PRESCRIPTION FIRST DIVISION

finding that the action for reformation had already prescribed. The order reads: Scjuris ORDER

[G.R. No. 128991. April 12, 2000] YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO PORMIDA, petitioners, vs. HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC, Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC.,respondents. DECISION KAPUNAN, J.: Reformation of an instrument is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed.[1] It is predicated on the equitable maxim that equity treats as done that which ought to be done.[2] The rationale of the doctrine is that it would be unjust and unequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties.[3] However, an action for reformation must be brought within the period prescribed by law, otherwise, it will be barred by the mere lapse of time. The issue in this case is whether or not the complaint for reformation filed by respondent Leyte Gulf Traders, Inc. has prescribed and in the negative, whether or not it is entitled to the remedy of reformation sought. Oldmiso On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent corporation) filed a complaint for reformation of instrument, specific performance, annulment of conditional sale and damages with prayer for writ of injunction against petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito Pormida. The case was docketed as Civil Case No. 92-05-88 and raffled to Judge Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent corporation alleged that it entered into a contract of lease of a parcel of land with petitioner Bentir for a period of twenty (20) years starting May 5, 1968. According to respondent corporation, the lease was extended for another four (4) years or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses Samuel Pormada and Charito Pormada. Respondent corporation questioned the sale alleging that it had a right of first refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the reformation of the expired contract of lease on the ground that its lawyer inadvertently omitted to incorporate in the contract of lease executed in 1968, the verbal agreement or understanding between the parties that in the event petitioner Bentir leases or sells the lot after the expiration of the lease, respondent corporation has the right to equal the highest offer. Ncm In due time, petitioners filed their answer alleging that the inadvertence of the lawyer who prepared the lease contract is not a ground for reformation. They further contended that respondent corporation is guilty of laches for not bringing the case for reformation of the lease contract within the prescriptive period of ten (10) years from its execution. Respondent corporation then filed its reply and on November 18, 1992, filed a motion to admit amended complaint. Said motion was granted by the lower court.[4] Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be dismissed on the ground of prescription. On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order dismissing the complaint premised on its Resolved here is the defendants MOTION TO DISMISS PLAINTIFFS complaint on ground of prescription of action. It is claimed by plaintiff that he and defendant Bentir entered into a contract of lease of a parcel of land on May 5, 1968 for a period of 20 years (and renewed for an additional 4 years thereafter) with the verbal agreement that in case the lessor decides to sell the property after the lease, she shall give the plaintiff the right to equal the offers of other prospective buyers. It was claimed that the lessor violated this right of first refusal of the plaintiff when she sureptitiously (sic) sold the land to codefendant Pormida on May 5, 1989 under a Deed of Conditional Sale. Plaintiffs right was further violated when after discovery of the final sale, plaintiff ordered to equal the price of co-defendant Pormida was refused and again defendant Bentir surreptitiously executed a final deed of sale in favor of co-defendant Pormida in December 11, 1991. The defendant Bentir denies that she bound herself to give the plaintiff the right of first refusal in case she sells the property. But assuming for the sake of argument that such right of first refusal was made, it is now contended that plaintiffs cause of action to reform the contract to reflect such right of first refusal, has already prescribed after 10 years, counted from May 5, 1988 when the contract of lease incepted. Counsel for defendant cited Conde vs. Malaga, L-9405 July 31, 1956 and Ramos vs. Court of Appeals, 180 SCRA 635, where the Supreme Court held that the prescriptive period for reformation of a written contract is ten (10) years under Article 1144 of the Civil Code. This Court sustains the position of the defendants that this action for reformation of contract has prescribed and hereby orders the dismissal of the case. SO ORDERED.[5] On December 29, 1995, respondent corporation filed a motion for reconsideration of the order dismissing the complaint. Juris On January 11, 1996, respondent corporation filed an urgent exparte motion for issuance of an order directing the petitioners, or their representatives or agents to refrain from taking possession of the land in question. Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution, was assigned to the RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad was designated in his place. Manikan On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself from hearing the case. Consequently, the case was re-raffled and assigned to RTC, Tacloban City, Branch 8, presided by herein respondent judge Mateo M. Leanda.

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On May 10, 1996, respondent judge issued an order reversing the order of dismissal on the grounds that the action for reformation had not yet prescribed and the dismissal was "premature and precipitate", denying respondent corporation of its right to procedural due process. The order reads: Suprema ORDER Stated briefly, the principal objectives of the twin motions submitted by the plaintiffs, for resolution are: (1) for the reconsideration of the Order of 15 December 1995 of the Court (RTC, Br. 7), dismissing this case, on the sole ground of prescription of one (1) of the five (5) causes of action of plaintiff in its complaint for "reformation" of a contract of lease; and, (2) for issuance by this Court of an Order prohibiting the defendants and their privies-ininterest, from taking possession of the leased premises, until a final court order issues for their exercise of dominical or possessory right thereto. The records of this case reveal that codefendant BENTER (Yolanda) and plaintiff Leyte Gulf Traders Incorporation, represented by Chairman Benito Ang, entered into a contract of lease of a parcel of land, denominated as Lot No. 878-D, located at Sagkahan District, Tacloban City, on 05 May 1968, for a period of twenty (20) years, (later renewed for an additional two (2) years). Included in said covenant of lease is the verbal understanding and agreement between the contracting parties, that when the defendant (as lessor) will sell the subject property, the plaintiff as (lessee) has the "right of first refusal", that is, the right to equal the offer of any other prospective third-party buyer. This agreement (sic) is made apparent by paragraph 4 of the lease agreement stating: "4. IMPROVEMENT. The lessee shall have the right to erect on the leased premises any building or structure that it may desire without the consent or approval of the Lessor x x x provided that any improvements existing at the termination of the lease shall remain as the property of the Lessor without right to reimbursement to the Lessee of the cost or value thereof." That the foregoing provision has been included in the lease agreement if only to convince the defendant-lessor that plaintiff desired a priority right to acquire the property (ibid) by purchase, upon expiration of the effectivity of the deed of lease. In the course of the interplay of several procedural moves of the parties herein, the defendants filed their motion to admit their amended answer to plaintiffs amended complaint. Correspondingly, the plaintiff filed its opposition to said motion. The former court

branch admitted the amended answer, to which order of admission, the plaintiff seasonably filed its motion for reconsideration. But, before the said motion for reconsideration was acted upon by the court, the latter issued an Order on 15 December 1995, DISMISSING this case on the lone ground of prescription of the cause of action of plaintiffs complaint on "reformation" of the lease contract, without anymore considering the remaining cause of action, viz.: (a) on Specific Performance; (b) an Annulment of Sale and Title; (c) on Issuance of a Writ of Injunction, and (d) on Damages. With due respect to the judicial opinion of the Honorable Presiding Judge of Branch 7 of this Court, the undersigned, to whom this case was raffled to after the inhibition of Judge Roberto Navidad, as acting magistrate of Branch 7, feels not necessary any more to discuss at length that even the cause of action for "reformation" has not, as yet, prescribed. To the mind of this Court, the dismissal order adverted to above, was obviously premature and precipitate, thus resulting denial upon the right of plaintiff that procedural due process. The other remaining four (4) causes of action of the complaint must have been deliberated upon before that court acted hastily in dismissing this case. WHEREFORE, in the interest of substantial justice, the Order of the court, (Branch 7, RTC) dismissing this case, is hereby ordered RECONSIDERED and SET ASIDE. Let, therefore, the motion of plaintiff to reconsider the Order admitting the amended answer and the Motion to Dismiss this case (ibid), be set for hearing on May 24, 1996, at 8:30 oclock in the morning. Service of notices must be effected upon parties and counsel as early as possible before said scheduled date. Concomitantly, the defendants and their privies-in-interest or agents, are hereby STERNLY WARNED not to enter, in the meantime, the litigated premises, before a final court order issues granting them dominical as well as possessory right thereto. To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C. Lawsin, the defendants may, if they so desire, file their answer or rejoinder thereto, before the said petition will be set for hearing. The latter are given ten (10) days to do so, from the date of their receipt of a copy of this Order. SO ORDERED.[6] On June 10, 1996, respondent judge issued an order for status quo ante, enjoining petitioners to desist from occupying the property.[7] Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking the annulment of the order of respondent court with prayer for issuance of a writ of preliminary

