessee. We hold that the evidence is clear, competent and convincing showing that the lessee has violated the terms of the lease contract and he may, therefore, be judicially ejected. The other matters raised in the appeal are of no moment. The motion to dismiss filed by respondent on the ground of "want of specific assignment of errors in the appellant's brief, or of page references to the records as required in Section 16(d) of Rule 46," is without merit. The petition itself has attached the decision sought to be reviewed. Both Petition and Memorandum of the petitioner contain the summary statement of facts; they discuss the essential requisites of a valid consignation; the erroneous conclusion of the respondent Judge in reversing the decision of the City Court, his grave abuse of discretion which, the petitioner argues, "has so far departed from the accepted and usual course of judicial proceeding in the matter of applying the law and jurisprudence on the matter." The Memorandum further cites other basis for petitioner's plea. In Our mind, the errors in the appealed decision are sufficiently stated and assigned. Moreover, under Our rulings, We have stated that: "This Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. Also, an unassigned error closely related to an error properly assigned or upon which the determination of the questioned raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error." (Ortigas, Jr. vs. Lufthansa German Airlines, L-28773, June 30, 1975, 64 SCRA 610). "Under Section 5 of Rule 53, the appellate court is authorized to consider a plain error, although it was not specifically assigned by the appellant." (Dilag vs. Heirs of Resurreccion, 76 Phil. 649). "Appellants need not make specific assignment of errors provided they discuss at length and assail in their brief the correctness of the trial court's findings regarding the matter. Said discussion warrants the appellate court to rule upon the point because it substantially complies with Section 7, Rule 51 of the Revised Rules of Court, intended merely to compel the appellant to specify the questions which he wants to raise and be disposed of in his appeal. A clear discussion regarding an error allegedly committed by the trial court accomplishes the purpose of a particular assignment of error." (Cabrera vs. Belen, 95 Phil. 54; Miguel vs. Court of Appeals, L-20274, Oct. 30, 1969, 29 SCRA 760-773, cited in Moran, Comments on the Rules of Court, Vol. II, 1970 ed., p. 534). "Pleadings as well as remedial laws should be construed liberally in order that the litigants may have ample opportunity to prove their respective claims, and that a possible denial of substantial justice, due to legal technicalities, may be avoided." (Concepcion, et al. vs. The Payatas Estate Improvement Co., Inc., 103 Phil. 1017). WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of First Instance of Cebu, 14th Judicial District, Branch XII is hereby REVERSED and SET ASIDE, and the decision of the City Court of Cebu, Branch II is hereby reinstated, with costs in favor of the petitioner. SO ORDERED. ---------------------------------------------------------JOSE DE LEON, CECILIO DE LEON, ALBINA DE LEON, in their individual capacity, and JOSE DE LEON and CECILIO DE LEON, as administrators of the intestate estate of Felix de Leon, petitioner, vs. ASUNCION SORIANO, respondent. [G.R. No. L-2724. August 24, 1950.] SYLLABUS 1.OBLIGATIONS AND CONTRACTS; DETERMINATE AND GENERIC THING, DISTINGUISHED. A determinate thing is a concrete particularized object indicated by its own individuality, while a generic thing is one whose determination is confined to that of its nature, to the genus (genero) to which it pertains, such as a horse, a chair. 2.ID.; AGREEMENT TO DELIVER AMOUNT OF CROPS; WHEN FORTUITOUS CAUSE DID NOT EXCUSED PERFORMANCE. Except as to quality and quantity, the first of which is itself

generic, the contract sets no bounds or limits to that palay to be paid, nor was there even any stipulation that the cereal was to be the produced of any particular land. Any palay of the quality stipulated regardless of origin or however acquired (lawfully) would be obligatory on the part of the obligee to receive and would discharge the obligation. It seems therefore plain that the alleged failure of crops through alleged fortuitous cause did not excuse performance. D E C IS IO N TUASON, J p: This is an appeal by certiorari from a decision of the Court of Appeals affirming a judgment of the Court of First Instance of Bulacan. Jose de Leon, Cecilio de Leon and Albina de Leon, petitioners herein and defendants in the court below, were natural children of Felix de Leon, deceased, while Asuncion Soriano, respondent herein and plaintiff below, is his widow. In the administration and settlement of the decedent's estate then pending in the Court of First Instance, the said widow, on the one hand, and the natural children, on the other, reached on March 23, 1943 an agreement, approved by the probate court, whereby the natural children obligated themselves, among other things, as follows: "2.At the end of each agricultural year, by which shall be understood for the purposes of this agreement the month of March of every year, the following amounts of palay shall be given to the party of the FIRST PART (Asuncion Soriano) by the parties of the SECOND PART (De Leons): in the month of March of the current year 1943; one thousand two hundred (1,200) cavanes of palay (macan); in the month of March of 1944, one thousand four hundred (1,400) cavanes of palay (macan); in the month of March 1945, one thousand five hundred (1,500) cavanes of palay (macan); and in the month of March of 1946 and every succeeding year thereafter, one thousand six hundred (1,600) cavanes of palay (macan). Delivery of the palay shall be made in the warehouse required by the government, or if there be none such, at the warehouse to be selected by the party of the FIRST PART, in San Miguel, Bulacan, free from the cost of hauling, transportation, and from any and all taxes or charges. "It is expressly stipulated that this annual payment of palay shall cease upon the death of the party of the FIRST PART and shall not be transmissible to her heirs or to any other person, but during her lifetime this obligation for the annual payment of the palay hereinabove mentioned shall constitute a first lien upon all the rice lands of the estate of Dr. Felix de Leon in San Miguel, Bulacan." The defendants made deliveries to the plaintiff of 1,200 cavanes of palay in 1934, 700 in 1944, 200 in 1945, and another 200 in 1946, a total of 2,300 cavanes which was 3,400 cavanes short of the 5,700 cavanes which should have been delivered up to and including 1946. It was to recover this shortage or its value that this action was commenced. For answer, the defendants averred that their failure to pay the exact quantities of palay promised for 1944, 1945 and 1946 was due to "the Huk troubles in Central Luzon which rendered impossible full compliance with the terms of the agreement;" and it was contended that "inasmuch as the obligations of the defendants to deliver the full amount of the palay is depending upon the produce as this is in the nature of an annuity, . . . the obligations of the defendants have been fully fulfilled by delivering in good faith all that could be possible under the circumstances." The court gave judgment for the plaintiff for 3,400 cavanes of palay or its equivalent in cash, which was found to be 24,900, and legal interest, As above stated, that judgment was affirmed by the appellate court. Article 1182 of the Civil Code which was in force at the time the agreement in question was entered into, provides that "Any obligation which consists in the delivery of a determinate thing shall be extinguished if such thing should be lost or destroyed without fault on the part of the debtor and before he is in default. Inversely, the obligation is not extinguished if the thing that perishes is indeterminate. Manresa explains the distinction between determinate and generic thing in his comment on article 1096 of the Civil Code of Spain, saying that the first is a concrete, particularized object, indicated by its own individuality, while a generic thing is one whose determination is confined to that of its nature, to the genus (genero) to which it pertains, such as a horse, a chair. These definitions are in accord with the popular meaning of the terms defined. Except as to quality and quantity, the first of which is itself generic, the contract sets no bounds or limits to the palay to be paid, nor was there even any stipulation that the cereal was to be the produce of any particular land. Any palay of the quality stipulated regardless of origin on however

acquired (lawfully) would be obligatory on the part of the obligee to receive and would discharge the obligation. It seems therefore plain that the alleged failure of crops through alleged fortuitous cause did not excuse performance. As Escriche, in his Diccionario Razonado de Legislacion y Jurisprudencia, puts it, speaking of the effects of the loss of a thing: "Extingue la obligacion del deudor cuando la cosa debida es un cuerpo cierto y determinado: pero si fuese generica o no estuviese determinada sino en cuanto a la especie, como por ejemplo, una onza de oro, 50 panegas de trigo o 3 toneladas de vino, siempre se perderia para el deudor, el cual, por consiguiente, no se libraria de la deuda, ya que se supone que el genero por su naturaleza nunca parece, 'nun quan genusperit', ya porque aunque se diga que parece ro puede parecer, sino para su dueo, que es el deudor 'res domino suo perit'. (Libro 18 y su glosa 1.a Titulo 11, Partida 5.a) And he gives this example: "Si prestais, pues, a Pedro una onza de oro que luego le roban, tendra que pagartela, porque su obligacion no consistia en haberte de dar aquella misma onza, sino generalmente una onza." In the case of Yu Tek & Co., vs. Gonzales (29 Phil., 384), it appeared that the plaintiff advanced P3,000 to defendant in payment of 600 piculs of sugar. The contract in writing did not specify that the sugar was to come from the crop on defendant's land which was destroyed. It was held that the sugar to be sold not having been segregated, the sale was not perfected and the loss of the crop, even though through force majeure did not extinguish defendant's obligation to deliver the sugar. In the more recent decision of this Court, in the case of Reyes vs. Caltex (Phil.) Inc. (47 Off. Gaz., 1193; 84 Phil., 654), a question similar to that at bar arose. There, we ruled that the inability of the lessee of a commercial property to pay the stipulated rent because of war and because the premises had been occupied by Japanese forces did not affect the lessee's liability to fulfill its commitments. Shifting to American authorities, we cited Pollard vs. Shaefer (1 Dall. [Pa.], 210), where the Court said that, "since by the lease, the lessee was to have the advantage of casual profits of the leased premises, he should run the hazard of casual losses during the term and not lay the whole burden of them upon the lessor." This court went on to say: "The general rule on performance of contracts is graphically set forth in American treatises, which is also the rule, in our opinion, obtaining under the Civil Code. "Where a person by a contract charges himself with an obligation possible to be performed, he must perform it, unless its performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule that in case the party desires to be excused from performance in the event of contingencies arising, it is his duty to provide therefor in his contract. Hence, performance is not excused by subsequent' inability to perform, by unforeseen difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by the breaking of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits to be had under the contract, by weather conditions, by financial stringency, or by stagnation of business. Neither is performance excused by the fact that the contract turns out to be hard and improvident, unprofitable or impracticable, ill advised, or even foolish, or less profitable, or unexpectedly burdensome. (17 C. J. S. 946-948)."In the absence of a statute to the contrary, conditions arising from a state of war in which the country is engaged, will not ordinarily constitute an excuse for non-performance of contract; and impossibility of performance arising from the acts of the legislature and the executive branch of government in war time does not, without more, constitute an excuse for nonperformance. (17 C. J. S., 953, 954.) "A few words are in order to straighten out the apparent confusion (of ideas) that exists regarding the influence of fortuitous events in contracts; when they excuse performance and when not. "In considering the effect of impossibility of performance on the rights of the parties, it is necessary to keep in mind the distinction between: (1) Natural impossibility preventing performance from the nature of the things and (2) impossibility in fact, in the absence of inherent impossibility in the nature of the thing stipulated to be performed. (17 C. J. S., 951.) In the words of one Court impossibility must consist in the nature of thing to be done and not in the inability of the party to do it. (City of Montpelier vs. National Surety Co., 122 A., 484; 97 Vt., Ill; 33 A. L. R., 489.) As others have put it, to bring the case within the rule of impossibility, it must appear that the thing to be done cannot by any means be accomplished, for if it is only improbable or out of the power of the obligor, it is not in law deemed impossible. (17 C. J. S., 442). The first class of impossibility goes to the consideration and

renders the contract void. The second, which is the class of impossibility that we have to do here, does not. (17 C. J. S., 951, 952.) "For illustration, where the entire product of a manufacturer was taken by the government under orders pursuant to a commandeering statute during the World War, it was held that such action excused non-performance of a contract to supply civilian trade. (40 S. Ct., 5; 252 U. S., 493; 64 Law. ed., 1031.) Another example: where a party obligates himself to deliver certain (determinate) things and the things perish through war or in a shipwreck performance is excused, the destruction operating as a rescission or dissolution of the covenant. But if the promisor is unable to deliver the goods promised and his inability arises, not from their destruction but from, say, his inability to raise money to buy them due to sickness, typhoons, or the like, his liability is not discharged. In the first case, the doing of the thing which the obligor finds impossible is the foundation of the undertaking. (C. J. S., 951, note.) In the second, the impossibility partakes of the nature of the risk which the promisor took within the limits of his undertaking of being able to perform. (C. J. S., supra, 946, note). It is a contingency which he could have taken due precaution to guard against in the contract. "Summoning the above principles to our aid, and by way of hypothesis, the defendant-appellee here would be relieved from the obligation to pay rent if the subject matter of the lease, were this possible had disappeared, for the personal occupation of the premises is the foundation of the contract, the consideration that induced it (lessee) to enter into the agreement. But a mere trespass with which the landlord had nothing to do is a casual disturbance not going to the essence of the undertaking. It is a collateral incident which might have been provided for by a proper stipulation." See also Lacson et al. vs. Diaz, supra, p. 150. The decision of the Court of Appeals is affirmed with costs against the petitioners and appellants. ---------------------------------------------------------[G.R. No. 124922. June 22, 1998.] JIMMY CO, doing business under the name & style DRAGON METAL MANUFACTURING, petitioner, vs. COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION, respondents. SYNOPSIS On July 18, 1990, petitioner entrusted his car to private respondent for some repair including battery replacement, the latter undertaking to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job contract. But came July 21, 1990, the latter could not release the vehicle as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. However, the battery was not installed and the delivery of the car was rescheduled to July 24, 1990. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by an employee of private respondent. The RTC, in a suit for damages filed by petitioner against private respondent, found the latter guilty of delay in the performance of its obligation and held it liable to petitioner for the value of the lost vehicle and its accessories plus interest and attorney's fees. On appeal, the Court of Appeals reversed the lower court's ruling. It ruled that the vehicle was lost due to a fortuitous event. Hence this petition for review. In reversing the Court of Appeals, the Supreme Court held that carnapping per se cannot be considered as a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it. Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165 of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. SYLLABUS 1.REMEDIAL LAW; CIVIL PROCEDURE, PRE-TRIAL; RULE THAT THE DETERMINATION OF ISSUES AT PRE-TRIAL CONFERENCE BARS THE CONSIDERATION OF OTHER ISSUES ON APPEAL, INAPPLICABLE IN CASE AT BAR. Contrary to the CA's pronouncement, the rule that the determination of issues at a pre-trial conference bars the consideration of other issues on appeal, except those that may involve privilege or impeaching matter, is inapplicable to this case.