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injunction and temporary restraining order to restrain respondent judge from further hearing the case and to direct respondent corporation to desist from further possessing the litigated premises and to turn over possession to petitioners. On January 17, 1997, the Court of Appeals, after finding no error in the questioned order nor grave abuse of discretion on the part of the trial court that would amount to lack, or in excess of jurisdiction, denied the petition and affirmed the questioned order.[8] A reconsideration of said decision was, likewise, denied on April 16, 1997.[9] Thus, the instant petition for review based on the following assigned errors, viz: 6.01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION FOR REFORMATION IS PROPER AND JUSTIFIED UNDER THE CIRCUMSTANCES OF THE PRESENT CASE; 6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FOR REFORMATION HAS NOT YET PRESCRIBED; 6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO BUY IN A CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED RENEWAL OF SUCH LEASE; AND, 6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS QUO ANTE ORDER IS NOT AN INJUNCTIVE RELIEF THAT SHOULD COMPLY WITH THE PROVISIONS OF RULE 58 OF THE RULES OF COURT.[10] The petition has merit. Scsdaad The core issue that merits our consideration is whether the complaint for reformation of instrument has prescribed. Sdaad The remedy of reformation of an instrument is grounded on the principle of equity where, in order to express the true intention of the contracting parties, an instrument already executed is allowed by law to be reformed. The right of reformation is necessarily an invasion or limitation of the parol evidence rule since, when a writing is reformed, the result is that an oral agreement is by court decree made legally effective.[11]Consequently, the courts, as the agencies authorized by law to exercise the power to reform an instrument, must necessarily exercise that power sparingly and with great caution and zealous care. Moreover, the remedy, being an extraordinary one, must be subject to limitations as may be provided by law. Our law and jurisprudence set such limitations, among which is laches. A suit for reformation of an instrument may be barred by lapse of time. The prescriptive period for actions based upon a written contract and for reformation of an instrument is ten (10) years under Article 1144 of the Civil Code.[12] Prescription is intended to suppress stale and fraudulent claims arising from transactions like the one at bar which facts had become so obscure from the lapse of time or defective memory.[13] In the case at bar, respondent corporation had ten (10) years from 1968, the time when the contract of lease was executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of action has become stale, hence, timebarred. Sdaamiso

In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling of the Regional Trial Court that the 10-year prescriptive period should be reckoned not from the execution of the contract of lease in 1968, but from the date of the alleged 4-year extension of the lease contract after it expired in 1988. Consequently, when the action for reformation of instrument was filed in 1992 it was within ten (10) years from the extended period of the lease. Private respondent theorized, and the Court of Appeals agreed, that the extended period of lease was an "implied new lease" within the contemplation of Article 1670 of the Civil Code,[14] under which provision, the other terms of the original contract were deemed revived in the implied new lease. We do not agree. First, if, according to respondent corporation, there was an agreement between the parties to extend the lease contract for four (4) years after the original contract expired in 1988, then Art. 1670 would not apply as this provision speaks of an implied new lease (tacita reconduccion) where at the end of the contract, the lessee continues to enjoy the thing leased "with the acquiescence of the lessor", so that the duration of the lease is "not for the period of the original contract, but for the time established in Article 1682 and 1687." In other words, if the extended period of lease was expressly agreed upon by the parties, then the term should be exactly what the parties stipulated, not more, not less. Second, even if the supposed 4-year extended lease be considered as an implied new lease under Art. 1670, "the other terms of the original contract" contemplated in said provision are only those terms which are germane to the lessees right of continued enjoyment of the property leased.[15] The prescriptive period of ten (10) years provided for in Art. 1144[16] applies by operation of law, not by the will of the parties. Therefore, the right of action for reformation accrued from the date of execution of the contract of lease in 1968. Even if we were to assume for the sake of argument that the instant action for reformation is not time-barred, respondent corporations action will still not prosper. Under Section 1, Rule 64 of the New Rules of Court,[17] an action for the reformation of an instrument is instituted as a special civil action for declaratory relief. Since the purpose of an action for declaratory relief is to secure an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or compliance therewith, and not to settle issues arising from an alleged breach thereof, it may be entertained only before the breach or violation of the law or contract to which it refers.[18] Here, respondent corporation brought the present action for reformation after an alleged breach or violation of the contract was already committed by petitioner Bentir. Consequently, the remedy of reformation no longer lies. Ncmmis We no longer find it necessary to discuss the other issues raised considering that the same are predicated upon our affirmative resolution on the issue of the prescription of the action for reformation. WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals dated January 17, 1997 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Tacloban City, Branch 7, dated December 15, 1995 dismissing the action for reformation is REINSTATED. Scncm SO ORDERED.

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FIRST DIVISION

[G.R. No. 165420. June 30, 2005]

1. the subdivision of the subject property between the said plaintiff and defendants in equal shares with one-half of the property, including the portion occupied by the spouses Severino and Natividad Tuliao to be awarded to the plaintiff; 2. the cancellation of Transfer Certificates of Title Nos. N-155122, N-155123, N-155124 of the Registry of Deeds of Quezon City;

CONCEPCION R. AINZA, substituted by her legal heirs, DR. NATIVIDAD A. TULIAO, CORAZON A. JALECO and LILIA A. OLAYON, petitioners, vs. SPOUSES ANTONIO PADUA and EUGENIA PADUA, respondents. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the February 24, 2004 decision of the Court of Appeals in CA-G.R. CV No. 70239,[1] and its September 28, 2004 resolution, denying reconsideration thereof.[2] In her complaint for partition of real property, annulment of titles with damages,[3] Concepcion Ainza (Concepcion) alleged that respondent-spouses Eugenia (Eugenia) and Antonio Padua (Antonio) owned a 216.40 sq. m. lot with an unfinished residential house located at No. 85-A Durian corner Pajo Sts., Barangay Quirino 2-C, Project 2, Quezon City, covered by Transfer Certificate of Title No. 271935. Sometime in April 1987, she bought one-half of an undivided portion of the property from her daughter, Eugenia and the latters husband, Antonio, for One Hundred Thousand Pesos (P100,000.00). No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by the respondents, and ownership was transferred to Concepcion through physical delivery to her attorney-in-fact and daughter, Natividad Tuliao (Natividad). Concepcion authorized Natividad and the latters husband, Ceferino Tuliao (Ceferino) to occupy the premises, and make improvements on the unfinished building. Thereafter, Concepcion alleged that without her consent, respondents caused the subdivision of the property into three portions and registered it in their names under TCT Nos. N155122, N-155123 and N-155124 in violation of the restrictions annotated at the back of the title. On the other hand, Antonio averred that he bought the property in 1980 and introduced improvements thereon. Between 1989 and 1990, he and his wife, Eugenia, allowed Natividad and Ceferino to occupy the premises temporarily. In 1994, they caused the subdivision of the property and three (3) separate titles were issued. Thereafter, Antonio requested Natividad to vacate the premises but the latter refused and claimed that Concepcion owned the property. Antonio thus filed an ejectment suit on April 1, 1999. Concepcion, represented by Natividad, also filed on May 4, 1999 a civil case for partition of real property and annulment of titles with damages. Antonio claimed that his wife, Eugenia, admitted that Concepcion offered to buy one third (1/3) of the property who gave her small amounts over several years which totaled P100,000.00 by 1987 and for which she signed a receipt. On January 9, 2001, the Regional Trial Court of Quezon City, Branch 85, rendered judgment[4] in favor of Concepcion, the dispositive portion of which states: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants and ordering:

3. the defendants to pay to the plaintiff P50,000.00 as attorneys fees. SO ORDERED.[5] The trial court upheld the sale between Eugenia and Concepcion. It ruled that the sale was consummated when both contracting parties complied with their respective obligations. Eugenia transferred possession by delivering the property to Concepcion who in turn paid the purchase price. It also declared that the transfer of the property did not violate the Statute of Frauds because a fully executed contract does not fall within its coverage. On appeal by the respondents, the Court of Appeals reversed the decision of the trial court, and declared the sale null and void. Applying Article 124 of the Family Code, the Court of Appeals ruled that since the subject property is conjugal, the written consent of Antonio must be obtained for the sale to be valid. It also ordered the spouses Padua to return the amount of P100,000.00 to petitioners plus interest.[6] The sole issue for resolution in this petition for review is whether there was a valid contract of sale between Eugenia and Concepcion. A contract of sale is perfected by mere consent, upon a meeting of the minds on the offer and the acceptance thereof based on subject matter, price and terms of payment. [7] In this case, there was a perfected contract of sale between Eugenia and Concepcion. The records show that Eugenia offered to sell a portion of the property to Concepcion, who accepted the offer and agreed to pay P100,000.00 as consideration. The contract of sale was consummated when both parties fully complied with their respective obligations. Eugenia delivered the property to Concepcion, who in turn, paid Eugenia the price of One Hundred Thousand Pesos (P100,000.00), as evidenced by the receipt which reads: RECEIPT Received the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00) as payment for the lot on 85-A Durian St., Project 2, Quezon City, from Mrs. Concepcion R. Ainza, on April, 1987. _______(Sgd.) ______ Mrs.. Eugenia A. Padua[8] The verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the Statute of Frauds that a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is in writing and subscribed by the party charged or his agent.[9] When a verbal contract has been completed, executed or partially consummated, as in this case, its enforceability will not be barred by the Statute of Frauds, which applies only to an executory agreement.[10] Thus, where one party has performed his obligation, oral evidence will be admitted to prove the agreement.[11]

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In the instant case, the oral contract of sale between Eugenia and Concepcion was evidenced by a receipt signed by Eugenia. Antonio also stated that his wife admitted to him that she sold the property to Concepcion. It is undisputed that the subject property was conjugal and sold by Eugenia in April 1987 or prior to the effectivity of the Family Code on August 3, 1988, Article 254 of which repealed Title V, Book I of the Civil Code provisions on the property relations between husband and wife. However, Article 256 thereof limited its retroactive effect only to cases where it would not prejudice or impair vested or acquired rights in accordance with the Civil Code or other laws. In the case at bar, vested rights of Concepcion will be impaired or prejudiced by the application of the Family Code; hence, the provisions of the Civil Code should be applied. In Felipe v. Heirs of Aldon, et al., the legal effect of a sale of conjugal properties by the wife without the consent of the husband was clarified, to wit: The legal ground which deserves attention is the legal effect of a sale of lands belonging to the conjugal partnership made by the wife without the consent of the husband. It is useful at this point to re-state some elementary rules: The husband is the administrator of the conjugal partnership. (Art. 165, Civil Code) Subject to certain exceptions, the husband cannot alienate or encumber any real property of the conjugal partnership without the wifes consent. (Art. 166, Idem.) And the wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law. (Art. 172, Idem.). In the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership without the consent of the husband and the sale is not covered by the phrase except in cases provided by law. The Court of Appeals described the sale as invalid a term which is imprecise when used in relation to contracts because the Civil Code uses specific names in designating defective contracts, namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390 et seq.), unenforceable (Arts. 1403, et seq.), and void or inexistent (Arts. 1409 et seq.). The sale made by Gimena is certainly a defective contract but of what category? The answer: it is a voidable contract. According to Art. 1390 of the Civil Code, among the voidable contracts are [T]hose where one of the parties is incapable of giving consent to the contract. (Par. 1.) In the instant case Gimena had no capacity to give consent to the contract of sale. The capacity to give consent belonged not even to the husband alone but to both spouses. The view that the contract made by Gimena is a voidable contract is supported by the legal provision that contracts entered by the husband without the consent of the wife when such consent is required, are annullable at her instance during the marriage and within ten years from the transaction questioned. (Art. 173, Civil Code). Gimenas contract is not rescissible for in such a contract all the essential elements are untainted but Gimenas consent was tainted. Neither can the contract be classified as unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code. And finally, the contract cannot be void or inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By process of elimination, it must perforce be a voidable contract. The voidable contract of Gimena was subject to annulment by her husband only during the marriage because he was the victim who
[12]

had an interest in the contract. Gimena, who was the party responsible for the defect, could not ask for its annulment. Their children could not likewise seek the annulment of the contract while the marriage subsisted because they merely had an inchoate right to the lands sold. (Emphasis supplied) The consent of both Eugenia and Antonio is necessary for the sale of the conjugal property to be valid. Antonios consent cannot be presumed.[13] Except for the self-serving testimony of petitioner Natividad, there is no evidence that Antonio participated or consented to the sale of the conjugal property. Eugenia alone is incapable of giving consent to the contract. Therefore, in the absence of Antonios consent, the disposition made by Eugenia is voidable.[14] The contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the same must be commenced within six years from the time the right of action accrued.[15] Eugenia sold the property in April 1987 hence Antonio should have asked the courts to annul the sale on or before April 1993. No action was commenced by Antonio to annul the sale, hence his right to seek its annulment was extinguished by prescription. Even assuming that the ten (10)-year prescriptive period under Art. 173 should apply, Antonio is still barred from instituting an action to annul the sale because since April 1987, more than ten (10) years had already lapsed without any such action being filed. In sum, the sale of the conjugal property by Eugenia without the consent of her husband is voidable. It is binding unless annulled. Antonio failed to exercise his right to ask for the annulment within the prescribed period, hence, he is now barred from questioning the validity of the sale between his wife and Concepcion. WHEREFORE, the petition is GRANTED. The decision dated February 24, 2004 of the Court of Appeals in CA-G.R. CV No. 70239 and its resolution dated September 28, 2004 are REVERSED and SET ASIDE. The decision dated January 9, 2001 of the Regional Trial Court of Quezon City, Branch 85, in Civil Case No. Q-99-37529, is REINSTATED. SO ORDERED.

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Republic of the Philippines Supreme Court Manila

THIRD DIVISION

JAIME ABALOS and SPOUSES FELIX SALAZAR and CONSUELO SALAZAR, GLICERIO ABALOS, HEIRS OF AQUILINO ABALOS, namely: SEGUNDA BAUTISTA, ROGELIO ABALOS, DOLORES A. ROSARIO, FELICIDAD ABALOS, ROBERTO ABALOS, JUANITO ABALOS, TITA ABALOS, LITA A. DELA CRUZ AND HEIRS OF AQUILINA ABALOS, namely: ARTURO BRAVO, PURITA B. MENDOZA, LOURDES B. AGANON, CONSUELO B. SALAZAR, PRIMA B. DELOS SANTOS, THELMA APOSTOL and GLECERIO ABALOS, Petitioners,

Torio (Vicente) who died intestate on September 11, 1973; at the time of the death of Vicente, he left behind a parcel of land measuring 2,950 square meters, more or less, which is located at San Isidro Norte, Binmaley, Pangasinan; during the lifetime of Vicente and through his tolerance, Jaime and the Spouses Salazar were allowed to stay and build their respective houses on the subject parcel of land; even after the death of Vicente, herein respondents allowed Jaime and the Spouses Salazar to remain on the disputed lot; however, in 1985, respondents asked Jaime and the Spouses Salazar to vacate the subject lot, but they refused to heed the demand of respondents forcing respondents to file the complaint.4 G.R. No. 175444 Present: Jaime and the Spouses Salazar filed their Answer with Counterclaim, denying the material allegations in the Complaint and asserting in their Special and Affirmative Defenses that: respondents' cause of action is barred by acquisitive prescription; VELASCO, JR., J., has no jurisdiction over the nature of the action the court a quo Chairperson, and the PERALTA, persons of the defendants; the absolute and exclusive owners and possessors of the disputed lot are the deceased ABAD, predecessors of defendants; defendants and their predecessors-ininterest had been in actual, continuous and peaceful possession of MENDOZA, and the subject lot as owners since time immemorial; defendants are PERLAS-BERNABE, JJ. paying real property taxes on the faithfully and religiously disputed lot as evidenced by Real Property Tax Receipts; they have continuously introduced improvements on the said land, such as houses, trees and other kinds of ornamental plants which Promulgated: are in existence up to the time of the filing of their Answer.5

- versus -

HEIRS OF VICENTE TORIO, namely: PUBLIO TORIO, LIBORIO TORIO, VICTORINA TORIO, ANGEL TORIO, LADISLAO TORIO, PRIMO TORIO and NORBERTO TORIO, Respondents.

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

December 14, 2011 On the same date as the filing of defendants' Answer with Counterclaim, herein petitioners filed their Answer in Intervention with Counterclaim. Like the defendants, herein petitioners claimed that their predecessors-in-interest were the absolute and exclusive owners of the land in question; that petitioners and their predecessors had been in possession of the subject lot since time immemorial up to the present; they have paid real property taxes and introduced improvements thereon. 6

DECISION

After the issues were joined, trial ensued.

PERALTA, J.: Before the Court is a petition for review on certiorari seeking to set aside the Decision1 dated June 30, 2006 and Resolution2 dated November 13, 2006 by the Court of Appeals (CA) in CA-G.R. SP No. 91887. The assailed Decision reversed and set aside the Decision3dated June 14, 2005 of the Regional Trial Court (RTC) of Lingayen, Pangasinan, Branch 69, while the questioned Resolution denied petitioners' Motion for Reconsideration.

On December 10, 2003, the MTC issued a Decision, the dispositive portion of which reads as follows:

The factual and procedural antecedents of the case are as follows:

On July 24, 1996, herein respondents filed a Complaint for Recovery of Possession and Damages with the Municipal Trial Court (MTC) of Binmaley, Pangasinan against Jaime Abalos (Jaime) and the spouses Felix and Consuelo Salazar. Respondents contended that: they are the children and heirs of one Vicente

WHEREFORE, in view of the foregoing consideration[s], the Court adjudged the case in favor of the plaintiffs and against the defendants and defendants-intervenors are ordered to turn over the land in question to the plaintiffs (Lot Nos. 869 and 870, Cad. 467-D. Binmaley Cadastre located in Brgy. San Isidro Norte, Binmaley, Pangasinan with an area of 2,950 sq. m., more or less, bounded and described in paragraph 3 of the Complaint[)]; ordering the defendants and defendantsintervenors to remove their respective houses standing on the land in dispute; further ordering the defendants and defendantsintervenors, either singly or jointly to pay the plaintiffs land rent in the amount of P12,000.00 per year to be reckoned starting

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the year 1996 until defendants and defendantsintervenors will finally vacate the premises; furthermore, defendants and defendantsintervenors are also ordered to pay, either singly or jointly, the amount of P10,000.00 as and by way of attorney's fees and costs of suit. SO ORDERED.7 Jaime and the Spouses Salazar appealed the Decision of the MTC with the RTC of Lingayen, Pangasinan.8 Herein petitioners, who were intervenors, did not file an appeal.

deed of sale upon which respondents' predecessors-in-interest derived their ownership were not proven during trial. The petition lacks merit. Preliminarily, the Court agrees with the observation of respondents that some of the petitioners in the instant petition were the intervenors11 when the case was filed with the MTC. Records would show that they did not appeal the Decision of the MTC.12 The settled rule is that failure to perfect an appeal renders the judgment final and executory.13 Hence, insofar as the intervenors in the MTC are concerned, the judgment of the MTC had already become final and executory. It also bears to point out that the main issue raised in the instant petition, which is the character or nature of petitioners' possession of the subject parcel of land, is factual in nature. Settled is the rule that questions of fact are not reviewable in petitions for review on certiorari under Rule 45 of the Rules of Court.14Section 1 of Rule 45 states that petitions for review on certiorari shall raise only questions of law which must be distinctly set forth. Doubtless, the issue of whether petitioners possess the subject property as owners, or whether they occupy the same by mere tolerance of respondents, is a question of fact. Thus, it is not reviewable. Nonetheless, the Court has, at times, allowed exceptions from the abovementioned restriction. Among the recognized exceptions are the following:

In its Decision dated June 14, 2005, the RTC ruled in favor of Jaime and the Spouses Salazar, holding that they have acquired the subject property through prescription. Accordingly, the RTC dismissed herein respondents' complaint.