The question of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties, i.e., who will bear the loss and whether there was negligence. Petitioner's imputation of negligence to private respondent is premised on delay which is the very basis of the former's complaint. Thus, it was unavoidable for the court to resolve the case, particularly the question of negligence without considering whether private respondent was guilty of delay in the performance of its obligation. aDACcH 2.ID.; EVIDENCE; BURDEN OF PROOF; RESTS ON HIM WHO INVOKES FORTUITOUS EVENT. It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. 3.CIVIL LAW; OBLIGATIONS AND CONTRACT; AN OBLIGOR GUILTY OF DELAY IS RESPONSIBLE EVEN FOR A FORTUITOUS EVENT UNTIL HE HAS EFFECTED DELIVERY . Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165 of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was supposed to deliver petitioner's car three (3) days before it was lost. Petitioner's agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such occasion cannot be construed as waiver of petitioner's right to hold private respondent liable because the car was unusable and thus, petitioner had no option but to leave it. 4.ID.; ID.; LEGAL PRESUMPTION THAT THE LOSS OF A THING WAS DUE TO THE FAULT OF THE ONE IN POSSESSION AT THE TIME OF THE LOSS. Assuming further that there was no delay, still working against private respondent is the legal presumption under Article 1265 that its possession of the thing at the time it was lost was due to its fault. This presumption is reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent's possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances earthquake, flood, storm or other natural calamity when the presumption of fault is not applicable do not concur in this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the exceptions, private respondent is answerable for the loss. 5.ID.; ID.; REPAIR SHOPS ARE REQUIRED TO SECURE AN INSURANCE POLICY COVERING THE MOTOR VEHICLE ENTRUSTED FOR REPAIR; VIOLATION OF THIS STATUTORY DUTY CONSTITUTES NEGLIGENCE PER SE. It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk." Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI) and to secure an insurance policy for the "shop covering the property entrusted by its customer for repair, service or

maintenance" as an pre-requisite for such registration/accreditation. Violation of this statutory duty constitutes negligence per se. Having taken custody of the vehicle, private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he losses immediate control. An owner who cannot exercise the seven (7) juses or attributes of ownership the right to possess, to use and enjoy, to abuse or consume, to accessories, to dispose or alienate, to recover or vindicate and to the fruits is a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent's repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies. 6.ID.; ID.; LIABILITY OF REPAIR SHOP ON LOST VEHICLES AND ACCESSORIES SHOULD BE BASED ON ITS FAIR MARKET VALUE AT THE TIME IT WAS ENTRUSTED OR SUCH VALUE AS AGREED UPON SUBSEQUENT TO THE LOSS. One last thing. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable, it should be based on the fair market value that the property would command at the time it was entrusted to it or such other value as agreed upon by the parties subsequent to the loss. Such recoverable value is fair and reasonable considering that the value of the vehicle depreciates. This value may be recovered without prejudice to such other damages that a claimant is entitled under applicable laws. AECDHS D E C IS IO N MARTINEZ, J p: On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model 1 to private respondent which is engaged in the sale, distribution and repair of motor vehicles for the following job repair services and supply of parts: Bleed injection pump and all nozzles; Adjust valve tappet; Change oil and filter; Open up and service four wheel brakes, clean and adjust; Lubricate accelerator linkages; Replace aircon belt; and Replace battery 2 Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job contract. After petitioner paid in full the repair bill in the amount of P1,397.00, 3 private respondent issued to him a gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not release the vehicle as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. However, the battery was not installed and the delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by private respondent's employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the incident was reported to the police. Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against private respondent anchoring his claim on the latter's alleged negligence. For its part, private respondent contended that it has no liability because the car was lost as a result of a fortuitous event the carnapping. During pre-trial, the parties agreed that: "(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the defendant is P332,500.00 excluding accessories which were installed in the vehicle by the plaintiff consisting of four (4) brand new tires, magwheels, stereo speaker, amplifier which amount all in all to P20,000.00. It is agreed that the vehicle was lost on July 24, 1990 'approximately two (2) years and five (5) months from the date of the purchase'. It was agreed that the plaintiff paid the defendant the cost of service and repairs as early as July 21, 1990 in the amount of P1,397.00 which amount was received and duly receipted by the defendant company. It was also agreed that the present value of a brand new vehicle of the same type at this time is P425,000.00 without accessories." 4 They likewise agreed that the sole issue for trial was who between the parties shall bear the loss of

the vehicle which necessitates the resolution of whether private respondent was indeed negligent. 5 After trial, the court a quo found private respondent guilty of delay in the performance of its obligation and held it liable to petitioner for the value of the lost vehicle and its accessories plus interest and attorney's fees. 6 On appeal, the Court of Appeals (CA) reversed the ruling of the lower court and ordered the dismissal of petitioner's damage suit. 7 The CA ruled that: (1) the trial court was limited to resolving the issue of negligence as agreed during pre-trial; hence it cannot pass on the issue of delay; and (2) the vehicle was lost due to a fortuitous event. In a petition for review to this Court, the principal query raised is whether a repair shop can be held liable for the loss of a customer's vehicle while the same is in its custody for repair or other job services? The Court resolves the query in favor of the customer. First, on the technical aspect involved. Contrary to the CA's pronouncement, the rule that the determination of issues at a pre-trial conference bars the consideration of other issues on appeal, except those that may involve privilege or impeaching matter, 8 is inapplicable to this case. The question of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court considering that it is necessarily intertwined and intimately connected with the principal issue agreed upon by the parties, i.e. who will bear the loss and whether there was negligence. Petitioner's imputation of negligence to private respondent is premised on delay which is the very basis of the former's complaint. Thus, it was unavoidable for the court to resolve the case, particularly the question of negligence without considering whether private respondent was guilty of delay in the performance of its obligation. On the merits. It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. 9 In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it 10 which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165 11 of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was supposed to deliver petitioner's car three (3) days before it was lost. Petitioner's agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot be construed as waiver of petitioner's right to hold private respondent liable because the car was unusable and thus, petitioner had no option but to leave it. Assuming further that there was no delay, still working against private respondent is the legal presumption under Article 1265 that its possession of the thing at the time it was lost was due to its fault. 12 This presumption is reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent's possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances earthquake, flood, storm or other natural calamity when the presumption of fault is not applicable 13 do not concur in this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the

exceptions, private respondent is answerable for the loss. It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk". 14 Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI) 15 and to secure an insurance policy for the "shop covering the property entrusted by customer for repair, service or maintenance" as a pre-requisite for such registration/accreditation. 16 Violation of this statutory duty constitutes negligence per se. 17 Having taken custody of the vehicle, private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he loses immediate control. An owner who cannot exercise the seven (7) juses or attributes of ownership the right to possess, to use and enjoy, to abuse or consume, to accessories, to dispose or alienate, to recover or vindicate and to the fruits 18 is a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent's repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies. One last thing. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable, it should be based on the fair market value that the property would command at the time it was entrusted to it or such other value as agreed upon by the parties subsequent to the loss. Such recoverable value is fair and reasonable considering that the value of the vehicle depreciates. This value may be recovered without prejudice to such other damages that a claimant is entitled under applicable laws. WHEREFORE, premises considered, the decision of the Court Appeals is REVERSED and SET ASIDE and the decision of the court a quo is REINSTATED. SO ORDERED. ---------------------------------------------------------TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., plaintiffs-appellants, vs. SALVADOR SERRA, defendant-appellee. [G.R. No. 22825. February 14, 1925.] SYLLABUS 1.OBLIGATIONS; CONTRACTS; NOVATION; CONSENT OF CREDITOR. In order that there may be a novation of a contract by the substitution of the debtor, the express consent of the creditor is necessary. 2.ID.; ID.; ID.; TIME AND FORM OF CONSENT. It is not necessary that the creditor should give his consent simultaneously with the execution of the new contract. He may do so afterwards, provided it is given in an indubitable manner. 3.ID.; ID.; ID.; EVIDENCE. The mere fact that the creditor has dealt with the person who is alleged to have been substituted in the place of the original debtor on matters different from the obligation incurred does not prove that said creditor has consented to the substitution so as to liberate the original debtor from his obligations, it not appearing that the creditor has taken part in the agreement of substitution or that he has waived his right against debtor. 4.ID.; ID.; CONFUSION. The rights of creditor and debtor are not merged in one same person by the fact that the things pertaining to said creditor and debtor which were the subject of the obligation were transferred to him where said transfer did not include, among the rights and obligations transferred, the credit that the creditor had against the debtor. 5.ID.; ID.; PARTNERSHIP; DISSOLUTION; EFFECTS OF. The dissolution of a partnership does not extinguish its obligations already incurred, and the partnership continues until they are liquidated, although it may not incur new obligations. 6.ID.; ID.; ID.; ID.; PERIOD. Obligations contracted by a partner with his copartners, for the fulfillment of which a period was fixed, become pure obligations upon the immediate dissolution of the partnership by agreement of the members, and the partner entitled to enforce them may bring an action for the purpose after the dissolution agreed upon by the parties, without the necessity of waiting for the expiration of the period originally fixed.

D E C IS IO N VILLAMOR, J p: On February 1, 1919, plaintiffs and defendant entered into a contract of partnership, marked Exhibit A, for the construction and exploitation of a railroad line from the "San Isidro" and "Palma" centrals to the place known as "Nandong". The original capital stipulated was P150,000. It was covenanted that the parties should pay this amount in equal parts and the plaintiffs were entrusted with the administration of the partnership. The agreed capital of P150,000, however, did not prove sufficient, as the expenses up to May 15, 1920, had reached the amount of P226,092.92, as per statement Exhibit B, presented by the administrator and O. K.'d by the defendant. January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the estate and central known as "Palma" with its running business, as well as all the improvements, machineries and buildings, real and personal properties, rights, choses in action and interests, including the sugar plantation of the harvest year of 1920 to 1921, covering all the property of the vendor. This contract was executed before a notary public of Iloilo and is evidence by Exhibit 1 of the defendant, paragraph 5 of which reads as follows: "5.The party of the first part hereby states that he has entered into a contract with the owners of the 'San Isidro' Central for the construction, operation, and exploitation of a railroad line of about 10 kilometers extending from the 'Palma' Central and 'San Isidro' Central to a point known as 'Nandong', the expenses until the termination of which shall be for the account of the 'San Isidro' Central, and of which expenses, one-half shall be borne by the 'Palma' Central with the obligation to reimburse same five (5) years with interest at the rate of 10 per cent per annum to the said 'San Isidro' Central. The vendee hereby obligates himself to respect the aforesaid contract and all obligations arising therefrom." Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker and the herein defendant executed before Mr. Antonio Sanz, a notary public in and for the City of Manila, another deed of absolute sale of the said "Palma" Estate for the amount of P1,695,961.90, of which the vendor received at the time of executing the deed the amount of P945,861.90, and the balance was payable by installments in the form and manner stipulated in the contract. The purchasers guaranteed the unpaid balance of the purchase price by a first and special mortgage in favor of the vendor upon the hacienda and the central with all the improvements, buildings, machineries, and appurtenances then existing on the said hacienda. Clause 6 of the deed of July 17, 1920, contains the following stipulations: "6.Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state that they are aware of the contract that Mr. Salvador Serra has with the proprietors of the 'San Isidro' Central for the operation and exploitation of a railroad line about 10 kilometers long from the 'Palma' and hereby and 'San Isidro' centrals to the place known as 'Nandong;' and hereby obligate themselves to respect the said contract and subrogate themselves into the rights and obligations thereunder. They also bind themselves to comply with all the contracts heretofore entered by the vendor with the customers, copaceners on shares and employees." Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one half of the railroad line pertaining to the latter executing therefor the document Exhibit 5. The price of this sale was P237,722.15, excluding any amount which the defendant might be owing to the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid the sum of P47,544.43 only. In the deed Exhibit 5, the plaintiffs and Concepcion and Whitaker agreed, among other things, that the partnership "Palma" and "San Isidro," formed by the agreement of February 1, 1919, between Serra, Lazaro Mota, now deceased, and Juan J. Vidaurrazaga for himself and in behalf of his brothers, Felix and Dionisio Vidaurrazaga, should be dissolved upon the execution of this contract, and that the said partnership agreement should be totally cancelled and of no force and effect whatever. So it results that the "Hacienda Palma", with the entire railroad, the subject-matter of the contract of partnership between plaintiffs and defendant, became the property of Whitaker and Concepcion. Phil. C. Whitaker and Venancio Concepcion having failed to pay to the defendant a part of the purchase price, that is, P750,000, the vendor, the herein defendant, foreclosed the mortgage upon

the said hacienda, which was adjudicated to him at the public sale held by the sheriff for the amount of P500,000, and the defendant put in possession thereof, including what was planted at the time, together with all the improvements made by Messrs. Phil. C. Whitaker and Venancio Concepcion. Since the defendant Salvador Serra failed to pay one-half of the amount expended by the plaintiffs upon the construction of the railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the plaintiffs instituted the present action praying: (1) That the deed of February 1, 1919, be declared valid and binding; (2) that after the execution of the said document the defendant improved economically so as to be able to pay the plaintiffs the amount owed, but that he refused to pay either in part or in whole the said amount notwithstanding the several demands made on him for the purpose; and (3) that the defendant be sentenced to pay the plaintiffs the aforesaid um of P113,046.46, with the stipulated interest at 10 per cent per annum beginning June 4, 1920, until full payment thereof, with the costs of the present action. Defendant set up three special defenses: (1) The novation of the contract by the substitution of the debtor with the conformity of the creditors; (2) the confusion of the rights of the creditor and debtor; and (3) the extinguishment of the contract, Exhibit A. The court a quo in its decision had that there was a novation of the contract by the substitution of the debtor, and therefore absolved the defendant from the complaint with costs against the plaintiffs. With regard to the prayer that the said contract be declared valid and binding, the court held that there was no way of reviving the contract which the parties themselves in interest has spontaneously and voluntarily extinguished. (Exhibit 5.) Plaintiffs had appealed form this judgment and as causes for the review, they allege that the trial court erred: (a) In holding that Messrs. Whitaker and Concepcion, upon purchasing the "Palma" Central, were subrogated in the place of the defendant in all his rights and obligations under the contract relating to the railroad line existing between the "Palma" and the "San Isidro" centrals and that the plaintiffs agreed to this subrogation; (b) in holding that the deed Exhibit A of February 1, 1919, had been extinguished in its entirety and made null and void by the agreement Exhibit 5 dated December 16, 1920; (c) in absolving the defendant from the complaint and in sentencing the plaintiffs to pay the costs; and (d) in not sentencing the defendant to pay the plaintiffs the sum of P133,046.46, with legal interest at 10 per cent per annum from June 4, 1920, until full payment, with cost against the defendant. Taking for granted that the defendant was under obligation to pay the plaintiffs one-half of the cost of the construction of the railroad line in question, by virtue of the contract of partnership Exhibit A, the decisive point here to determine is whether there was a novation of the contract by the substitution of the debtor with the consent of the creditor, as required by article 1205 of the Civil Code. If so, it is clear that the obligation of the defendant was, in accordance with article 1156 of the same code, extinguished. It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by a new one, it implies on the part of the creditor a waiver of the right that he had before the novation which waiver must be express under the principle that renuntiatio non praesumitor, recognized by the law in declaring that a waiver of right may not be performed unless the will to waive is indisputably shown by him who holds the right. The fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the defendant's obligation to the plaintiffs is of no avail, if the latter have no expressly consented to the substitution of the first debtor. Neither can the letter, Exhibit 6, on page 87 of the record be considered as proof of the consent of the plaintiffs to the substitution of the debtor, because that exhibit is a letter written by plaintiffs to Phil. C. Whitaker and Venancio Concepcion for the reason that the defendant had told them (plaintiffs) that after the sale of the 'Hacienda Palma" to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter from then on would bear the cost of the repairs and maintenance of the railroad line and of the construction of whatever addition there into might be necessary. So the plaintiffs by their letter of August 14th, submitted a statement of account to Phil. C. Whitaker and Venancio Concepcion containing the accounts of the "San Isidro" Central, as stated June 30, 1920, saying that they had already explained previously the reason for the increase in the expenses and since the retiring partner, Mr. Serra, had already given his conformity with the accounts, as stated May 15, 1920, it remained only to hear the conformity of the new purchasers for the accounts