Aggrieved, herein respondents filed a petition for review with the CA assailing the Decision of the RTC.

On June 30, 2006, the CA promulgated its questioned Decision, the dispositive portion of which reads, thus:

WHEREFORE, the petition is GRANTED. The Decision dated June 14, 2005 of the Regional Trial Court, Branch 69, Lingayen, Pangasinan is hereby REVERSED and SET ASIDE. In its stead, a new one is entered reinstating the Decision dated December 10, 2003 of the Municipal Trial Court of Binmaley, Pangasinan. SO ORDERED.9

(a) When the findings are grounded entirely on speculation, surmises, or conjectures; (b) When the inference made is manifestly mistaken, absurd, or impossible; (c) When there is grave abuse of discretion; (d) When the judgment is based on a misapprehension of facts;

Jaime and the Spouses Salazar filed a Motion for Reconsideration, but the same was denied by the CA in its Resolution dated November 13, 2006.

(e) When the findings of facts are conflicting; (f) When in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (g) When the CAs findings are contrary to those by the trial court; (h) When the findings are conclusions without citation of specific evidence on which they are based; (i) When the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (j) When the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or (k) When the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.15

Hence, the instant petition based on a sole assignment of error, to wit: THE COURT OF APPEALS ERRED IN NOT APPRECIATING THAT THE PETITIONERS HEREIN ARE NOW THE ABSOLUTE AND EXCLUSIVE OWNERS OF THE LAND IN QUESTION BY VIRTUE OF ACQUISITIVE PRESCRIPTION.10 The main issue raised by petitioners is whether they and their predecessors-in-interest possessed the disputed lot in the concept of an owner, or whether their possession is by mere tolerance of respondents and their predecessors-in-interest. Corollarily, petitioners claim that the due execution and authenticity of the

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In the present case, the findings of fact of the MTC and the CA are in conflict with those of the RTC. After a review of the records, however, the Court finds that the petition must fail as it finds no error in the findings of fact and conclusions of law of the CA and the MTC. Petitioners claim that they have acquired ownership over the disputed lot through ordinary acquisitive prescription. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.16 Ordinary acquisitive prescription requires possession in good faith and with just title for ten (10) years.17 Without good faith and just title, acquisitive prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years. 18 Possession in good faith consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership. 19 There is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.20 In the instant case, it is clear that during their possession of the property in question, petitioners acknowledged ownership thereof by the immediate predecessor-in-interest of respondents. This is clearly shown by the Tax Declaration in the name of Jaime for the year 1984 wherein it contains a statement admitting that Jaime's house was built on the land of Vicente, respondents' immediate predecessor-in-interest.21 Petitioners never disputed such an acknowledgment. Thus, having knowledge that they nor their predecessors-in-interest are not the owners of the disputed lot, petitioners' possession could not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription. In this respect, the Court agrees with the CA that petitioners' possession of the lot in question was by mere tolerance of respondents and their predecessors-in-interest. Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive prescription.22 Possession, to constitute the foundation of a prescriptive right, must be en concepto de dueo, or, to use the common law equivalent of the term, that possession should be adverse, if not, such possessory acts, no matter how long, do not start the running of the period of prescription.23 Moreover, the CA correctly held that even if the character of petitioners' possession of the subject property had become adverse, as evidenced by their declaration of the same for tax purposes under the names of their predecessors-in-interest, their possession still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription. Records show that the earliest Tax Declaration in the name of petitioners was in 1974. Reckoned from such date, the thirty-year period was completed in 2004. However, herein respondents' complaint was filed in 1996, effectively interrupting petitioners' possession upon service of summons on them.24Thus, petitioners possession also did not ripen into ownership, because they failed to meet the required statutory period of extraordinary prescription. This Court has held that the evidence relative to the possession upon which the alleged prescription is based, must be clear, complete and conclusive in order to establish the prescription. 25 In the present case, the Court finds no error on the part of the CA in holding that petitioners failed to present competent evidence to

prove their alleged good faith in neither possessing the subject lot nor their adverse claim thereon. Instead, the records would show that petitioners' possession was by mere tolerance of respondents and their predecessors-in-interest. Finally, as to the issue of whether the due execution and authenticity of the deed of sale upon which respondents anchor their ownership were not proven, the Court notes that petitioners did not raise this matter in their Answer as well as in their PreTrial Brief. It was only in their Comment to respondents' Petition for Review filed with the CA that they raised this issue. Settled is the rule that points of law, theories, issues, and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court.26 They cannot be raised for the first time on appeal. To allow this would be offensive to the basic rules of fair play, justice and due process.27 Even granting that the issue of due execution and authenticity was properly raised, the Court finds no cogent reason to depart from the findings of the CA, to wit: xxxx Based on the foregoing, respondents [Jaime Abalos and the Spouses Felix and Consuelo Salazar] have not inherited the disputed land because the same was shown to have already been validly sold to Marcos Torio, who, thereupon, assigned the same to his son Vicente, the father of petitioners [herein respondents]. A valid sale was amply established and the said validity subsists because the deed evidencing the same was duly notarized. There is no doubt that the deed of sale was duly acknowledged before a notary public. As a notarized document, it has in its favor the presumption of regularity and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.28

Indeed, settled is the rule in our jurisdiction that a notarized document has in its favor the presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise, the document should be upheld.29In the instant case, petitioners' bare denials will not suffice to overcome the presumption of regularity of the assailed deed of sale. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 91887 areAFFIRMED. SO ORDERED.

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FIRST DIVISION [G.R. No. 184109, February 01, 2012] CELERINO E. MERCADO, PETITIONER, VS. BELEN* ESPINOCILLA** AND FERDINAND ESPINOCILLA, RESPONDENTS. DECISION VILLARAMA, JR., J.: The case Petitioner Celerino E. Mercado appeals the Decision[1] dated April 28, 2008 and Resolution[2] dated July 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 87480. The CA dismissed petitioner's complaint[3] for recovery of possession, quieting of title, partial declaration of nullity of deeds and documents, and damages, on the ground of prescription. The antecedent facts Doroteo Espinocilla owned a parcel of land, Lot No. 552, with an area of 570 sq. m., located at Magsaysay Avenue, Zone 5, Bulan, Sorsogon. After he died, his five children, Salvacion, Aspren, Isabel, Macario, and Dionisia divided Lot No. 552 equally among themselves. Later, Dionisia died without issue ahead of her four siblings, and Macario took possession of Dionisia's share. In an affidavit of transfer of real property[4] dated November 1, 1948, Macario claimed that Dionisia had donated her share to him in May 1945. Thereafter, on August 9, 1977, Macario and his daughters Betty Gullaba and Saida Gabelo sold[5] 225 sq. m. to his son Roger Espinocilla, husband of respondent Belen Espinocilla and father of respondent Ferdinand Espinocilla. On March 8, 1985, Roger Espinocilla sold[6] 114 sq. m. to Caridad Atienza. Per actual survey of Lot No. 552, respondent Belen Espinocilla occupies 109 sq. m., Caridad Atienza occupies 120 sq. m., Caroline Yu occupies 209 sq. m., and petitioner, Salvacion's son, occupies 132 sq. m.[7] The case for petitioner Petitioner sued the respondents to recover two portions: an area of 28.5[8] sq. m. which he bought from Aspren and another 28.5 sq. m. which allegedly belonged to him but was occupied by Macario's house.[9] His claim has since been modified to an alleged encroachment of only 39 sq. m. that he claims must be returned to him. He avers that he is entitled to own and possess 171 sq. m. of Lot No. 552, having inherited 142.5 sq. m. from his mother Salvacion and bought 28.5 sq. m. from his aunt Aspren. According to him, his mother's inheritance is 142.5 sq. m., that is, 114 sq. m. from Doroteo plus 28.5 sq. m. from Dionisia. Since the area he occupies is only 132 sq. m.,[10] he claims that respondents encroach on his share by 39 sq. m. [11] The case for respondents Respondents agree that Doroteo's five children each inherited 114 sq. m. of Lot No. 552. However, Macario's share increased when he received Dionisia's share. Macario's increased share was then sold to his son Roger, respondents' husband and father. Respondents claim that they rightfully possess the land they occupy by virtue of acquisitive prescription and that there is no basis for petitioner's claim of encroachment. [12] The trial court's decision On May 15, 2006, the Regional Trial Court (RTC) ruled in favor of petitioner and held that he is entitled to 171 sq. m. The RTC