covering the period from May 15 to June 30, 1920, and their authority for future investments, or their objection, if any, to the amounts previously expended. Neither can the testimony of Julio Infante in connection with Exhibit 7 be taken as evidence of the consent of the plaintiffs to the exchange of the person of the debtor for that of Messrs. Phil. C. Whitaker and Venancio Concepcion. This witness testified, in substance, that he is acquainted with the partnership formed by the owners of the "Hacienda Palma" and "Hacienda San Isidro" for the construction of the railroad line; that the costs of the construction thereof was originally estimated at P150,000; that the owner of the "Hacienda Palma" would pay one-half of this amount; that when the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter agreed to pay one-half of the cost of P150,000; that as the cost of construction exceeded P200,000, he, as an employee of Messrs. Phil. C. Whitaker and Venancio Concepcion, could not O.K. the accounts as presented by the plaintiffs, and suggested that they take up in writing their points of view directly with Messrs. Phil. C. Whitaker and Venancio Concepcion. Then the plaintiffs did as suggested, and wrote the letter Exhibit 7 in which they asked the new owners of the "Hacienda Palma" their decision upon the following three questions: 1. Will the "Palma" Central accept the statement of accounts as presented by the "San Isidro" Central regarding the actual cost of the railroad line "Palma-San Isidro-Nandong?" 2. Is the "Palma" Central willing to continue as co-proprietor of the railroad line for the exploitation of the sugar-cane business of "Nandong" and neighboring barrios, and therefore to pay 50 per cent of the expenses that may incurred in completing the line? It was but natural that the plaintiffs should have done this. Defendant transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio Concepcion and made it known to the plaintiffs that the owners would hold themselves liable for the cost of constructing the said railroad line. Plaintiffs could not prevent the defendant from selling to Phil. C. Whitaker and Venancio Concepcion his "Hacienda Palma" with the rights that he had over the railroad in question. The defendant ceased to be a partner in the said line and, therefore, the plaintiffs had to take the vendees as their new partners. Plaintiffs had to come to an understanding with the owners of the "Hacienda Palma" in connection with the railroad line "Palma-San Isidro Nandong." But in all of this, there was nothing to show the express consent, the manifest and deliberate intention of the plaintiffs to attempt the defendant from his obligation and to transfer it to his successors in interest, Messrs. Phil. C. Whitaker and Venancio Concepcion. The plaintiffs were not a party to the document Exhibit 1. Neither in this document, nor in others in the record, do we find any stipulation whereby the obligation of the defendant was novated with the consent of the creditor, and as it has been held in the case of Martinez vs. Cavives (25 Phil., 581), the oral evidence tending to prove such a fact as this is not in law sufficient. As has been said, in all contracts of novation consisting in the change of the debtor, the consent of the creditor indespensable, pursuant to article 1205 of the Civil Code which reads as follows: "Novation which consist in the substitution of a new debtor in the place of the original one may be made without the knowledge of the latter, but not without the consent of the creditor." Mr. Manresa in his commentaries on articles 1205 and 1206 of the Civil Code (vol. 8, 1907 ed., pp. 424-426) says as follows: "Article 1205 clearly says in what this kind of novation must consist, because in stating that another person must be substituted in lieu of the debtor, it means that it is not enough to extend the juridical relation to that other person, but that it is necessary to place the latter in the same position occupied by the original debtor. "Consequently, the obligation contracted by a third person to answer for the debtor, as in the case of suretyship, in the last analysis, does not work as a true novation, because the third person is not put in the same position as the debtorthe latter in his same place and with the same obligation which is guaranteed by the former. "Since it is necessary that the third person should become a debtor in the same position as the debtor whom he substitutes, this charge and the resulting novation may be respected as to the whole debt, thus untying the debtor from his obligation, except the eventual responsibilities of which we shall speak later, or he may continue with the character of such debtor and also allow the third person to participate in the obligation. In the first case, there is a complete and perfect novation; in the second, there is a change that does not free the debtor nor authorized the extinguishment of the accessory obligations of the latter. In this last hypothesis, if there has been no agreement as to solidarity, the first and the new debtor should be considered as obligated severally.

"The provisions of article 1205 which require the consent of the creditor as an indespensable requisite in this kind of novation and not always that of the debtor, while not making it impossible to express the same, imply the distinction between these forms of novation and it is based on the simple consideration of justice that since the consequences of the substitution may be prejudicial to the creditor, but not to the debtor, the consent of the creditor alone is necessary. "The two forms of this novation, also impliedly recognized by article 1206 which employs the word 'delagate,' as applied to the debt, are the expromission and the delegation. Between these, there is a marked difference of meaning and, sa a consequence, a logical difference of requisite and another clear difference as to their effects, of which we shall speak later. "In the expromission, the initiative of the change does not emanate from the debtor and may be made even without his consent, since it consist in a third person assuming his obligation; it logically requires the consent of this third man and of the creditor and of this last requisite lies the difference between novation and payment, as the latter can be effected by a third person even against the will of the creditor, whereas in the former case it cannot. "In the delegation, the debtor offers and the creditor accepts a third person who consents to the substitution so that the intervention and the consent of these three persons are necessary and they are respectively known as delegante, delegatario, and delegado. It must be noted that the consent need not be given simultaneously and that it may be given afterwards, as for example, that of the creditor delegatario to the proposition of the debtor accepted by the delegado. "Delegation notably differs from the mere indication made by the debtor that a third person shall pay the debt; in this case, there is no novation and the former is not acquitted of his obligation and his relations with the third person are regulated by the rules of agency. The French Code in article 1276 expressly provides for this case, as well as the inverse one where the debtor points out somebody else to answer for the payment, declaring that there is no novation in either case. The same sound criterion is impliedly accepted by our Code." In the case of E. C. McCullough & Co. vs. Veloso and Serna (46 Phil., 1), it appears that McCullough & Co., Inc., sold to Veloso a real state worth P700,000 on account of which Veloso paid P50,000, promising to pay the balance at the times and manner stipulated in the contract. He further bound himself to pay 10 per cent of the amount of the debt as attorney's fees in case of litigation. To secure the unpaid balance of the purchase price he executed a first mortgage upon the property in favor of the vendor. Subsequently, Veloso sold the property for P100,000 to Joaquin Serna who bound himself to respect the mortgage in favor of McCullough & Co., Inc., and to assume Veloso's obligation to pay the unpaid balance of the purchase price of the property at the times agreed upon in the contract between Veloso and McCullough & Co., Inc. Veloso had paid on account of the price the amount of P50,000, and Serna also made several payments aggregating the total amount of P250,000. But after this, neither Veloso nor Serna made further payments and thus gave cause for litigation. The court in deciding the case said: "The defendant contends that having sold the property to Serna, and the latter having assumed the obligation to pay the plaintiff the unpaid balance of the price secured by the mortgage upon the property, he was relieved from this obligation and it then devolved upon Serna to pay the plaintiff. This means that as a consequence of the contract between the defendant and Serna, the contract between the defendant and the plaintiff was novated by the substitution of Serna as new debtor. This is untenable. In order that this novation may take place, the new law requires the consent of the creditor (art. 1205 of the Civil Code). The plaintiff did not intervene in the contract between Veloso and Serna and did not expressly give his consent to this substitution. Novation must be express, and cannot be presumed." In Martinez vs. Cavives (25 Phil., 581), it was held that: ". . . The consent of the new debtor is as essential to the novation as is that of the creditor. "There is no express stipulation in any of the documents of record that the obligation of the defendant was novated, and the parol evidence tending to show that it was novated is not in law to establish that fact." The same doctrine was upheld in the case of Vaca vs. Kosca (26 Phil., 388): "A new debtor cannot be substituted for the original obligor in the first contract without the creditor's consent." The supreme court of Spain has constantly laid down the same doctrine with regard to novation of contracts:

"The obligations and rights in a contract cannot be novated with regard to a third person who has not intervened in the execution thereof." (Decision of June 28, 1860.) "Novation by the change of debtors cannot be effected without the express approval of the creditor." (Decisions of February 8, 1862 and June 12, 1867.) "Novation should not be established by presumptions but by the express will of the parties." (Decisions of February 14, 1876 and June 16, 1883.) "In order that novation of a contract by subrogation of the debtor may take effect and thus liberate the first debtor from the obligation, it is necessary that the subrogation be made with the consent of the creditor." (Decision of March 2, 1897.) "It is undeniable that obligations judicially declared, as well as those acquired by any other title, can be novated by substituting a new debtor in place of the primitive, only when the creditor gives his consent to the substitution." (Decision of November 15, 1899.) "Novation can in no case be presumed in contracts, but it is necessary that it should result from the will of the parties, or that the old and the new one be altogether incompatible." (Decision of December 31, 1904.) "An obligation cannot be deemed novated by means of modifications which do not substantially change the essence thereof, nor when it is not extinguished by another obligation, nor when the debtor is not substituted." (Decision of March 14, 1908.) "The consent of the creditor required in a novation consisting of the charge of debtors (arts. 1205, Civil Code) must appear in an express and positive manner and must be given with the deliberate intention of exonerating the primitive debtor of his obligations and transfer them wholly upon the new debtor." (Decision of June 22, 1911.) In the decision in the case of Martinez vs. Cavives, supra, the following decisions of the several courts of the United States are cited, wherein this question was decided in the same manner: "In Latiolais, admrx. vs. Citizen's Bank of Louisiana (33 La. Ann., 1444), one Duclozel mortgaged property to the defendant bank for the triple purpose of obtaining shares in the capital stock of the bank, bonds which the bank was authorized to issue, and loans to him as stockholder. Duclozel subsequently sold this mortgaged property to one Sproule, who, as one of the terms of the sale, assumed the liabilities of his vendor to bank. Sproule sold part of the property to Graff and Chalfant. The debt becoming due, the bank brought suit against the last two named and Sproule as owners. Duclozel was not made a party. The bank discontinued these proceedings and subsequently brought suit against Latiolais, administratrix of Duclozel, who had died. "The court said: 'But the plaintiff insists that in its petition in the proceeding first brought the bank ratified the sale made by Duclozel to Sproule, and by the latter to other parties, in treating them as owners. Be that so, but it does not follow in the absence of either a formal and express or of an implied consent to novate, which should be irresistibly inferred from surrounding circumstances, that it has discharged Duclozel unconditionally, and has accepted those parties as new delegated debtors in his place. Nemo presumitor donare. "'Novation is a contract, the object of which is: either to extinguish an existing obligation and to substitute a new one in its place; or to discharge an old debtor and substitute a new one to him; or to substitute a new creditor to an old creditor with regard to whom the debtor is discharged. "'It is never presumed. The intention must clearly result from the terms of the agreement or by a full discharge of the original debt. Novation by the substitution of a new debtor can take place without the consent of the debtor, but the delegation does not operate a novation, unless the creditor has expressly declared that he intends to discharge with delegating debtor, and the delegating debtor was not in open failure or insolvency at the time. The mere indication by a debtor of a person who is to pay in his place does not operate a novation. Delegatus debitor est odiosus in lege. "'The most that could be inferred would be that the bank in the exercise of a sound discretion, proposed to better its condition by accepting an additional debtor to be and remain bound with the original one.' "In Fidelity L. & T. Co. vs. Engleby (99 Va., 168), the court said: 'Whether or not a debt has been novated is a question of fact and depends entirely upon the intention of the parties to the particular transaction claimed to be novated. In the absence of satisfactory proof to the contrary, the presumption is that the debt has not been extinguished by taking the new evidence in the absence of an intention expressed or implied, being treated as a conditional payment merely.' "In Hamlin vs. Drummond (91 Me., 175; 39 A., 551), it was said that novation is never presumed but

must always be proven. In Netterstorn vs. Gallistel (110 Ill. App., 352), it was said that the burden of establishing a novation is on the party who asserts its existence; that novation is not easily presumed; and that it must clearly appear before the court will recognized it." Notwithstanding the doctrines above quoted, defendant's counsel calls our attention to the decision of the supreme court of Spain of June 16, 1908, wherein it was held that the provisions of article 1205 of the Code do not mean nor require that the consent of the creditor to the change of a debtor must be given just at the time when the debtors agreed on the substitution, because its evident object being the full protection of the rights of the creditor, it is sufficient if the latter manifests his consent in any form and at any time as long as the agreement among the debtors hold good. And the defendant insists that the acts performed by the plaintiffs after the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion constitute evidence of the consent of the creditor. First of all, we should have an idea of the facts upon which that decision was rendered by the supreme court of Spain. A partnership known as "La Azucarera de Pravia" obtained a fire insurance policy from the company "La Union y Fenix Espaol," by virtue of which, said company insured in consideration of an annual premium of 3,000 pesetas, the buildings, machinery and other apparatuses pertaining to the "Pravia Factory" for ten years and for half their value, and another value insurance from another insurance company insuring the same property and effects for the other half of their value. Later, "La Azucarera de Pravia," with other sugar companies, ceded all its property to another company known as "Sociedad General Azucarera de Espana," in which in consideration of a certain amount of stock that the said "Sociedad General Azucarera de Espana" issued to the "La Azucarera de Pravia," the latter was merged with the former. After the cession, "La Union y Fenix Espaol" sued the "Sociedad General Azucarera de Espana" demanding the payment of the premium that should have been paid by the "La Azucarera de Pravia," which payment the "Sociedad General Azucarera de Espana" refused to make on the ground that the "La Azucarera de Pravia" was not merged with the "Sociedad General Azucarera de Espana," but merely transferred its properties to the latter in consideration of the stock that was issued to the "La Azucarera de Pravia." It was further contended by the "Sociedad General Azucarera de Espana" that even if it were true that in the contract of cession it appeared that the "La Azucarera de Pravia" was merged with the "Sociedad General Azucarera de Espana," nevertheless, there was no such merger in law, for in truth and in fact, the "La Azucarera de Pravia" had ceded only its property, but not its rights and obligations; that the existence of the partnership known as "La Azucarera de Pravia" was proven by its registration in the mercantile register, which was not cancelled, nor did it contain any statement to the effect that the "La Azucarera de Pravia" had been extinguished or had ceased to do business even after the cession of properties to the "Sociedad General Azucarera de Espana." Another argument advanced by the "Sociedad General" was that at the time the "Azucarera de Pravia" ceded its properties to the "Sociedad General Azucarera de Espana," the insurance company "La Union y Fenix Espaol" did not assent to the subrogation of the "Sociedad General Azucarera" into the rights and obligations of the "Azucarera de Pravia," assuming that there had been such a subrogation or substitution of a debtor by another. The supreme court of Spain gave judgment in favor of the "La Union y Fenix Espaol" insurance company for the following reasons: "1.While it is true that it cannot be strictly said that 'La Azucarera de Pravia' was merged with the 'Sociedad General Azucarera de Espana,' the document whereby the property of the 'La Azucarera de Pravia' was ceded to the 'Sociedad General Azucarera de Espaa' clearly and expressly recites that this company upon taking charge of the immovable property of the 'La Azucarera de Pravia' accepted in general, with respect to the property ceded, 'everything belonging to the same,' after making provisions about active and passive easements, contracts for transportation and other matters." The supreme court held that by virtue of the words hereinabove quoted, the "Sociedad General Azucarera de Espana" took over the obligation to pay the insurance premiums of the "La Azucarera de Pravia" inasmuch as said insurance pertained to the property that was ceded. "2.While it is true that 'La Union y Fenix Espaol' insurance company did not give its consent to the contract of cession at the moment of its execution, yet the mere fact that the said insurance company now sues the "Sociedad General Azucarera de Espana' is an incontrovertible proof that the said insurance company accepts the substitution of the new debtor."

By comparing the facts of that case with the defenses of the case at bar, it will be seen that, whereas in the former case the creditor sues the new debtor in the instant case the creditor sues the original debtor. The supreme court of Spain in that case held that the fact that the creditor sued the new debtor was proof incontrovertible of his assent to the substitution of the debtor. This would seem evident because the judicial demand made on the new debtor to comply with the obligation of the first debtor is the best proof that the creditor accepts the change of the debtor. His complaint is an authentic document where his consent is given to the change of the debtor. We are not holding that the creditor's consent must necessarily be given in the same instrument between the first and the new debtor. The consent of the creditor may be given subsequently, but in either case it must be expressly manifested. In the present case, however, the creditor makes judicial demand upon the first debtor for the fulfillment of his obligation, evidently showing by this act that he does not give his consent to the substitution of the new debtor. We are of the opinion that the decision of the supreme court of Spain of June 16, 1908, cannot be successfully invoked in support of defendant's contention. Wherefore, we hold that in accordance with article 1205 of the Civil Code, in the instant case, there was no novation of the contract, by the change of the person of the debtor. Another defense urged by the defendant is the merger of the rights of debtor and creditor, whereby under article 1192 of the Civil Code, the obligation, the fulfillment of which is demanded in the complaint, became extinguished. It is maintained in appellee's brief that the debt of the defendant was transferred to Phil. C. Whitaker and Venancio Concepcion by the document Exhibit 1. These in turn acquired the credit of the plaintiffs by virtue of the debt, Exhibit 5; thus the rights of the debtor and creditor were merged in one person. The argument would at first seem to be incontrovertible, but if we bear in mind that the rights and titles which the plaintiffs sold to Phil. C. Whitaker and Venancio Concepcion refer only to one-half of the railroad line in question, it will be seen that the credit which they had against the defendant for the amount of one-half of the cost of construction of the said line was not included in the sale contained in Exhibit 5. That the plaintiffs sold their rights and titles over one-half of the line, is evident from the very Exhibit 5. The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they had bought and also upon what they had purchased from Mr. Salvador Serra. In other words, Phil C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they had bought from the plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased something from Mr. Salvador Serra, the herein defendant, regarding the railroad line, it was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows that the rights and titles transferred by the plaintiffs to Phil. C. Whitatker and Venancio Concepcion were only those they had over the other half of the railroad line. Therefore, as already stated, since there was no novation of the contract between the plaintiffs and the defendant, as regards the obligation of the latter to pay the former one-half of the cost of the construction of the said railroad line, and since the plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit that they had against the defendant, the allegation that the obligation of the defendant became extinguished by the merger of the rights of creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly untenable. Appellants assign also as a ground of their appeal the holding of the court that by the termination of the partnership, as shown by the document Exhibit 5, no legal rights can be derived therefrom. By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker and Venancio Concepcion, by common consent, decided to dissolve the partnership between the "Hacienda Palma" and "Hacienda San Isidro," thus cancelling the contract of partnership of February 1, 1919. Counsel for appellee in his brief and oral argument maintains that the plaintiffs cannot enforce any right arising out of that contract of partnership, which has been annulled, such as the right to claim now a part of the cost of the construction of the railroad line stipulated in that contract. Defendant's contention signifies that any person, who has contracted a valid obligation with a partnership, is exempt from complying with his obligation by the mere fact of the dissolution of the partnership. Defendant's contention is untenable. The dissolution of a partnership must not be understood in the absolute and strict sense so that at the termination of the object for which it was created the partnership is extinguished, pending the winding up of some incidents and obligations of the partnership, but in such case, the partnership will be reputed as existing until the juridical relations arising out of the contract are dissolved. This doctrine has been upheld by the supreme

court of Spain in its decision of February 6, 1903, in the following case: There was a partnership formed between several persons to purchase some lands sold by the state. The partnership paid the purchase price and distributed among its members the lands so acquired, but after the lapse of some time, one of the partners instituted an action in the court of Badajoz, praying that he be accepted as a partner with the same rights and obligations as others, for the reason that he had not been allowed all that he had a right to. The court granted the petition, which judgment was affirmed by the Audiencia de Caceres. From that decision the defendant sued out a writ of error alleging infringement of articles 1680 and 1700 of the Civil Code, on the proposition that all contracts are reputed consummated and therefore extinguishes, when the contracting parties fulfill all the obligations arising therefrom and that by the payment of the money and the granting and distribution of the lands without any position, the juridical relations between the contracting parties become extinguished and none of the parties has any right of action under the contract. The supreme court, holding that some corrections and liquidations asked by the actor were still pending, denied the writ, ruling that the articles cited were not infringed because a partnership cannot be considered as extinguished until all the obligations pertaining to it are fulfilled. (11 Manresa, page 312.) The dissolution of a firm does not relieve any of its members from liability for existing obligations, although it does save them from new obligations to which they have not expressly or impliedly assented, and any of them may be discharged from old obligations by novation or other form of release. It is often said that a partnership continues, even after dissolution, for the purpose of winding up its affairs. (30 Cyc., page 659.) Another question presented by appellee's counsel in his memorandum and oral argument is that as in the partnership articles of February 1, 1919, it was covenanted that the defendant would put up one-half of the cost of the railroad line within five years from that date, that is, from February 1, 1919, with interest at 10 per cent per annum, the present action is premature since, from the execution of the contract until October 25, 1922, the date of the complaint, the five years, within which the defendant could pay his part of the cost of the construction of the line, had not yet elapsed. Suffice it to say that the plaintiffs and the successors in interest of the defendant, by mutual consent, dissolved the partnership on June 16, 1920, cancelling the contract Exhibit A to all of which the defendant consented as evidence by his allegations in his answer. If this is so, there is no reason for waiting for the expiration of the five years which the parties themselves had seen fit to stipulate and therefore the previsions of article 1113, regarding the fulfillment of pure obligations, must be applied in this case. For all of the foregoing, the judgment appealed from is reversed, and we hold that the defendant Salvador Serra is indebted to the plaintiffs, the Testate Estate of Lazaro Mota, et al., in the amount of P113,046.46, and said defendant is hereby sentenced to pay the plaintiffs said amount, together with the agreed interest at the rate of 10 per cent per annum from the date of the filling of the complaint. Without special pronouncement as to costs, it is so ordered ---------------------------------------------------------[G.R. No. 74027. December 7, 1989.] SILAHIS MARKETING CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE COURT and GREGORIO DE LEON, doing business under the name and style of "MARK INDUSTRIAL SALES", respondents. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; COMPENSATION; REQUISITES. It must be remembered that compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor." 2.ID.; ID.; ID.; TAKES EFFECT BY OPERATION OF LAW. When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without

the consent or knowledge of the creditors and debtors. 3.ID.; ID.; ID.; CANNOT EXTEND TO UNLIQUIDATED CLAIMS. Article 1279 requires, among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim existing from breach of contract. D E C IS IO N FERNAN, C.J p: Petitioner Silahis Marketing Corporation seeks in this petition for review on certiorari a reversal of the decision of the then Intermediate Appellate Court (IAC) in AC-G.R. CV No. 67162 entitled "De Leon, etc. v. Silahis Marketing Corporation", disallowing petitioner's counterclaim for commission to partially offset the claim against it of private respondent Gregorio de Leon for the purchase price of certain merchandise. llcd A review of the record shows that on various dates in October, November and December, 1975, Gregorio de Leon (De Leon for short) doing business under the name and style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation (Silahis for short) various items of merchandise covered by several invoices in the aggregate amount of P22,213.75 payable within thirty (30) days from date of the covering invoices. Allegedly due to Silahis' failure to pay its account upon maturity despite repeated demands, de Leon filed before the then Court of First Instance of Manila a complaint for the collection of the said accounts including accrued interest thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus costs of litigation. The answer admitted the allegations of the complaint insofar as the invoices were concerned but presented as affirmative defenses; [a] a debit memo for P22,200.00 as unrealized profit for a supposed commission that Silahis should have received from de Leon for the sale of sprockets in the amount of P111,000.00 made directly to Dole Philippines, Incorporated by the latter sometime in August 1975 without coursing the same through the former allegedly in violation of the usual practice concerning sale of merchandise to Dole Philippines, Inc.; and [b] Silahis' claim that it is entitled to return the stainless steel screen covered by Exhibits '6-Amanda '6-B' which was found defective by its client, Borden International, Davao City, and to have the corresponding amount cancelled from its account with de Leon. In a decision dated August 25, 1978, 1 the lower court confirmed the liability of Silahis for the claim of de Leon but at the same time ordered that it be partially offset by Silahis' counterclaim as contained in the debit memo for unrealized profit and commission. Judge Bienvenido C. Ejercito of said court held: "There is no question that the defendant received from the plaintiff the items contained in Exhs. 'A' to 'F'. The only question is whether or not the defendant is entitled h set off against the claim of the plaintiff the amount contained in the debit memo of the defendant, Exh. '1', and whether or not the defendant is entitled to return the steel wire mesh which was returned to them by Borden Philippines, as shown by Exhs, '6-A' and '6-B'. The Court believes that the defendant is properly chargeable for the amounts of the unpaid invoices set forth in the complaint. However, the Court also believes that the plaintiff is also properly chargeable for the debit memo of P22,200.00, Exh. '1'. This is because it was proven by the defendant from the testimonies of Isaias Fernando, Jr. and Jose Joel Tamon that contrary to the agreement between plaintiff and defendant that the latter was to serve the account of Dole Philippines in Davao, the plaintiff made a direct sale of sprockets for P111,000.00 which thereby deprives the defendant of its corresponding commission for P22,200.00 which the defendant would have otherwise made if the plaintiff had followed its previous arrangement with the defendant. However, as to the counterclaim of the defendant for a cancellation of the amount of P6,000.00 for defective stainless screen wire purchased and intended for Borden International, Davao City, the Court believes that it is much too late now to present said claim because the purchase was made and delivered as early as December 22, 1975 and the proposed return to the defendant by Borden was made on April 1, 1976 only. The Court is not ready to award damages to any of the parties. After deducting the amount of P22,200.00, which is the unpaid commission of the defendant from the principal total amount of the unpaid invoices of the plaintiff of P22,213.75, the unpaid balance in favor of the plaintiff is P13.75. The claim for interest and attorney's fees of the plaintiff may be offset against the interest and attorney's fees of the

defendant. "WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the defendant to pay to the plaintiff the amount of P13.75, with interest at 12% per annum from the date of the filing of the action on July 1, 1976 until fully paid, without pronouncement as to costs. "SO ORDERED." 2 De Leon appealed from the said decision insofar as it directed partial compensation and its failure to award interest on his principal claim as well as attorney's fees in his favor. In a decision dated March 17, 1986, 3 respondent Intermediate Appellate Court 4 set aside the decision of the lower court and dismissed herein petitioner's (therein defendant-appellee's) counterclaim for lack of factual or legal basis. The appellate court found that there was no agreement, verbal or otherwise, nor was there any contractual obligation between De Leon and Silahis prohibiting any direct sales to Dole Philippines, Inc. by de Leon; nor was there anything in the debit memo obligating de Leon to pay a commission to Silahis for the sale of P111,000.00 worth of sprockets to Dole Philippines although in the past, the former did supply certain items to the latter for delivery to Dole Philippines, Incorporated. LLjur Hence, in this petition for review on certiorari, the central issue is whether or not private respondent is liable to the petitioner for the commission or margin for the direct sale which the former concluded and consummated with Dole Philippines, Incorporated without coursing the same through herein petitioner. We have carefully gone over the record of this case particularly the debit memo upon which petitioner's counterclaim rests and found nothing contained therein to show that private respondent obligated himself to set-off or compensate petitioner's outstanding accounts with the alleged unrealized commission from the assailed sale of sprockets in the amount of P111,000.00 to Dole Philippines, Inc. It must be remembered that compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor." When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without the consent or knowledge of the creditors and debtors. 5 Article 1279 requires, among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim existing from breach of contract. 6 Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the amount of P22,213.75 as contained in its answer. But whether private respondent is liable to pay the petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This circumstance prevents legal compensation from taking place. The Court agrees with respondent appellate court that there is no evidence on record from which it can be inferred that there was any agreement between the petitioner and private respondent prohibiting the latter from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that the debit memo was a contract binding between the parties considering that the same, as correctly found by the appellate court, was not signed by private respondent nor was there any mention therein of any commitment by the latter to pay any commission to the former involving the sale of sprockets to Dole Philippines, Inc. in the amount of P111,000.00. Indeed, such document can be taken as self-serving with no probative value absent a showing or at the very least an inference, that the party sought to be bound assented to its contents or showed conformity thereto. Cdpr In fact the letter written by private respondent's lawyer dated March 5, 1975 7 in reply to petitioner's letter dated February 19, 1976 transmitting its Debit Memo No. 1695 8 further strengthens private respondent's stand that it never agreed to give petitioner any commission on the direct sale to Dole