found that petitioner inherited 142.5 sq. m. from his mother Salvacion and bought 28.5 sq. m. from his aunt Aspren. The RTC computed that Salvacion, Aspren, Isabel and Macario each inherited 142.5 sq. m. of Lot No. 552. Each inherited 114 sq. m. from Doroteo and 28.5 sq. m. from Dionisia. The RTC further ruled that Macario was not entitled to 228 sq. m. Thus, respondents must return 39 sq. m. to petitioner who occupies only 132 sq. m.[13] There being no public document to prove Dionisia's donation, the RTC also held that Macario's 1948 affidavit is void and is an invalid repudiation of the shares of his sisters Salvacion, Aspren, and Isabel in Dionisia's share. Accordingly, Macario cannot acquire said shares by prescription. The RTC further held that the oral partition of Lot No. 552 by Doroteo's heirs did not include Dionisia's share and that partition should have been the main action. Thus, the RTC ordered partition and deferred the transfer of possession of the 39 sq. m. pending partition. [14] The dispositive portion of the RTC decision reads: WHEREFORE, in view of the foregoing premises, the court issues the following ORDER, thus a) Partially declaring the nullity of the Deed of Absolute Sale of Property dated August 9, 1977 x x x executed by Macario Espinocilla, Betty E. Gullaba and Saida E. Gabelo in favor of Roger Espinocilla, insofar as it affects the portion or the share belonging to Salvacion Espinocilla, mother of [petitioner,] relative to the property left by Dionisia Espinocilla, including [Tax Declaration] No. 13667 and other documents of the same nature and character which emanated from the said sale; b) To leave as is the Deeds of Absolute Sale of May 11, 1983 and March 8, 1985, it having been determined that they did not involve the portion belonging to [petitioner] x x x. c) To effect an effective and real partition among the heirs for purposes of determining the exact location of the share (114 sq. m.) of the late Dionisia Espinocilla together with the 28.5 sq. m. belonging to [petitioner's] mother Salvacion, as well as, the exact location of the 39 sq. m. portion belonging to the [petitioner] being encroached by the [respondents], with the assistance of the Commissioner (Engr. Fundano) appointed by this court. d) To hold in abeyance the transfer of possession of the 39 sq. m. portion to the [petitioner] pending the completion of the real partition above-mentioned.[15] The CA decision On appeal, the CA reversed the RTC decision and dismissed petitioner's complaint on the ground that extraordinary acquisitive prescription has already set in in favor of respondents. The CA found that Doroteo's four remaining children made an oral partition of Lot No. 552 after Dionisia's death in 1945 and occupied specific portions. The oral partition terminated the coownership of Lot No. 552 in 1945. Said partition also included Dionisia's share because the lot was divided into four parts only. And since petitioner's complaint was filed only on July 13, 2000, the CA concluded that prescription has set in.[16] The CA disposed the appeal as follows: WHEREFORE, the appeal is GRANTED. The assailed May 15, 2006 Decision of the Regional Trial Court (RTC) of Bulan, Sorsogon is hereby REVERSED and SET ASIDE. The Complaint of the [petitioner] is hereby DISMISSED. No costs.[17] The instant petition The core issue to be resolved is whether petitioner's action to recover the subject portion is barred by prescription. Petitioner confirms oral partition of Lot No. 552 by Doroteo's heirs, but claims that his share increased from 114 sq. m. to 171

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sq. m. and that respondents encroached on his share by 39 sq. m. Since an oral partition is valid, the corresponding survey ordered by the RTC to identify the 39 sq. m. that must be returned to him could be made.[18] Petitioner also alleges that Macario committed fraud in acquiring his share; hence, any evidence adduced by him to justify such acquisition is inadmissible. Petitioner concludes that if a person obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a so-called constructive trust in favor of the defrauded party.[19] The Court's ruling We affirm the CA ruling dismissing petitioner's complaint on the ground of prescription. Prescription, as a mode of acquiring ownership and other real rights over immovable property, is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted, and adverse. Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for 10 years. In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for 30 years without need of title or of good faith.[20] Here, petitioner himself admits the adverse nature of respondents' possession with his assertion that Macario's fraudulent acquisition of Dionisia's share created a constructive trust. In a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee (Macario) neither accepts any trust nor intends holding the property for the beneficiary (Salvacion, Aspren, Isabel). The relation of trustee and cestui que trust does not in fact exist, and the holding of a constructive trust is for the trustee himself, and therefore, at all times adverse.[21] Prescription may supervene even if the trustee does not repudiate the relationship.[22] Then, too, respondents' uninterrupted adverse possession for 55 years of 109 sq. m. of Lot No. 552 was established. Macario occupied Dionisia's share in 1945 although his claim that Dionisia donated it to him in 1945 was only made in a 1948 affidavit. We also agree with the CA that Macario's possession of Dionisia's share was public and adverse since his other co-owners, his three other sisters, also occupied portions of Lot No. 552. Indeed, the 1977 sale made by Macario and his two daughters in favor of his son Roger confirms the adverse nature of Macario's possession because said sale of 225 sq. m.[23] was an act of ownership over Macario's original share and Dionisia's share. In 1985, Roger also exercised an act of ownership when he sold 114 sq. m. to Caridad Atienza. It was only in the year 2000, upon receipt of the summons to answer petitioner's complaint, that respondents' peaceful possession of the remaining portion (109 sq. m.) was interrupted. By then, however, extraordinary acquisitive prescription has already set in in favor of respondents. That the RTC found Macario's 1948 affidavit void is of no moment. Extraordinary prescription is unconcerned with Macario's title or good faith. Accordingly, the RTC erred in ruling that Macario cannot acquire by prescription the shares of Salvacion, Aspren, and Isabel, in Dionisia's 114-sq. m. share from Lot No. 552. Moreover, the CA correctly dismissed petitioner's complaint as an action for reconveyance based on an implied or constructive trust prescribes in 10 years from the time the right of action accrues.[24] This is the other kind of prescription under the Civil Code, called extinctive prescription, where rights and actions are lost by the lapse of time.[25] Petitioner's action for recovery of possession having been filed 55 years after Macario occupied Dionisia's share, it is also barred by extinctive prescription. The CA while condemning Macario's fraudulent act of depriving his

three sisters of their shares in Dionisia's share, equally emphasized the fact that Macario's sisters wasted their opportunity to question his acts. WHEREFORE, we DENY the petition for review on certiorari for lack of merit andAFFIRM the assailed Decision dated April 28, 2008 and Resolution dated July 22, 2008 of the Court of Appeals in CA-G.R. CV No. 87480. No pronouncement as to costs. SO ORDERED.

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ARTICLE 1169 Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 129018 November 15, 2001

the lot valued at P800,000.00.8 The last payment that she made was on April 1, 1989. On September 16, 1991, the trial court rendered a decision in an ejectment case9 earlier filed by respondent Fernando ordering petitioner Leao to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the property from May 27, 1991 until she vacated the premises, attorney's fees and costs of the suit.10 On August 24, 1993, the trial court issued a writ of execution which was duly served on petitioner Leao. On September 27, 1993, petitioner Leao filed with the Regional Trial Court of Malolos, Bulacan a complaint for specific performance with preliminary injunction.11 Petitioner Leao assailed the validity of the judgment of the municipal trial court12 for being violative of her right to due process and for being contrary to the avowed intentions of Republic Act No. 6552 regarding protection to buyers of lots on installments. Petitioner Leao deposited P18,000.00 with the clerk of court, Regional Trial Court, Bulacan, to cover the balance of the total cost of Lot 876-B.13 On November 4, 1993, after petitioner Leao posted a cash bond of P50,000.00,14 the trial court issued a writ of preliminary injunction15 to stay the enforcement of the decision of the municipal trial court.16 On February 6, 1995, the trial court rendered a decision, the dispositive portion of which reads: "WHEREFORE, judgment is hereby rendered as follows: "1. The preliminary injunction issued by this court per its order dated November 4, 1993 is hereby made permanent; "2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70 corresponding to her outstanding obligations under the contract to sell (Exhibit "A" Exhibit "B") consisting of the principal of said obligation together with the interest and surcharges due thereon as of February 28, 1994, plus interest thereon at the rate of 18% per annum in accordance with the provision of said contract to be computed from March 1, 1994, until the same becomes fully paid; "3. Ordering the defendant to pay to plaintiff the amount of P10,000 as and by way of attorney's fees; "4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil Case No. 1680 aforementioned. "SO ORDERED. "Malolos, Bulacan, February 6, 1995.