Philippines, Inc. by its company because said letter denied any utilization of petitioner's personnel and facilities at its Davao Branch in the transaction with Dole Philippines, Inc. which would otherwise lend a basis for petitioner's monetary claim. WHEREFORE, in view of the foregoing, the questioned decision of respondent appellate court is hereby AFFIRMED. SO ORDERED. ---------------------------------------------------------[G.R. No. 114823. December 23, 1999.] NILO B. DIONGZON, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. SYNOPSIS Appellant was convicted by the trial court for violation of B.P. Blg. 22 for having issued three (3) checks which were dishonored when presented. On appeal, however, he claimed that his partial payment and written undertaking to pay for the balance of the check constituted a novation which thereby extinguished his obligation. The Court of Appeals rejected his contention but did not subject him to subsidiary imprisonment in case of insolvency. TaEIAS In affirming appellant's conviction, the Supreme Court held that there was no novation in this case because a change in the mode of paying the obligation was not a change in any of the objects or principal conditions of the contract. Novation cannot be presumed but must be expressly intended by the parties. And even if there was a novation, petitioner's liability under B.P. Blg. 22 was not thereby extinguished because the gravamen of the offense is the issuance of worthless checks. Novation is not a mode of extinguishing criminal liability. The Supreme Court, however, held that subsidiary imprisonment in case of insolvency to pay the fine for violation of special laws may be imposed, notwithstanding the absence of such provision in said laws. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; NOVATION; NOT A MODE OF EXTINGUISHING CRIMINAL LIABILITY As the Court of Appeals held, novation is not a mode of extinguishing . criminal liability and criminal liability, once incurred, cannot be compromised. Indeed, there was no novation, and even if there was, petitioner's liability under B.P. Blg. 22 was not thereby extinguished. As held by this Court, novation "may prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court." In other words, novation does not extinguish criminal liability but may only prevent its rise. 2.ID.; ID.; ID.; REQUISITES. It is well-settled that the following requisites must be present for novation to take place: (1) a previous valid obligation; (2) agreement of all the parties to the new contract; (3) extinguishment of the old contract; and (4) validity of the new one. 3.ID.; ID.; ID.; ID.; NOT MET IN CASE AT BAR. These requisites, particularly the third, were not proven in this case. As the Court of Appeals held, the transaction became a personal undertaking of the petitioner when he received the goods for delivery but made no delivery thereof either to the credited dealer or to the credit rider. Petitioner had an existing obligation to pay the value of the goods for which the check was issued. This obligation was not extinguished when the check was dishonored and a new agreement was reached by the two parties to pay in cash its value. The change in the mode of paying the obligation was not a change in any of the objects or principal conditions of the contract. As Tolentino states, neither acceptance of partial payment nor change of place or manner of payment involves novation. For novation cannot be presumed but must be expressly intended by the parties. 4.ID.; ID.; ID.; THEORY DOES NOT APPLY WHERE OFFER TO PAY BY DEBTOR AND ACCEPTED BY CREDITOR TURNED OUT TO BE AN EMPTY PROMISE. The Court thus held that the novation theory does not apply where the offer to pay by the debtor, and accepted by the creditor, turns out to be merely an empty promise. In this case, the balance of the check was never paid, as witness Anacleto B. Palisoc testified. cAHDES 5.CRIMINAL LAW; B.P. 22 (BOUNCING CHECK LAW); ESSENCE. Indeed, the gravamen of the offense of violating B.P. Blg. 22 is the issuance of worthless checks. In this case, petitioner admitted issuing the check which when presented was dishonored. Though he promised to pay its value when it was dishonored, the fact remains that at the time it was presented to the drawee bank,

it was not sufficiently funded. Petitioner, as the drawer of the check, is presumed to have knowledge of the insufficient funds, and his failure to pay the value of the check within five banking days from notice of dishonor did not dispute this presumption. On this, the Court of Appeals correctly affirmed the trial court. 6.ID.; SUBSIDIARY IMPRISONMENT; IMPOSED IN CASES OF INSOLVENCY TO PAY FINE FOR VIOLATION OF SPECIAL LAWS. This Court has, on several occasions, imposed subsidiary imprisonment in case of insolvency to pay the fine for violation of special laws, notwithstanding the absence of such provision in said laws. In Llamado v. Court of Appeals, we imposed subsidiary imprisonment on petitioner who was convicted of violating B.P. Blg. 22. DAaHET D E C IS IO N MENDOZA, J p: Before us is a petition seeking a review of the decision and resolution of the Court of Appeals 1 in CA-G.R. No. 08094 affirming the conviction of herein petitioner of violation of B.P. Blg. 22, the Bouncing Checks Law, by the Regional Trial Court, Branch 43, Bacolod City. LLjur The information in this case charged That sometime in August 1981, in the City of Bacolod, Philippines, and within the jurisdiction of this Honorable Court, the herein accused with intent to gain and by means of false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud knowing that at the time of issue he did not have deposit in or credit with the Allied Banking Corporation, Bacolod Branch, and/or after such issue, failed to keep sufficient funds or to maintain a credit to cover the full amount thereof, did, then and there willfully, unlawfully and feloniously make out, draw, issue and deliver to the herein offended party Filipro, Inc., represented herein by its Area Sales Manager, Anacleto Palisoc, the following checks, to wit: 1.ABC Check No. 540295881-E postdated September 15, 1981P36,874.00 2.ABC Check No. 540295880-E postdated September 16, 1981P130,597.75 3.ABC Check No. 540295899-E postdated October 3, 1981P130,647.75 or a total sum of Two Hundred Ninety Eight Thousand One Hundred Nineteen Pesos & 75/100 (P298,119.75) in payment of his accountabilities with said offended party; after said offended party, however, deposited said checks with its depository bank, upon presentment for payment therefor within a period of ninety (90) days from the date appearing thereon, the same were dishonored by the drawee bank for reasons that accused's signature differs from specimen on file and/or he had insufficient funds deposited with the Allied Banking Corporation, Bacolod Branch; that despite such notice of such dishonor and repeated demands for the redemption, payment and/or any arrangements for payment in full of such checks within five (5) banking days after receipt of such notice, said accused deliberately refused and continue(sic) to refuse and fail(sic) to redeem the same or pay the value thereof up to the present time, to the damage and prejudice of the said offended party in the amount of Two Hundred Ninety Eight Thousand One Hundred Nineteen Pesos & 75/100 (P298,119.75), Philippine Currency. Act contrary to law. Bacolod City, Philippines, 15 December 1981. Three witnesses Anacleto B. Palisoc, area sales manager of Filipro, Inc., Linda Nicolas, cashier of Allied Banking Corporation (ABC), and Rogelio Azures, supervising document examiner of the National Bureau of Investigation (NBI) testified for the prosecution. On the other hand, petitioner Nilo B. Diongzon testified in his own behalf. The facts are summarized in the following portion of the decision of the Court of Appeals: [A]ccused was a sales supervisor of Filipro Incorporated (now Nestle Philippines, Inc.). As such, he had authority to allow the withdrawal of Filipro products from its warehouse for delivery to its dealers or customers, to receive payment therefor and remit the same to Filipro through its depository bank at Bacolod City. Due to the finding by Filipro accounting department that some delivery orders signed by the accused seemed questionable as the quantities ordered "were unusually big and seemed abnormal," Anacleto Palisoc, area sales manager, was authorized to conduct an investigation of the accused's withdrawal of goods and remittance of payments. Palisoc went to Bacolod City and

contacted the dealers who were supposed to have ordered the goods. Certain dealers, namely: Queensland, Queendies, and Cokins denied having received the goods listed in the delivery orders signed by the accused. Whereupon, the accused approached Rene Garibay, sales representative, and offered his assistance in the collection of payments for the outstanding delivery orders. The next day the accused presented to him (Garibay) three checks in payment of the items listed in the invoices allegedly issued to Queensland, Queendies, and Cokins. These checks were (1) ABC Check No. 540295881-E, postdated September 15, 1981 for P36,874.00 (Exh. A); (2) ABC Check No. 540295880-E postdated September 16, 1981 for P130,597.75 (Exh. B); (3) ABC Check No. 540295899-E postdated October 3, 1981 for P130,647.75 (Exh. C). prcd The three checks were deposited with the Security Bank and Trust Company (Bacolod Branch), Filipro's depository bank. However, upon presentment to the drawee bank (Allied Banking Corporation, Bacolod Branch), the three checks were dishonored. The first two checks were dishonored because of the apparent difference between the drawer's signatures thereon and those in the bank's files. The third check was dishonored for insufficiency of funds. After the checks were dishonored, Palisoc and Garibay conferred with the dealers of Queensland and Queendies. The latter claimed that they did not issue the checks nor receive the goods under the delivery orders signed by the accused. When confronted about this matter, the accused acknowledged responsibility and promised to settle the same. He also admitted having issued the three checks under his account No. 006873 with the Allied Banking Corporation (Bacolod Branch). He explained that he resorted to credit riding, a practice whereby other dealers were allowed to use the existing credit line of the authorized dealers in order to avail of Filipro's goods without cash payments. According to the accused, he practiced this technique which was unofficially allowed by the company in order to achieve Filipro sales targets. He claimed that certain goods covered by delivery order No. 793192 with invoice No. 756445 in the amount of P125,971.40 intended for delivery to Reboton store were actually delivered to another dealer, UN Merchandising; that he issued his checks for the payment of accounts of the dealers, to whom the goods were delivered, with the understanding that he would hold on to those checks while waiting for their payments; and that he did this to accommodate the dealers. During trial, petitioner initially denied that the signatures appearing in the first two checks were his. Then he argued that the three checks were not issued "on account" or "for value" as required in B.P. Blg. 22. Later, however, he admitted that he issued the third check to replace the second check which, he insisted, he did not issue. 2 The trial court saw through petitioner's conflicting claims and held him guilty of violating B.P. Blg. 22. On appeal, petitioner raised the same defenses he presented during trial. In addition, however, he claimed that the information charged more than one offense and that the issuance of the third check as replacement for the second check constituted novation which thereby extinguished his obligation. The Court of Appeals rejected petitioner's contentions and affirmed his conviction. However, it held that because B.P. Blg. 22 is a special law and does not contain a provision for subsidiary imprisonment, petitioner was not subject to subsidiary imprisonment in case of insolvency. The dispositive portion of the appellate court's decision reads: WHEREFORE, the appealed decision is hereby affirmed with modification in its dispositive portion in the sense that the appellant should not be ordered to suffer subsidiary imprisonment in case he fails to pay the fine of P80,647.75 by reason of insolvency. With costs de oficio. SO ORDERED. Petitioner filed a motion for reconsideration wherein he abandoned the defenses he raised in the trial court except that of novation. He argued that novation took place as a result of the partial payment he made and the written undertaking he had executed to pay for the balance of the check. His motion was, however, denied by the Court of Appeals. Hence, this petition for review on certiorari. dctai Petitioner argues that because of the incompatibility between the last check (Exh. C) and the partial payment and written undertaking he executed, there was a novation of his original obligation so that any incipient criminal liability which he might have had under the former obligation was thereby avoided. Petitioner raises this issue for the first time on appeal. As already stated, his contentions in the trial court were: (1) that the two checks which had been dishonored had not been issued by him as shown by different signatures they contained, and (2) that since the checks had not been issued "on

account" or "for value," an essential element of the crime defined in B.P. Blg. 22 had not been established. It was only after the trial court had rejected these defenses and found petitioner guilty that petitioner advanced the theory of novation in his Supplemental Brief in the Court of Appeals. This defense was rightfully ignored by the Court of Appeals in its decision affirming petitioner's conviction. As the Court of Appeals held, novation is not a mode of extinguishing criminal liability and criminal liability, once incurred, cannot be compromised. 3 Indeed, there was no novation, and even if there was, petitioner's liability under B.P. Blg. 22 was not thereby extinguished. It is well-settled that the following requisites must be present for novation to take place: (1) a previous valid obligation; (2) agreement of all the parties to the new contract; (3) extinguishment of the old contract; and (4) validity of the new one. 4 These requisites, particularly the third, were not proven in this case. As the Court of Appeals held, the transaction became a personal undertaking of the petitioner when he received the goods for delivery but made no delivery thereof either to the credited dealer or to the credit rider. 5 Petitioner had an existing obligation to pay the value of the goods for which the check was issued. This obligation was not extinguished when the check was dishonored and a new agreement was reached by the two parties to pay in cash its value. The change in the mode of paying the obligation was not a change in any of the objects or principal conditions of the contract. As Tolentino states, neither acceptance of partial payment nor change of place or manner of payment involves novation. 6 For novation cannot be presumed but must be expressly intended by the parties. The Court of Appeals denied petitioner's motion for reconsideration on the ground, inter alia, that the written undertaking was not presented as evidence. The records of the trial court show, however, that the existence of the written undertaking was actually admitted by the prosecution during trial, 7 although, for some reason, it was not formally offered in evidence by the prosecution. However that may be, whether the written undertaking was presented or not, the fact remains that there was no novation in this case. Nor is novation a mode of extinguishing criminal liability. As held by this Court, novation "may prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court." 8 In other words, novation does not extinguish criminal liability but may only prevent its rise. Petitioner claims that the new agreement took effect prior to the filing of the information in court on December 15, 1981. He argues that, therefore, there could not have been any criminal liability under B.P. Blg. 22. The argument is untenable. The fact is that the supposed new agreement never took effect as petitioner never complied with his undertaking. In Llamado v. Court of Appeals, 9 a similar issue arose. An agreement to partially pay the dishonored check was made, but the accused failed to comply with his promise. This Court ruled: dctai [T]he "novation theory" recognized by this Court in certain cases does not apply in the case at bar. While private complainant agreed to petitioner's offer to pay him 10% of the amount of the check on November 14 or 15, 1983 and the balance to be rolled over for 90 days, this turned out to be only an empty promise which effectively delayed private complainant's filing of a case for violation of B.P. Blg. 22 against petitioner and his co-accused. The Court thus held that the novation theory does not apply where the offer to pay by the debtor, and accepted by the creditor, turns out to be merely an empty promise. In this case, the balance of the check was never paid, as witness Anacleto B. Palisoc testified. 10 Indeed, the gravamen of the offense of violating B.P. Blg. 22 is the issuance of worthless checks. In this case, petitioner admitted issuing the check which when presented was dishonored. Though he promised to pay its value when it was dishonored, the fact remains that at the time it was presented to the drawee bank, it was not sufficiently funded. Petitioner, as the drawer of the check, is presumed to have knowledge of the insufficient funds, and his failure to pay the value of the check within five banking days from notice of dishonor did not dispute this presumption. On this, the Court of Appeals correctly affirmed the trial court. But we think it was error for the appellate court not to impose subsidiary imprisonment in case of insolvency on the ground that there is no provision in B.P. Blg. 22 allowing for such penalty. This Court has, on several occasions, imposed subsidiary imprisonment in case of insolvency to pay the fine for violation of special laws, notwithstanding the absence of such provision in said laws. 11 In Llamado v. Court of Appeals, 12 we imposed subsidiary imprisonment on petitioner who was convicted of violating B.P. Blg. 22.

WHEREFORE, premises considered, the decision of the Court of Appeals is AFFIRMED with the modification that subsidiary imprisonment be imposed in case of insolvency to pay the fine of P80,647.75. SO ORDERED. ---------------------------------------------------------ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ and GERRY E CRUZ, petitioners, vs. COURT OF APPEALS and SPOUSES ELISEO and VIRGINIA MALOLOS, respondents. [G.R. No. 126713. July 27, 1998.] SYNOPSIS Delfin I. Cruz and Adoracion Cruz were spouses and their children were Thelma, Nerissa, Arnel and Gerry Cruz. Upon the death of Delfin I. Cruz, his surviving spouse and children executed a notarized deed of partial partition (DPP) by virtue of which each one of them was given a share of several parcels of land all situated in Taytay, Rizal. A day after the execution of the DPP, the same parties executed a Memorandum of Agreement (MOA) wherein they covenanted and agreed among themselves that they shall alike and receive equal shares from the proceeds of the sale of any of the lot or lots allotted to and adjudicated in their individual names by virtue of the DPP. The DPP was subsequently registered and title were issued in their names. The annotation pertaining to the MOA was carried in each of the title. The spouses Nerissa Cruz-Tamayo and Nelson Tamayo were sued by the spouses Eliseo and Virginia Malolos for a sum of money in the Court of First Instance of Rizal (Quezon City). The Tamayo spouses, after trial, were condemned by the trial court to pay a sum of money to the Malolos spouses. After the finality of the decision, a writ of execution was issued. Enforcing said writ, the sheriff of the court levied upon the land in question and thereafter sold the properties in an execution sale to the highest bidders, the Malolos spouses. Accordingly, the sheriff executed a certificate of sale. Nerissa Cruz-Tamayo failed to exercise her right of redemption within the statutory period and so the final deed of sale was executed by the sheriff conveying the lands to the Malolos spouses. The Malolos couple asked the Nerissa Cruz-Tamayo to give them the owners duplicate copy of the seven (7) titles of the lands in question but she refused. The couple moved the court to compel her to surrender said titles to the Register of Deeds of Rizal for cancellation. The motion was granted, but Nerissa was adamant. She did not comply with the order so the Malolos couple asked the court to declare said titles null and void. At this point, petitioners entered the picture by filing in said court a motion for leave to intervene and oppose the Maloloses' motion. They alleged that they are co-owners of the lands in question. The lower court rendered a decision for private respondents from which the defendants appealed to the Court of Appeals. The appellate court ruled in favor of herein private respondents, holding that the DPP was not materially and substantially incompatible with the MOA. The DPP conferred absolute ownership of the parcels of land in issue on Nerissa Cruz-Tamayo, while the MOA merely created an obligation on her part to share with the petitioners the proceeds of the sale of the said properties. Hence, the present petition. The Supreme Court found no reversible error committed by the Court of Appeals. The Court ruled that the MOA does not novate, much less cancel, the earlier DPP. The MOA falls short of producing a novation, because it does not express a clear intent to dissolve the old obligation as a consideration for the emergence of a new one. Petitioners also failed to show that the DPP and the MOA are materially and substantially incompatible with each other. The DPP granted title to the lots in question to the co-owner to whom they were assigned, and the MOA created an obligation on the part of such co-owner to share with the others the proceeds of the sale of such parcels. There is no incompatibility between the two contracts. The MOA cannot be then construed as a repudiation of the earlier DPP. DITEAc Petition denied. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS; NOVATION. Novation, one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is a valid new contract. Novation may be express or implied. Article 1292 of the Code provides: "In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms [express novation], or that the old and the new obligations be on every point

incompatible with each other [implied novation]." 2.ID.; ID.; ID.; ID.; THE MEMORANDUM OF AGREEMENT SUBSEQUENTLY EXECUTED BY THE PARTIES DOES NOT NOVATE MUCH LESS, CANCEL THE EARLIER DEED OF PARTIAL PARTITION; NO INCOMPATIBILITY BETWEEN THE TWO CONTRACTS. The MOA falls short of producing a novation, because it does not express a clear intent to dissolve the old obligation as a consideration for the emergence of the new one. Likewise, petitioners fail to show that the DPP and the MOA are materially and substantially incompatible with each other. Petitioners admit that, under the MOA, they and the Tamayo spouses agreed to equally share in the proceeds of the sale of the lots. Indeed, the DPP granted title to the lots in question to the co-owner to whom they were assigned, and the MOA created an obligation on the part of such co-owner to share with the others the proceeds of the sale of such parcels. There is no incompatibility between these two contracts. Verily, the MOA cannot be construed as a repudiation of the earlier DPP. Both documents can exist together and must be so interpreted as to give life to both. 3.ID.; ID.; ID.; ID.; NO CO-OWNERSHIP IS CREATED IN THE MEMORANDUM OF AGREEMENT; REASONS. The very provisions of the MOA belie the existence of a co-ownership. First, it retains the partition of the properties, which petitioners supposedly placed in co-ownership; and, second, it vests in the registered owner the power to dispose of the land adjudicated to him or her under the DPP. These are antithetical to the petitioners' contention. In a co-ownership, an undivided thing or right belongs to two or more persons. Put differently, several persons hold common dominion over a spiritual (or ideal) part of a thing, which is not physically divided. In the present case, however, the parcels of land in the MOA have all been partitioned and titled under separate and individual names. More important, the MOA stipulated that the registered owner could sell the land without the consent of the other parties to the MOA. Jus disponendi is an attribute of ownership, and only the owner can dispose of a property. Contrary to petitioner's claim the annotation of the MOA in the certificate of title did not engender any co-ownership. Well-settled is the doctrine that registration merely confirms, but does not confer, title. It does not give the holder any better title than what he actually has. As earlier observed, the MOA did not make petitioners coowners of the disputed parcels of land. Hence, the annotation of this document in the separate certificates of title did not grant them a greater right over the same property. 4.ID.; GENERAL PRINCIPLES OF LAW; ESTOPPEL; PETITIONERS ARE BARRED FROM CLAIMING CO-OWNERSHIP OF THE LANDS IN ISSUE. Under the principle of estoppel, petitioners are barred from claiming co-ownership of the lands in issue. In estoppel, a person, who by his deed or conduct has induced another to act in a particular manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to another. It further bars him from denying the truth of a fact which has, in the contemplation of law, become settled by the acts and proceedings of judicial or legislative officers or by the act of the party himself either by conventional writing or by representations, express or implied or in pais. In their transactions with others, petitioners have declared that the other lands covered by the same MOA are absolutely owned, without indicating the existence of a co-ownership over such properties. Thus, they are estopped from claiming otherwise because, by their very own acts and representations as evidenced by the deeds of mortgage and of sale they have denied such coownership. 5.REMEDIAL LAW; EVIDENCE; ADMISSIBILITY; THE TRANSACTIONS RELATING TO THE OTHER PARCELS OF LAND ENTERED INTO BY PETITIONERS IN THE CONCEPT OF ABSOLUTE OWNERS ARE ADMISSIBLE IN EVIDENCE AND FALLS UNDER THE EXCEPTIONS TO THE RES INTER ALIOS ACTA RULE. Petitioners argue that transactions relating to the other parcels of land they entered into, in the concept of absolute owners, are inadmissible as evidence to show that the parcels in issue are not co-owned. The Court is not persuaded. Evidence of such transactions falls under the exception to the rule on res inter alios acta. Such evidence is admissible because it is relevant to an issue in the case and corroborative of evidence already received. The relevancy of such transactions is readily apparent. The nature of ownership of said property should be the same as that of the lots in question since they are all subject to the MOA. If the parcels of land were held and disposed by petitioners in fee simple, in the concept of absolute owners, then the lots in question should similarly be treated as absolutely owned in fee simple by the Tamayo spouses. Unmistakably, the evidence in dispute manifests petitioners' common purpose and design to treat all the parcels of land covered by the DPP as

absolutely owned and not subject to co-ownership. 6.ID.; CIVIL ACTIONS; NO CONCURRENCE OF THE ELEMENTS OF RES JUDICATA; CASE AT BAR. The elements of res judicata are: (1) the former judgment was final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment was on the merits; and (4) the parties, subject matters and causes of action in the first and second actions are identical. The RTC of Quezon City had no jurisdiction to decide on the merits of the present case or to entertain questions regarding the existence of co-ownership over the parcels in dispute, because the suit pending before it was only for the collection of a sum of money. Its disquisition on coownership was merely for the levy and the execution of the properties of the Tamayo spouses, in satisfaction of their judgment debt to the private respondents. Perhaps more glaring is the lack of identity between the two actions. The first action before the RTC of Quezon City was for the collection of money, while the second before the RTC of Antipolo, Rizal, was for partition. There being no concurrence of the elements of res judicata in this case, the Court finds no error in Respondent Court's ruling. No further discussion is needed to show the glaring difference between the two controversies. DSETac D E C IS IO N PANGANIBAN, J p: Contracts constitute the law between the parties. They must be read together and interpreted in a manner that reconciles and gives life to all of them. The intent of the parties, as shown by the clear language used, prevails over post facto explanations that find no support from the words employed by the parties or from their contemporary and subsequent acts showing their understanding of such contracts. Furthermore, a subsequent agreement cannot novate or change by implication a previous one, unless the old and the new contracts are, on every point, incompatible with each other. Finally, collateral facts may be admitted in evidence when a rational similarity exists between the conditions giving rise to the fact offered and the circumstances surrounding the issue or fact to be proved. The Case Before us is a petition for review on certiorari seeking to nullify the Court of Appeals (CA) Decision 1 in CA-GR CV 33566, promulgated July 15, 1996, which reversed the Regional Trial Court (RTC) of Antipolo, Rizal; and the CA Resolution 2 of October 1, 1996, which denied petitioners' Motion for Reconsideration. dctai Petitioners Adoracion, Thelma Debbie, Gerry and Arnel (all surnamed Cruz) filed an action for partition against the private respondents, Spouses Eliseo and Virginia Malolos. On January 28, 1991, the trial court rendered a Decision which disposed as follows: 3 "WHEREFORE, judgment is hereby rendered for the plaintiffs and against the defendants-spouses 1.Ordering the partition of the seven parcels of land totalling 1,912 sq. m. among the four (4) plaintiffs and the defendants-spouses as follows: a.Adoracion E. Cruz (1/5)382 sq. m. b.Thelma Debbie Cruz (1/5)382 sq. m. c.Gerry E. Cruz (1/5)382 sq. m. d.Arnel E. Cruz (1/5)382 sq. m. e.Spouses Eliseo andVirginia Malolos (1/5)382 sq. m.to whom Lot No. 1-C-2-B-2-B-4-L-1-A with anarea of 276 sq. m. covered by TCT No. 502603and a portion of Lot No. 1-C-2-B-2-B-4-L-1Bcovered by TCT No. 502604 to the extent of 106sq. m. adjoining TCT No. 502603. 2.Ordering the parties herein to execute a project or partition in accordance [with] this decision indicating the partition of the seven (7) parcels of land within fifteen (15) days upon receipt of this judgment. 3.Ordering defendants-spouses to pay plaintiffs herein P5,000.00 as and for attorney's fees; 4.Costs of suit." On appeal, Respondent Court reversed the trial court thus: 4 "WHEREFORE, finding the appeal to be meritorious, We REVERSE the appealed decision and render judgment DISMISSING the complaint without prejudice however to the claim of plaintiffappellees for their shares in the proceeds of the auction sale of the seven (7) parcels of land in question against Nerissa Cruz Tamayo pursuant to the Memorandum Agreement. Cost against the plaintiff-appellees." As earlier stated, reconsideration was denied through the appellate court s challenged Resolution:

5 "WHEREFORE, for lack of merit, the Motion for Reconsideration is DENIED." The Antecedent Facts The facts of this case are undisputed. The assailed Decision relates them as follows: 6 "Delfin I. Cruz and Adoracion Cruz were spouses and their children were Thelma, Nerissa, Arnel and Gerry Cruz. Upon the death of Delfin I. Cruz, [his] surviving spouse and children executed on August 22, 1977 a notarized Deed of Partial Partition (Exhibit 2) by virtue of which each one of them was given a share of several parcels of registered lands all situated in Taytay, Rizal. The following day, August 23, 1977, the same mother and children executed a Memorandum Agreement (Exhibit H) which provided: 'That the parties hereto are common co-owners pro-indiviso in equal shares of the following registered real properties, all situated at Taytay, Rizal, Philippines, . . . xxx xxx xxx That sometime on August 22, 1977, a Deed of Partial Partition was executed among us before Atty. Virgilio J. Tamayo, Notary Public on and for the Province of Rizal, per Doc. No. 1776; Page No. 14; of his Notarial Register No. XLIX, Series of 1977; xxx xxx xxx That as a result of said partial partition, the properties affected were actually partitioned and the respective shares of each party, adjudicated to him/her; That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share alike and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition.' That this Agreement shall continue to be valid and enforceable among the contracting parties herein up to and until the last lot covered by the Deed of [P]artial [P]artition above adverted to shall have been disposed of or sold and the proceeds thereof equally divided and their respective shares received by each of them." This Memorandum Agreement was registered and annotated in the titles of the lands covered by the Deed of Partial Partition. Subsequently, the same parties caused the consolidations and subdivisions of the lands they respectively inherited from the late Delfin I. Cruz Per Deed of Partial Partition. After that they registered the Deed of Partial Partition and subdivision plans and titles were issued in their names. In the case of Nerissa Cruz Tamayo, the following titles were issued to her on her name: TCT No. 502603 (Exhibit A), TCT No. 502604 (Exhibit B), TCT No. 502605 (Exhibit C), TCT No. 502606 (Exhibit D), TCT No. 502608 (Exhibit E), TCT No. 502609 (Exhibit F), TCT No. 502610 (Exhibit G), hereinafter called the lands in question. Naturally, the annotation pertaining to the Memorandum Agreement was carried in each of said seven (7) titles and annotated in each of them. Meanwhile, the spouses Eliseo and Virginia Malolos filed Civil Case No. 31231 against the spouses Nerissa Cruz-Tamayo and Nelson Tamayo for a sum of money. The Court of First Instance of Rizal, Branch XVI (Quezon City) rendered a decision on June 1, 1981 in favor of Eliseo and Virginia condemning the spouses Nerissa and Nelson Tamayo to pay them P126,529.00 with 12% interest per annum from the filing of the complaint plus P5,000.00 attorney's fee. After the finality of that decision, a writ of execution (Exhibit J) was issued on November 20, 1981. Enforcing said writ, the sheriff of the court levied upon the lands in question. On June 29, 1983, these properties were sold in an execution sale to the highest bidders, the spouses Eliseo and Virginia Malolos. Accordingly, the sheriff executed a Certificate of Sale (Exhibit K) over '. . . all the rights, claims, interests, titles, shares, and participations of defendant spouses Nerissa Tamayo and Nelson Tamayo. . .' Nerissa Cruz Tamayo failed to exercise her right of redemption within the statutory period and so the final deed of sale was executed by the sheriff conveying the lands in question to spouses Eliseo and Virginia Malolos. The Malolos couple asked Nerissa Cruz Tamayo to give them the owner's duplicate copy of the seven (7) titles of the lands in question but she refused. The couple moved the court to compel her to surrender said titles to the Register of Deeds of Rizal for cancellation. This was granted on September 7, 1984. But Nerissa was adamant. She did not comply with the Order of the court and so the Malolos couple asked the court to declare said titles as null and void.