CARMELITA LEAO, assisted by her husband GREGORIO CUACHON, petitioner, vs. COURT OF APPEALS and HERMOGENES FERNANDO, respondents. PARDO, J.: The Case The case is a petition for review on certiorari of the decision1 of the Court of Appeals affirming that of the Regional Trial Court, Malolos, Branch 72 ordering petitioner Leao to pay respondent Hermogenes Fernando the sum of P183,687.70 corresponding to her outstanding obligations under the contract to sell, with interest and surcharges due thereon, attorney's fees and costs.1wphi1.nt The Facts On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leao, as vendee executed a contract to sell involving a piece of land, Lot No. 876-B, with an area of 431 square meters, located at Sto. Cristo, Baliuag, Bulacan.3 In the contract, Carmelita Leao bound herself to pay Hermogenes Fernando the sum of one hundred seven thousand and seven hundred and fifty pesos (P107,750.00) as the total purchase price of the lot. The manner of paying the total purchase price was as follows: "The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE (P10,775.00) PESOS, shall be paid at the signing of this contract as DOWN PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED SEVENTY FIVE PESOS (P96,975.00) shall be paid within a period of TEN (10) years at a monthly amortization of P1,747.30 to begin from December 7, 1985 with interest at eighteen per cent (18%) per annum based on balances."4 The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments. 5 Should a period of ninety (90) days elapse from the expiration of the grace period without the overdue and unpaid installments having been paid with the corresponding interests up to that date, respondent Fernando, as vendor, was authorized to declare the contract cancelled and to dispose of the parcel of land, as if the contract had not been entered into. The payments made, together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the premises and as liquidated damages.6 After the execution of the contract, Carmelita Leao made several payments in lump sum.7 Thereafter, she constructed a house on

"(sgd.) DANILO A. MANALASTAS Judge"17 On February 21, 1995, respondent Fernando filed a motion for reconsideration18 and the supplement19 thereto. The trial court increased the amount of P103,090.70 to P183,687.00 and ordered petitioner Leao ordered to pay attorney's fees.20

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According to the trial court, the transaction between the parties was an absolute sale, making petitioner Leao the owner of the lot upon actual and constructive delivery thereof. Respondent Fernando, the seller, was divested of ownership and cannot recover the same unless the contract is rescinded pursuant to Article 1592 of the Civil Code which requires a judicial or notarial demand. Since there had been no rescission, petitioner Leao, as the owner in possession of the property, cannot be evicted. On the issue of delay, the trial court held: "While the said contract provides that the whole purchase price is payable within a ten-year period, yet the same contract clearly specifies that the purchase price shall be payable in monthly installments for which the corresponding penalty shall be imposed in case of default. The plaintiff certainly cannot ignore the binding effect of such stipulation by merely asserting that the ten-year period for payment of the whole purchase price has not yet lapsed. In other words, the plaintiff has clearly defaulted in the payment of the amortizations due under the contract as recited in the statement of account (Exhibit "2") and she should be liable for the payment of interest and penalties in accordance with the stipulations in the contract pertaining thereto."21 The trial court disregarded petitioner Leaos claim that she made a downpayment of P10,000.00, at the time of the execution of the contract. The trial court relied on the statement of account22 and the summary23 prepared by respondent Fernando to determine petitioner Leao's liability for the payment of interests and penalties. The trial court held that the consignation made by petitioner Leao in the amount of P18,000.00 did not produce any legal effect as the same was not done in accordance with Articles 1176, 1177 and 1178 of the Civil Code. In time, petitioner Leao appealed the decision to the Court of Appeals.24 On January 22, 1997, Court of Appeals promulgated a decision affirming that of the Regional Trial Court in toto.25 On February 11, 1997, petitioner Leao filed a motion for reconsideration.26 On April 18, 1997, the Court of Appeals denied the motion.27 Hence, this petition.28 The Issues The issues to be resolved in this petition for review are (1) whether the transaction between the parties in an absolute sale or a conditional sale; (2) whether there was a proper cancellation of the contract to sell; and (3) whether petitioner was in delay in the payment of the monthly amortizations. The Court's Ruling Contrary to the findings of the trial court, the transaction between the parties was a conditional sale not an absolute sale. The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price. Consider the following: First, the contract to sell makes the sale, cession and conveyance "subject to conditions" set forth in the contract to sell. 29

Second, what was transferred was the possession of the property, not ownership. The possession is even limited by the following: (1) that the vendee may continue therewith "as long as the VENDEE complies with all the terms and conditions mentioned, and (2) that the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber any right, interest or equity that she may have or acquire in and to the said parcel of land nor to lease or to sublease it or give possession to another person without the written consent of the seller.30 Finally, the ownership of the lot was not transferred to Carmelita Leao. As the land is covered by a torrens title, the act of registration of the deed of sale was the operative act that could transfer ownership over the lot.31 There is not even a deed that could be registered since the contract provides that the seller will execute such a deed "upon complete payment by the VENDEE of the total purchase price of the property" with the stipulated interest.32 In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force.33 The transfer of ownership and title would occur after full payment of the price.34 In the case at bar, petitioner Leao's non-payment of the installments after April 1, 1989, prevented the obligation of respondent Fernando to convey the property from arising. In fact, it brought into effect the provision of the contract on cancellation. Contrary to the findings of the trial court, Article 1592 of the Civil Code is inapplicable to the case at bar.35However, any attempt to cancel the contract to sell would have to comply with the provisions of Republic Act No. 6552, the "Realty Installment Buyer Protection Act." R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. 36 The law also provides for the rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law provides that: "If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payment made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer." [Emphasis supplied] The decision in the ejectment case37 operated as the notice of cancellation required by Sec. 3(b). As petitioner Leao was not given then cash surrender value of the payments that she made, there was still no actual cancellation of the contract. Consequently, petitioner Leao may still reinstate the contract by updating the account during the grace period and before actual cancellation.38 Should petitioner Leao wish to reinstate the contract, she would have to update her accounts with respondent Fernando in accordance with the statement of account39 which amount was P183,687.00.40

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On the issue of whether petitioner Leao was in delay in paying the amortizations, we rule that while the contract provided that the total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leao cannot ignore the provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed. Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.1wphi1.nt In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leao to continue in possession and use of the property. Clearly, when petitioner Leao did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages.41 However, we agree with the trial court that the default committed by petitioner Leao in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question.42 It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.43 Thus, as there is no ambiguity in the language of the contract, there is no room for construction, only compliance. The Fallo IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of the Court of Appeals44 in toto. No costs. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 127695 December 3, 2001

performance with damages against petitioners before the Regional Trial Court, praying that the latter, (a) execute a deed of sale over the subject property in favor of private respondents; (b) receive the payment of the purchase price; and (c) pay the damages. On the other hand, petitioners alleged that before Luis Bacus' death, private respondents conveyed to them the former's lack of interest to exercise their option because of insufficiency of funds, but they were surprised to learn of private respondents' demand. In turn, they requested private respondents to pay the purchase price in full but the latter refused. They further alleged that private respondents did not deposit the money as required by theLupon and instead presented a bank certification which cannot be deemed legal tender. On October 30, 1990, private respondents manifested in court that they caused the issuance of a cashier's check in the amount of P650,0006 payable to petitioners at anytime upon demand. On August 3, 1991, the Regional Trial Court ruled in favor of private respondents, the dispositive portion of which reads: Premises considered, the court finds for the plaintiffs and orders the defendants to specifically perform their obligation in the option to buy and to execute a document of sale over the property covered by Transfer Certificate of Title # T-63269 upon payment by the plaintiffs to them in the amount of Six Hundred Seventy-Five Thousand Six Hundred Seventy-Five (P675,675.00) Pesos within a period of thirty (30) days from the date this decision becomes final. SO ORDERED.7 Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied the appeal on November 29, 1996, on the ground that the private respondents exercised their option to buy the leased property before the expiration of the contract of lease. It held: . . . After a careful review of the entire records of this case, we are convinced that the plaintiffs-appellees validly and effectively exercised their option to buy the subject property. As opined by the lower court, "the readiness and preparedness of the plaintiff on his part, is manifested by his cautionary letters, the prepared bank certification long before the date of May 31, 1990, the final day of the option, and his filing of this suit before said date. If the plaintiff-appellee Francisco Duray had no intention to purchase the property, he would not have bothered to write those letters to the defendantappellants (which were all received by them) and neither would he be interested in having his adverse claim annotated at the back of the T.C.T. of the subject property, two (2) months before the expiration of the lease. Moreover, he even went to the extent of seeking the help of the Lupon Tagapamayapa to compel the defendants-appellants to recognize his right to purchase the property and for them to perform their corresponding obligation.8 xxx xxx xxx

HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS, ROQUE R. BACUS, SR., SATURNINO R. BACUS, PRISCILA VDA. DE CABANERO, CARMELITA B. SUQUIB, BERNARDITA B. CARDENAS, RAUL R. BACUS, MEDARDO R. BACUS, ANSELMA B. ALBAN, RICARDO R. BACUS, FELICISIMA B. JUDICO, and DOMINICIANA B. TANGAL, petitioners, vs. HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and VICTORIANA DURAY, respondents. QUISUMBING, J.: This petition assails the decision dated November 29, 1996, of the Court of Appeals in CA-G.R. CV No. 37566, affirming the decision dated August 3, 1991, of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-8935. The facts, as culled from the records, are as follows: On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had an area of 3,002 square meters, covered by Transfer Certificate of Title No. 48866. The lease was for six years, ending May 31, 1990. The contract contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of the contract, at P200 per square meter. That rate shall be proportionately adjusted depending on the peso rate against the US dollar, which at the time of the execution of the contract was fourteen pesos.1 Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option to buy clause. They requested Roque Bacus to prepare the necessary documents, such as a Special Power of Attorney authorizing him to enter into a contract of sale,2 on behalf of his sisters who were then abroad. On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Duray's adverse claim was annotated by the Register of Deeds of Cebu, at the back of TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No. 3661-A-3-B-2-A.3 Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis Bacus with the Lupon Tagapamayapa of Barangay Bulacao, asking that he be allowed to purchase the lot specifically referred to in the lease contract with option to buy. At the hearing, Duray presented a certification4 from the manager of Standard Chartered Bank, Cebu City, addressed to Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow Faustino Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract with Luis Bacus.5 Having failed to reach an agreement before the Lupon, on April 27, 1990, private respondents filed a complaint for specific

We therefore find no merit in this appeal. WHEREFORE, the decision appealed from is hereby AFFIRMED.9 Hence, this petition where petitioners aver that the Court of Appeals gravely erred and abused its discretion in:

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I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE SPECIFIC PERFORMANCE CASE BY ORDERING PETITIONERS (DEFENDANTS THEREIN) TO EXECUTE A DOCUMENT OF SALE OVER THE PROPERTY IN QUESTION (WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE THE DECISION BECOMES FINAL; II. . . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS OF LAW AND JURISPRUDENCE IN UPHOLDING THE DECISION OF THE TRIAL COURT TO THE EFFECT THAT PRIVATE RESPONDENTS HAD EXERCISED THEIR RIGHT OF OPTION TO BUY ON TIME; THUS THE PRESENTATION OF THE CERTIFICATION OF THE BANK MANAGER OF A BANK DEPOSIT IN THE NAME OF ANOTHER PERSON FOR LOAN TO RESPONDENTS WAS EQUIVALENT TO A VALID TENDER OF PAYMENT AND A SUFFICIENT COMPLAINCE (SIC) OF A CONDITION FOR THE EXERCISE OF THE OPTION TO BUY; AND III. . . . UPHOLDING THE TRIAL COURT'S RULING THAT THE PRESENTATION OF A CASHER'S (SIC) CHECK BY THE RESPONDENTS IN THE AMOUNT OF P625,000.00 EVEN AFTER THE TERMINATION OF THE TRIAL ON THE MERITS WITH BOTH PARTIES ALREADY HAVING RESTED THEIR CASE, WAS STILL VALID COMPLIANCE OF THE CONDITION FOR THE PRIVATE RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF RIGHT OF OPTION TO BUY AND HAD A FORCE OF VALID AND FULL TENDER OF PAYMENT WITHIN THE AGREED PERIOD.10 Petitioners insist that they cannot be compelled to sell the disputed property by virtue of the nonfulfillment of the obligation under the option contract of the private respondents. Private respondents first aver that petitioners are unclear if Rule 65 or Rule 45 of the Rules of Court govern their petition, and that petitioners only raised questions of facts which this Court cannot properly entertain in a petition for review. They claim that even assuming that the instant petition is one under Rule 45, the same must be denied for the Court of Appeals has correctly determined that they had validly exercised their option to buy the leased property before the contract expired. In response, petitioners state that private respondents erred in initially classifying the instant petition as one under Rule 65 of the Rules of Court. They argue that the petition is one under Rule 45 where errors of the Court of Appeals, whether evidentiary or legal in nature, may be reviewed. We agree with private respondents that in a petition for review under Rule 45, only questions of law may be raised.11 However, a close reading of petitioners' arguments reveal the following legal issues which may properly be entertained in the instant petition: a) When private respondents opted to buy the property covered by the lease contract with option to buy, were they already required to deliver the money or consign it in court before petitioner executes a deed of transfer? b) Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract?

On the first issue, petitioners contend that private respondents failed to comply with their obligation because there was neither actual delivery to them nor consignation in court or with the Municipal, City or Provincial Treasurer of the purchase price before the contract expired. Private respondents' bank certificate stating that arrangements were being made by the bank to release P700,000 as a loan to private respondents cannot be considered as legal tender that may substitute for delivery of payment to petitioners nor was it a consignation. Obligations under an option to buy are reciprocal obligations.12 The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation.13 In other words, in an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In this case, when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners' actual execution and delivery of the deed of sale were they required to pay. As earlier stated, the latter was contingent upon the former. In Nietes vs. Court of Appeals, 46 SCRA 654 (1972), we held that notice of the creditor's decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required. 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. In instances, where no debt is due and owing, consignation is not proper.14 Therefore, petitioners' contention that private respondents failed to comply with their obligation under the option to buy because they failed to actually deliver the purchase price or consign it in court before the contract expired and before they execute a deed, has no leg to stand on. Corollary, private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the expiration of the contract. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does delay by the other begin.15 In this case, private respondents, as early as March 15, 1990, communicated to petitioners their intention to buy the property and they were at that time undertaking to meet their obligation before the expiration of the contract on May 31, 1990. However, petitioners refused to execute the deed of sale and it was their demand to private respondents to first deliver the money before they would execute the same which prompted private respondents to institute a case for specific performance in the Lupong Tagapamayapa and then in the RTC. On October 30, 1990, after the case had been submitted for decision but before the trial court rendered its decision, private respondents issued a cashier's check in petitioners' favor purportedly to bolster their claim that they were ready to pay the purchase price. The trial court considered this in private respondents' favor and we believe that it rightly did so, because at the time the check was issued, petitioners had not yet executed a deed of sale nor expressed readiness to do so. Accordingly, as there was no compliance yet with what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay when the cashier's check was issued even after the contract expired. WHEREFORE, the instant petition is DENIED. The decision dated November 29, 1996 of the Court of Appeals is hereby AFFIRMED. Costs against petitioners. SO ORDERED.

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ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro S. Cortes), petitioner, vs. HON. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT CORPORATION, respondents. DECISION YNARES-SANTIAGO, J.: The instant petition for review seeks the reversal of the June 13, 1996 Decision1 of the Court of Appeals in CA-G.R. CV No. 47856, setting aside the June 24, 1993 Decision2 of the Regional Trial Court of Makati, Branch 138, which rescinded the contract of sale entered into by petitioner Antonio Cortes (Cortes) and private respondent Villa Esperanza Development Corporation (Corporation). The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer, and Cortes as seller, entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT) No. 31113-A, TCT No. 31913-A and TCT No. 32013-A, located at Baclaran, Paraaque, Metro Manila. On various dates in 1983, the Corporation advanced to Cortes the total sum of P1,213,000.00. Sometime in September 1983, the parties executed a deed of absolute sale containing the following terms:3 1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less all advances paid by the Vendee to the Vendor in connection with the sale; 2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS, Phil. Currency shall be payable within ONE (1) YEAR from date of execution of this instrument, payment of which shall be secured by an irrevocable standby letter of credit to be issued by any reputable local banking institution acceptable to the Vendor. xxxx 4. All expense for the registration of this document with the Register of Deeds concerned, including the transfer tax, shall be divided equally between the Vendor and the Vendee. Payment of the capital gains shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of sale.4 Said Deed was retained by Cortes for notarization. On January 14, 1985, the Corporation filed the instant case5 for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents. It thus prayed for the award of damages, attorney's fees and litigation expenses arising from Cortes' refusal to deliver the same documents. In his Answer with counterclaim,6 Cortes claimed that the owner's duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. He added that portion of the subject property is occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee. However, due to the Corporation's failure to pay in full the sum of P2,200,000.00, he

in turn failed to fully pay the disturbance fee of the lessee who now refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the outstanding balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000.00 partial down payment, with damages in either case. On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the contract of the parties, the Corporation should have fully paid the amount of P2,200,000.00 upon the execution of the contract. It stressed that such is the law between the parties because the Corporation failed to present evidence that there was another agreement that modified the terms of payment as stated in the contract. And, having failed to pay in full the amount of P2,200,000.00 despite Cortes' delivery of the Deed of Absolute Sale and the TCTs, rescission of the contract is proper. In its motion for reconsideration, the Corporation contended that the trial court failed to consider their agreement that it would pay the balance of the down payment when Cortes delivers the TCTs. The motion was, however, denied by the trial court holding that the rescission should stand because the Corporation did not act on the offer of Cortes' counsel to deliver the TCTs upon payment of the balance of the down payment. Thus: The Court finds no merit in the [Corporation's] Motion for Reconsideration. As stated in the decision sought to be reconsidered, [Cortes'] counsel at the pre-trial of this case, proposed that if [the Corporation] completes the down payment agreed upon and make arrangement for the payment of the balances of the purchase price, [Cortes] would sign the Deed of Sale and turn over the certificate of title to the [Corporation]. [The Corporation] did nothing to comply with its undertaking under the agreement between the parties. WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration is hereby DENIED. SO ORDERED.7 On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with the Corporation's payment of the balance of the purchase price of P2,487,000.00. It found that the parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes' delivery of the three TCTs to the Corporation. The records show that no such delivery was made, hence, the Corporation was not remiss in the performance of its obligation and therefore justified in not paying the balance. The decretal portion thereof, provides: WHEREFORE, premises considered, [the Corporation's] appeal is GRANTED. The decision appealed from is hereby REVERSED and SET ASIDE and a new judgment rendered ordering [Cortes] to execute a deed of absolute sale conveying to [the Corporation] the parcels of land subject of and described in the deed of absolute sale, Exhibit D. Simultaneously with the execution of the deed of absolute sale and the delivery of the corresponding owner's duplicate copies of TCT Nos. 31113-A, 31931-A and 32013-A of the Registry of Deeds for the Province of Rizal, Metro Manila, District IV, [the Corporation] shall pay [Cortes] the balance of the purchase price of P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit D, under terms and conditions, "All