At this point, Adoracion Cruz, Thelma Cruz, Gerry Cruz and Arnel Cruz entered the picture by filing in said lower court a motion for leave to intervene and oppose [the] Maloloses' motion. The Cruzes alleged that they were co-owners of Nerissa Cruz Tamayo over the lands in question. On January 18, 1985, said court issued an Order modifying the Order of September 7, 1984 by directing the surrender of the owner's duplicate copies of the titles of the lands in question to the Register of Deeds not for cancellation but for the annotation of the rights, and interest acquired by the Maloloses over said lands. On February 17, 1987, Adoracion, Thelma, Gerry and Arnel Cruz filed Civil Case No. 961-A for Partition of Real Estate against spouses Eliseo and Virginia Malolos over the lands in question. As already stated in the first paragraph of this Decision, the court a quo rendered a decision in favor of the plaintiffs from which the defendants appealed to this court. . . ." Ruling of the Court of Appeals For Respondent Court, the central issue was: "Did the Memorandum of Agreement [MOA] (Exhibit H) 7 revoke, cancel or supersede the Deed of Partial Partition [DPP] (Exhibit 2)?" 8 If so, then petitioners and Spouses Tamayo were co-owners of the land in issue, and partition should ensue upon motion of the former; if not, then the latter are its absolute owners and no partition should be made. Respondent Court resolved the above question in the negative for the following reasons: First, the DPP was not materially and substantially incompatible with the MOA. The DPP conferred absolute ownership of the parcels of land in issue on Nerissa Cruz Tamayo, while the MOA merely created an obligation on her part to share with the petitioners the proceeds of the sale of said properties. Second, the fact that private respondents registered the DPP was inconsistent with the allegation that they, intended to abandon it. Indeed, had they meant to abandon it, they would have simply gathered the copies of said document and then torn or burned them. Third, petitioners were estopped from claiming co-ownership over the disputed properties because, as absolute owners, they either mortgaged or sold the other properties adjudicated to them by virtue of the DPP. Hence, this petition. 9 Assignment of Errors In their Memorandum, 10 petitioners submit the following assignment of errors: "A.Respondent Court erred in ruling that the Memorandum of Agreement (Exhibit 'H') does not prevail over the Deed of Partial Partition (Exhibit 2). B.Respondent Court erred in ruling that petitioners can only claim their right to the proceeds of [the] auction sale. C.Respondent Court erred in ruling that petitioners are in estoppel by deed. D.Respondent Court erred in ruling that the registration of the deed of partial partition precluded the petitioners from abrogating it. E.Respondent Court erred when it completely ignored the finality of the order of the Regional Trial Court of Quezon City, Branch LXXXVI as embodied in the decision of the Regional Trial Court of Antipolo, Rizal, Branch 71." In fine, the resolution of this petition hinges on the following issues: (1) whether the DPP was cancelled or novated by the MOA; (2) whether the MOA established, between petitioners and the judgment debtor, a co-ownership of the lots in question; (3) whether petitioners are barred by estoppel from claiming co-ownership of the seven parcels of land and (4) whether res judicata has set in. The Court's Ruling The petition is bereft of merit. It fails to demonstrate any reversible error on the part of the Court of Appeals. First issue: No Novation or Cancellation In their Memorandum, petitioners insist that the MOA categorically and unmistakably named and covenanted them as co-owners of the parcels in issue and novated their earlier agreement, the Deed of Partial Partition. Petitioners claim that the MOA clearly manifested their intention to create a co-ownership. This is particularly evident in Exhibit 1-B, which provides: "That despite the execution of this Deed of Partial Partition and eventual disposal or sale of their

respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition." The Court disagrees. The going provision in the MOA does not novate, much less cancel, the earlier DPP. Novation, one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is a valid new contract. 11 Novation may be express or implied. Article 1292 of the Code provides: "In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in equivocal terms [express novation], 12 or that the old and the new obligations be on every point incompatible with each other [implied novation]." Tested against the foregoing standards, petitioners' stance is shattered to pieces. The stipulation that the petitioners and Spouses Tamayo were co-owners was merely the introductory part of the MOA, and it reads: 13 "That the parties are common co-owners pro-indiviso in equal shares of the following registered real properties, all situated at Taytay, Rizal, Philippines. . . ." xxx xxx xxx That sometime on August 22, 1977, a Deed of Partial Partition was executed among us before Atty. Virgilio J. Tamayo, Notary Public in and for the Province of Rizal, per. Doc. No. 1796; Page No. 14; of his Notarial Register No. XLIX, Series of 1977;" cdtai Following the above-quoted stipulation is a statement that the subject parcels of land had in fact been partitioned, but that the former co-owner intended to share with petitioners the proceeds of any sale of said land, 14 viz.: "That [as] a result of said partial partition, the properties affected were actually partitioned and the respective shares of each party, adjudicated to him/her; That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves [and] to one another that they shall do [sic] hereby bind themselves to one another that they shall share alike and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition; That this Agreement shall continue to be valid and enforceable among the contracting parties herein up to and until the last lot covered by the deed of partial partition above adverted to shall have been disposed of or sold and the proceeds thereof equally divided and their respective shares received by each of them. xxx xxx xxx." The MOA falls short of producing a novation, because it does not express a clear intent to dissolve the old obligation as a consideration for the emergence of the new one. 15 Likewise petitioners fail to show that the DPP and the MOA are materially and substantially incompatible with each other. Petitioners admit that, under the MOA, they and the Tamayo spouses agreed to equally share in the proceeds of the sale of the lots. 16 Indeed, the DPP granted title to the lots in question to the coowner to whom they were assigned, and the MOA created an obligation on the part of such coowner to share with the others the proceeds of the sale of such parcels. There is no incompatibility between these two contracts. Verily, the MOA cannot be construed as a repudiation of the earlier DPP. Both documents can exist together and must be so interpreted as to give life to both. Respondent Court aptly explained: 17 "The Deed of Partial Partition conferred upon Nerissa Cruz Tamayo absolute ownership over the lands in question. The Memorandum of Agreement merely created an obligation on the part of absolute owner Nerissa Cruz Tamayo to share [with] the appellees with [sic] the proceeds of the sale of said properties. The obligation of the owner of a piece of land to share [with] somebody with [sic] its fruits or the proceeds of its sale does not necessarily impair his dominion over the property much less make the beneficiary his co-owner thereof." All in all, the basic principle underlying this ruling is simple: when the text of a contract is explicit and leaves no doubt as to its intention, the court may not read into it any other intention that would contradict its plain import. 18 The hornbook rule on interpretation of contracts gives primacy to the

intention of the parties, which is the law among them. Ultimately, their intention is to be deciphered not from the unilateral post facto assertions of one of the parties, but from the language used in the contract. And when the terms of the agreement, as expressed in such language, are clear, they are to be understood literally, just as they appear on the face of the contract. Indeed, the legal effects of a contract are determined by extracting the intention of the parties from the language they used and from their contemporaneous and subsequent acts. 19 This principle gains more force when third parties are concerned. To require such persons to go beyond what is clearly written in the document is unfair and unjust. They cannot possibly delve into the contracting parties' minds and suspect that something is amiss, when the language of the instrument appears clear and unequivocal. Second Issue: No Co-ownership in the MOA Petitioners contend that they converted their separate and individual ownership over the lands in dispute into a co-ownership by their execution of the MOA and the annotation thereof on the separate titles. The Court is not convinced. The very provisions of the MOA belie the existence of a co-ownership. First, it retains the partition of the properties, which petitioners supposedly placed in co-ownership; and, second, it vests in the registered owner the power to dispose of the land adjudicated to him or her under the DPP. These are antithetical to the petitioners' contention. In a co-ownership, an undivided thing or right belongs to two or more persons. 20 Put differently, several persons hold common dominion over a spiritual (or ideal) part of thing, which is not physically divided. 21 In the present case, however, the parcels of land in the MOA have all been partitioned and titled under separate and individual names. More important, the MOA stipulated that the registered owner could sell the land without the consent of the other parties to the MOA. Jus disponendi is an attribute of ownership, and only the owner can dispose of a property. 22 Contrary to petitioner's claim, the annotation of the MOA in the certificate of title did not engender any co-ownership. Well-settled is the doctrine that registration merely confirms, but does not confer, title. 23 It does not give the holder any better title than what he actually has. As earlier observed, the MOA did not make petitioners co-owners of the disputed parcels of land. Hence, the annotation of this document in the separate certificates of title did not grant them a greater right over the property. Third Issue: Estoppel by Deed Respondent Court found that several deeds of sale and real estate mortgage, which petitioners executed when they sold or mortgage some parcels adjudicated to them under the DPP, contained the statement that the vendor/mortgagor was the absolute owner of the parcel of residential land and that he or she represented it as free from liens and encumbrances. On the basis of these pieces of evidence, Respondent Court held that petitioners were estopped from claiming that there was co-ownership over the disputed parcels of land which were also covered by the DPP. Petitioners contend that Respondent Court, in so ruling, violated the res inter alios acta rule. Petitioners' contention is untenable. Res inter alios acta, as a general rule, prohibits the admission of evidence that tends to show that what a person has done at one time is probative of the contention that he has done a similar act at another time. 24 Evidence of similar acts or occurrences compels the defendant to meet allegations that are not mentioned in the complaint, confuses him in his defense, raises a variety of irrelevant issues, and diverts the attention of the court from the issues immediately before it. Hence, this evidentiary rule guards against the practical inconvenience of trying collateral issues and protracting the trial and prevents surprise or other mischief prejudicial to litigants. 25 The rule, however, is not without exception. While inadmissible in general, collateral facts may be received as evidence under exceptional circumstances, as when there is a rational similarity or resemblance between the conditions giving rise to the fact offered and the circumstances surrounding the issue or fact to be proved. 26 Evidence of similar acts may frequently become relevant, especially in actions based on fraud and deceit, because it sheds light on the state of mind or knowledge of a person; it provides insight into such person's motive or intent; it uncovers a scheme, design or plan; or it reveals a mistake. 27 In this case, petitioners argue that transactions relating to the other parcels of land they entered into, in the concept of absolute owners, are inadmissible as evidence to show that the parcels in issue are not co-owned. The Court is not persuaded. Evidence of such transactions falls under the exception to the rule on res inter alios acta. Such evidence is admissible because it is relevant to an

issue in the case and corroborative of evidence already received. 28 The relevancy of such transactions is readily apparent. The nature of ownership of said property should be the same as that of the lots in question since they are all subject to the MOA.. If the parcels of land were held and disposed by petitioners in fee simple, in the concept of absolute owners, then the lots in question should similarly be treated as absolutely owned in fee simple by the Tamayo spouses. Unmistakably, the evidence in dispute manifests petitioners' common purpose and design to treat all the parcels of land covered by the DPP as absolutely owned and not subject to co-ownership. 29 Under the principle of estoppel, petitioners are barred from claiming co-ownership of the lands in issue. In estoppel, a person, who by his deed or conduct has induced another to act in a particular manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to another. 30 It further bars him from denying the truth of a fact which has, in the contemplation of law, become settled by the acts and proceedings of judicial or legislative officers or by the act of the party himself, either by conventional writing or by representations, express or implied or in pais. 31 In their transactions with others, petitioners have declared that the other lands covered by the same MOA are absolutely owned, without indicating the existence of a co-ownership over such properties. Thus, they are estopped from claiming otherwise because, by the very own acts and representations as evidenced by the deeds of mortgage and of sale, they have denied such coownership. 32 Fourth Issue: No Res Judicata On Co-ownership Petitioners argue that the Order (Exhibit J) 33 dated January 18, 1985, issued by the RTC of Quezon City, Branch 86, which had long become final and executory, confirmed their co-ownership. Thus, they claim that Respondent Court's reversal of the ruling of the RTC of Antipolo, Rizal, is a violation of the rule on res judicata. This contention is equally untenable. The elements of res judicata are:(1) the former judgment was final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment was on the merits; and (4) the parties, subject matters and causes of action in the first and second actions are identical. 34 The RTC of Quezon City had no jurisdiction to decide on the merits of the present case or to entertain questions regarding the existence of co-ownership over the parcels in dispute, because the suit pending before it was only for the collection of a sum of money. Its disquisition on coownership was merely for the levy and the execution of the properties of the Tamayo spouses, in satisfaction of their judgment debt to the private respondents. Perhaps more glaring is the lack of identity between the two actions. The first action before the RTC of Quezon City was for the collection of money, while the second before the RTC of Antipolo, Rizal, was for the partition. There being no concurrence of the elements of res judicata in this case, the Court finds no error in Respondent Court's ruling. No further discussion is needed to show the glaring difference between the two controversies. WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. Cost against petitioners. LLpr SO ORDERED. ---------------------------------------------------------LEONIDA C. QUINTO, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. [G.R. No. 126712. April 14, 1999.] SYNOPSIS Petitioner Quinto took some jewelries from private complainant Amelia Cariaga for selling purposes. After 6 months, however, Quinto failed to return the jewelries or pay the value thereof. Hence, a case of estafa was filed against Quinto as a result of which she was convicted, affirmed by the Court of Appeals. cdasia Quinto admitted that she took some jewelries from Cariaga but she sold the same to Mrs. Camacho and Mrs. Ramos. Unfortunately however, both were unable to pay the whole amount and promised to pay the balance in installment to Cariaga. Petitioner thus alleged that the agreement between her and Cariaga was effectively novated when the latter consented to receive payment on installments directly from Mrs. Camacho and Mrs. Ramos. The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution of debtors since Cariaga merely acquiesced to the payment but did not give her

consent to enter into a new contract. Thus, Cariaga's acceptance of Ramos and Camacho's payment on installment basis cannot be construed as a case of either expromision or delegacion sufficient to justify the attendance of extinctive novation. Further the defense of novation cannot avoid the incipient criminal liability for Estafa to which Quinto was found guilty of. It is a public offense which must be prosecuted and punished by the State on its own. And pursuant to Art. 315, 1st paragraph of the Revised Penal Code, as amended by Presidential Decree 818, the proper penalty here is an indeterminate penalty of from 2 years, 8 months and 1 day prision correccional to 7 years and 1 day of prision mayor. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS; NOVATION; KINDS; ELUCIDATED. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. 2.ID.; ID.; ID.; ID.; ID.; EXTINCTIVE NOVATION; ELUCIDATED. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. 3.ID.; ID.; ID.; ID.; HOW EFFECTED; EXPRESSLY OR IMPLIEDLY Novation is never presumed, . and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. 4.ID.; ID.; ID.; ID.; ID.; IMPLIEDLY; ELUCIDATED. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object cause or principal conditions thereof; otherwise the change would be merely modificatory in nature and insufficient to extinguish the original obligation. 5.ID.; ID.; ID.; ID.; ID.; ID.; NOT IN CASE AT BAR. The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution of debtors since private complainant merely acquiesced to the payment but did not give her consent to enter into a new contract. 6.ID.; ID.; ID.; ID.; SUBSTITUTING THE PERSON OF THE DEBTOR; FORMS; EXPROMISION AND DELEGACION; ELUCIDATED. There are two forms of novation by substituting the person of the debtor, depending on whose initiative it comes from, to wit: expromision and delegacion. In the former, the initiative for the change does not come from the debtor and may even be made without his knowledge. Since a third person would substitute for the original debtor and assume the obligation, his consent and that of the creditor would be required. In the latter, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation, thereby releasing the original debtor from the obligation, here, the intervention and the consent of all parties thereto would perforce be necessary. In either of these two modes of substitution, the consent of the creditor, such as can be seen, is an indispensable requirement.

7.ID.; ID.; ID.; ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. It is thus easy to see why Cariaga's acceptance of Ramos and Camacho's payment on installment basis cannot be construed as a case of either expromision or delegacion sufficient to justify the attendance of extinctive novation. Not too uncommon is when a stranger to a contract agrees to assume an obligation; and while this may have the effect of adding to the number of persons liable, it does not necessarily imply the extinguishment of the liability of the first debtor. Neither would the fact alone that the creditor receives guaranty or accepts payments from a third person who has agreed to assume the obligation, constitute an extinctive novation absent an agreement that the first debtor shall be released from responsibility. D E C IS IO N VITUG, J p: Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the decision of the Court of Appeals, promulgated on 27 September 1996, in People of the Philippines vs. Leonida Quinto y Calayan, docketed CA-G.R. CR No. 16567, which has affirmed the decision of Branch 157 of the Regional Trial Court (RTC), National Capital Judicial Region, Branch 157, Pasig City, finding Leonida Quinto y Calayan guilty beyond reasonable doubt of the crime of Estafa. Leonida Quinto y Calayan, herein petitioner, was indicted for the crime of estafa under Article 315, paragraph 1(b), of the Revised Penal Code, in an information which read: "That on or about the 23rd day of March 1977, in the Municipality of Makati, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, received in trust from one Aurelia Cariaga the following pieces of jewelry, to wit: One (1) set of marques with briliantitos valued atP17,500.00 One (1) solo ring (2 karats & 30 points) valued atP16,000.00 One (1) diamond ring (rosetas) valued atP2,500.00 with a total value of P36,000.00 for the purpose of selling the same on commission basis and with the express obligation on the part of the accused to turn over the proceeds of sale thereof, or to return the said jewelries (sic), if not sold, five (5) days after receipt thereof, but the accused once in possession of the jewelries (sic), far from complying with her obligation, with intent of gain, grave abuse of confidence and to defraud said Aurelia Cariaga, did then and there wilfully, unlawfully and feloniously misappropriate, misapply and convert to her own personal use and benefit the said jewelries (sic) and/or the proceeds of sale or to return the pieces of jewelry, to the damage and prejudice of the said Aurelia Cariaga in the aforementioned amount of P36,000.00. "Contrary to law." 1 Upon her arraignment on 28 March 1978, petitioner Quinto pleaded not guilty; trial on the merits thereupon ensued. cdlex According to the prosecution, on or about 23 March 1977, Leonida went to see Aurelia Cariaga (private complainant) at the latter's residence in Makati. Leonida asked Aurelia to allow her have some pieces of jewelry that she could show to prospective buyers. Aurelia acceded and handed over to Leonida one (1) set of marques with briliantitos worth P17,500.00, one (1) solo ring of 2.30 karats worth P16,000.00 and one (1) rosetas ring worth P2,500.00. Leonida signed a receipt (Exhibit "A") therefor, thus: "RECEIPT Pinatutunayan ko na tinanggap ko kay Gng. Aurelia B. Cariaga (ang) mga alahas na nakatala sa ibaba, upang aking ipagbili sa pamamagitan ng BIGAY PALA o Commission at Kaliwaan lamang. Ako'y hindi pinahihintulutan (na) ipagbili ang mga ito ng Pautang. Pinananagutan ko na ang mga alahas na ito ay hindi ko ipagkakaloob o ipagkakatiwala sa kanino pa man upang ilagak o maipagbili nila, at ang mga ito ay ako ang magbibili sa ilalim ng aking pangangasiwa at pananagutan sa halagang nakatala sa ibaba. At aking isasauli ang mga hindi na maipagbili sa loob ng 5 days (sic) araw mula sa petsa nito o sa kahilingan, na nasa mabuti at malinis na kalagayan katulad ng tanggapin ko sa petsang ito. MGA URI NG ALAHAS 1 set marques with titos17,5000. 1 solo 2 karats & 30 points16,000.

1 ring Rosetas brill2,500. Makati, March 23, 1977 (Sgd.)" 2 When the 5-day period given to her had lapsed, Leonida requested for and was granted additional time within which to vend the items. Leonida failed to conclude any sale and, about six (6) months later, Aurelia asked that the pieces of jewelry be returned. She sent to Leonida a demand letter which the latter ignored. The inexplicable delay of Leonida in returning the items spurred the filing of the case for estafa against her. llcd The defense proffered differently. In its version, the defense sought to prove that Leonida was engaged in the purchase and sale of jewelry. She was used to buying pieces of jewelry from a certain Mrs. Antonia Ilagan who later introduced her (Leonida) to Aurelia. Sometime in 1975, the two, Aurelia and Leonida, started to transact business in pieces of jewelry among which included a solo ring worth P40,000.00 which was sold to Mrs. Camacho who paid P20,000.00 in check and the balance of P20,000.00 in installments later paid directly to Aurelia. The last transaction Leonida had with Mrs. Camacho involved a "marques" worth P16,000.00 and a ring valued at P4,000.00. Mrs. Camacho was not able to pay the due amount in full and left a balance of P13,000.00. Leonida brought Mrs. Camacho to Aurelia who agreed to allow Mrs. Camacho to pay the balance in installments. Leonida was also able to sell for Aurelia a 2-karat diamond ring worth P17,000.00 to Mrs. Concordia Ramos who, unfortunately, was unable to pay the whole amount. Leonida brought Mrs. Ramos to Aurelia and they talked about the terms of payment. As first payment, Mrs. Ramos gave Leonida a ring valued at P3,000.00. The next payment made by her was P5,000.00. Leonida herself then paid P2,000.00. The RTC, in its 25th January 1993 decision, found Leonida guilty beyond reasonable doubt of the crime of estafa and sentenced her to suffer the penalty of imprisonment of seven (7) years and one (1) day of prision mayor as minimum to nine (9) years of prision mayor as maximum and to indemnify private complainant in the amount of P36,000.00. Leonida interposed an appeal to the Court of Appeals which affirmed, in its 27th September 1996 decision, the RTC's assailed judgment. The instant petition before this Court would have it that the agreement between petitioner and private complainant was effectively novated when the latter consented to receive payment on installments directly from Mrs. Camacho and Mrs. Ramos. The petition is bereft of merit. cdll Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). 3 Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place 4 requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. 5 Novation is never presumed, 6 and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. 7 The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. 8 The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. 9 Upon the other hand, no specific form is required for an implied novation, 10 and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. 11 There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old

and the new obligations are incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. 12 Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. LLphil The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution of debtors since private complainant merely acquiesced to the payment but did not give her consent 13 to enter into a new contract. The appellate court observed: "Appellant, however, insists that their agreement was novated when complainant agreed to be paid directly by the buyers and on installment basis. She adds that her liability is merely civil in nature. "We are unimpressed. "It is to be remembered that one of the buyers, Concordia Ramos, was not presented to testify on the alleged aforesaid manner of payment. "The acceptance by complainant of partial payment tendered by the buyer, Leonor Camacho, does not evince the intention of the complainant to have their agreement novated. It was simply necessitated by the fact that, at that time, Camacho had substantial accounts payable to complainant, and because of the fact that appellant made herself scarce to complainant. (TSN, April 15, 1981, 31-32) Thus, to obviate the situation where complainant would end up with nothing, she was forced to receive the tender of Camacho. Moreover, it is to be noted that the aforesaid payment was for the purchase, not of the jewelry subject of this case, but of some other jewelry subject of a previous transaction. (Ibid. June 8, 1981, 10-11)" 14 There are two forms of novation by substituting the person of the debtor, depending on whose initiative it comes from, to wit: expromision and delegacion. In the former, the initiative for the change does not come from the debtor and may even be made without his knowledge. Since a third person would substitute for the original debtor and assume the obligation, his consent and that of the creditor would be required. In the latter, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation, thereby releasing the original debtor from the obligation; here, the intervention and the consent of all parties thereto would perforce be necessary. 15 In either of these two modes of substitution, the consent of the creditor, such as can be seen, is an indispensable requirement. It is thus easy to see why Cariaga's acceptance of Ramos and Camacho's payment on installment basis cannot be construed as a case of either expromision or delegacion sufficient to justify the attendance of extinctive novation. Not too uncommon is when a stranger to a contract agrees to assume an obligation; and while this may have the effect of adding to the number of persons liable, it does not necessarily imply the extinguishment of the liability of the first debtor. 17 Neither would the fact alone that the creditor receives guaranty or accepts payments from a third person who has agreed to assume the obligation, constitute an extinctive novation absent an agreement that the first debtor shall be released from responsibility. 18 Petitioner's reliance on Candida Mariano vs. People 19 is misplaced. The factual milieu in Mariano would indicate a clear intention on the part of the parties to release the accused from her responsibility as an agent and for her to instead assume the obligation of a guarantor. Unfortunately for petitioner in the case at bar, the factual findings of both the trial court and the appellate court prove just the opposite which is that there has never been any animus novandi between or among the parties. Article 315 of the Revised Penal Code defines estafa and penalizes any person who shall defraud another by "misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property." It is axiomatic that the gravamen of the offense is the appropriation or conversion of money or property received to the prejudice of the owner. The terms "convert" and "misappropriate" have been held to connote "an act of using or disposing of another's property as if it were one's own or devoting it to a purpose or use different from that agreed upon." The phrase, "to misappropriate to one's own use" has been said to include "not only conversion to one's

personal advantage, but also every attempt to dispose of the property of another without right." 20 Verily, the sale of the pieces of jewelry on installments in contravention of the explicit terms of the authority granted to her in Exhibit "A" (supra) is deemed to be one of conversion. Thus, neither the theory of "delay in the fulfillment of commission" nor that of novation posed by petitioner, can avoid the incipient criminal liability. In People vs. Nery, 21 this Court held: LLjur "It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished; hence, the role of novation may only be either to prevent the rise of criminal liability or to cast doubt on the true nature of the original basic transaction, whether or not it was such that its breach would not give rise to penal responsibility . . ." The criminal liability for estafa already committed is then not affected by the subsequent novation of contract, for it is a public offense which must be prosecuted and punished by the State in its own conation. 22 Finally, this Court fails to see any reversible error, let alone any grave abuse of discretion, in the appreciation of the evidence by the Court of Appeals which, in fact, hews with those of the trial court. Indeed, under the circumstances, this Court must be deemed bound by the factual findings of those courts. Article 315, 1st paragraph, of the Revised Penal Code, as amended by Presidential Decree No. 818, provides that the penalty of " prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the fraud is over 12,000 but does not exceed 22,000 pesos, and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such case, and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be." In the leading case of People vs. Gabres 23 this Court ruled: "Under the Indeterminate Sentence Law, the maximum term of the penalty shall be 'that which, in view of the attending circumstances, could be properly imposed' under the Revised Penal Code, and the minimum shall be 'within the range of the penalty next lower to that prescribed' for the offense. The penalty next lower should be based on the penalty prescribed by the Code for the offense, without first considering any modifying circumstance attendant to the commission of the crime. The determination of the minimum penalty is left by law to the sound discretion of the court and it can be anywhere within the range of the penalty next lower without any reference to the periods into which it might be subdivided. The modifying circumstances are considered only in the imposition of the maximum term of the indeterminate sentence. cdasia "The fact that the amounts involved in the instant case exceed P22,000.00 should not be considered in the initial determination of the indeterminate penalty; instead, the matter should be so taken as analogous to modifying circumstances in the imposition of the maximum term of the full indeterminate sentence. This interpretation of the law accords with the rule that penal laws should be construed in favor of the accused. Since the penalty prescribed by law for the estafa charge against accused-appellant is prision correccional maximum to prision mayor minimum, the penalty next lower would then be prision correccional minimum to medium. Thus, the minimum term of the indeterminate sentence should be anywhere within six (6) months and one (1) day to four (4) years and two (2) months while the maximum term of the indeterminate sentence should at least be six (6) years and one (1) day because the amounts involved exceeded P22,000.00, plus an additional one (1) year for each additional P10,000.00." 24 The penalty imposed by the trial court, affirmed by the appellate court, should accordingly be modified. WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED except that the imprisonment term is MODIFIED by now sentencing petitioner to an indeterminate penalty of from two (2) years, eight (8) months and one (1) day of prision correccional to seven (7) years and one (1) day of prision mayor. The civil liability of appellant for P36,000.00 in favor of private complainant is maintained. Costs against petitioner. LLpr SO ORDERED.