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expenses for the registration of this document (the deed of sale) with the Register of Deeds concerned, including the transfer tax, shall be divided equally between [Cortes and the Corporation]. Payment of the capital gains shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of sale." There is no pronouncement as to costs. SO ORDERED.8 Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be reinstated. There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties. Reciprocal obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. 9 Article 1191 of the Civil Code, states: ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. xxxx As to when said failure or delay in performance arise, Article 1169 of the same Code provides that ART. 1169 xxxx In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Emphasis supplied) The issue therefore is whether there is delay in the performance of the parties' obligation that would justify the rescission of the contract of sale. To resolve this issue, we must first determine the true agreement of the parties. The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such, therefore, documentary and parol evidence may be submitted and admitted to prove such intention.10 In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full the P2,200,000.00 down payment upon execution of the contract. However, as correctly noted by the Court of Appeals, the transcript of stenographic notes reveal Cortes' admission that he agreed that the Corporation's full payment of the sum of P2,200,000.00 would depend upon his delivery of the TCTs of the three lots. In fact, his main defense in the Answer is that, he performed what is incumbent upon him by delivering to the Corporation the TCTs and the carbon duplicate of the Deed of Absolute Sale, but the latter refused to pay in full the down payment. 11 Pertinent portion of the transcript, reads:

[Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has not been paid in full the agreed down payment? A Well, the broker told me that the down payment will be given if I surrender the titles. Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2,200,000.00 provided you surrender or entrust to the plaintiff the titles? A Yes, sir.12 What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the lots will be transferred in the name of the Corporation upon full payment of the P2,200,000.00 down payment. Thus ATTY. ANTARAN Q Of course, you have it transferred in the name of the plaintiff, the title? A Upon full payment. xxxx ATTY. SARTE Q When you said upon full payment, are you referring to the agreed down payment of P2,200,000.00? A Yes, sir.13 By agreeing to transfer title upon full payment of P2,200,000.00, Cortes' impliedly agreed to deliver the TCTs to the Corporation in order to effect said transfer. Hence, the phrase "execution of this instrument" 14 as appearing in the Deed of Absolute Sale, and which event would give rise to the Corporation's obligation to pay in full the amount of P2,200,000.00, can not be construed as referring solely to the signing of the deed. The meaning of "execution" in the instant case is not limited to the signing of a contract but includes as well the performance or implementation or accomplishment of the parties' agreement.15 With the transfer of titles as the corresponding reciprocal obligation of payment, Cortes' obligation is not only to affix his signature in the Deed, but to set into motion the process that would facilitate the transfer of title of the lots, i.e., to have the Deed notarized and to surrender the original copy thereof to the Corporation together with the TCTs. Having established the true agreement of the parties, the Court must now determine whether Cortes delivered the TCTs and the original Deed to the Corporation. The Court of Appeals found that Cortes never surrendered said documents to the Corporation. Cortes testified that he delivered the same to Manny Sanchez, the son of the broker, and that Manny told him that her mother, Marcosa Sanchez, delivered the same to the Corporation. Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff? A Yes, sir. Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt with that receipt that you have mentioned?

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A That is the receipt of the real estate broker when she received the titles. Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is that Manny Sanchez? A That is the son of the broker. xxxx Q May we know the full name of the real estate broker? A Marcosa Sanchez xxxx Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff? A That is what [s]he told me. She gave them to the plaintiff. x x x x.16 ATTY. ANTARAN Q Are you really sure that the title is in the hands of the plaintiff? xxxx Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff? A Yes, sir. COURT Q How do you know that it was delivered to the plaintiff by the son of the broker? A The broker told me that she delivered the title to the plaintiff. ATTY. ANTARAN Q Did she not show you any receipt that she delivered to [Mr.] Dragon17 the title without any receipt? A I have not seen any receipt. Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or not. It is only upon the allegation of the broker? A Yes, sir.18 However, Marcosa Sanchez's unrebutted testimony is that, she did not receive the TCTs. She also denied knowledge of delivery thereof to her son, Manny, thus: Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he allegedly gave you the title to the property in question, is it true?

A I did not receive the title. Q He likewise said that the title was delivered to your son, do you know about that? A I do not know anything about that.19 What further strengthened the findings of the Court of Appeals that Cortes did not surrender the subject documents was the offer of Cortes' counsel at the pre-trial to deliver the TCTs and the Deed of Absolute Sale if the Corporation will pay the balance of the down payment. Indeed, if the said documents were already in the hands of the Corporation, there was no need for Cortes' counsel to make such offer. Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the TCTs, the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation alone that was remiss in the performance of its obligation. Actually, both parties were in delay. Considering that their obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to a compensation morae or default on the part of both parties because neither has completed their part in their reciprocal obligation.20 Cortes is yet to deliver the original copy of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default, 21 such that it is as if no one is guilty of delay. 22 We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed settlement at the pre-trial must be construed against the latter. Cortes argued that with his counsel's offer to surrender the original Deed and the TCTs, the Corporation should have consigned the balance of the down payment. This argument would have been correct if Cortes actually surrendered the Deed and the TCTs to the Corporation. With such delivery, the Corporation would have been placed in default if it chose not to pay in full the required down payment. Under Article 1169 of the Civil Code, from the moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform his part, the provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force. Moreover, the Corporation could not be faulted for not automatically heeding to the offer of Cortes. For one, its complaint has a prayer for damages which it may not want to waive by agreeing to the offer of Cortes' counsel. For another, the previous representation of Cortes that the TCTs were already delivered to the Corporation when no such delivery was in fact made, is enough reason for the Corporation to be more cautious in dealing with him. The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the Corporation and for the latter to pay in full, not only the down payment, but the entire purchase price. And since the Corporation did not question the Court of Appeal's decision and even prayed for its affirmance, its payment should rightfully consist not only of the amount of P987,000.00, representing the balance of the P2,200,000.00 down payment, but the total amount of P2,487,000.00, the remaining balance in the P3,700,000.00 purchase price. WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in CA-G.R. CV No. 47856, is AFFIRMED. SO ORDERED.

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SUPREME COURT Manila FIRST DIVISION G.R. No. 158768 February 12, 2008

was the designation of GEMM Construction Corporation (GEMM) as the project's construction manager.11 Petitioner started working on the project in February 1994. On June 30, 1994, respondent executed a deed of sale 12 (covering 114 condominium units and 20 parking slots of the MPT collectively valued by the parties at P112,416,716.88)13 in favor of petitioner pursuant to the "full-swapping" payment provision of the supplemental agreement. Shortly thereafter, petitioner sold some of its units to third persons.14 In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the progress of the project.15 In its September 7, 1995 report,16 ITI informed respondent that petitioner, at that point, had only accomplished 31.89% of the project (or was 11 months and six days behind schedule).17 Meanwhile, petitioner and respondent were discussing the possibility of the latters take over of the projects supervision. Despite ongoing negotiations, respondent did not obtain petitioners consent in hiring ITI as the projects construction manager. Neither did it inform petitioner of ITIs September 7, 1995 report. On October 12, 1995, petitioner sought to confirm respondent's plan to take over the project.18 Its letter stated: The mutual agreement arrived at sometime in the last week of August 1995 for [respondent] to take over the construction supervision of the balance of the [project] from [petitioner's] [e]ngineering staff and complete [the] same by December 31, 1995 as promised by [petitioner's] engineer. The [petitioner's] accomplished works as of this date of [t]ake over is of acceptable quality in materials and workmanship. This mutual agreement on the take over should not be misconstrued in any other way except that the take over is part of the long range plan of [respondent] that [petitioner], in the spirit of cooperation, agreed to hand over the construction supervision to [respondent] as requested. (emphasis supplied)19 Engineers Antonio Co, general construction manager of respondent, and Luzon Y. Tablante, project manager of petitioner, signed the letter. Integratechs (ITIs) Report In its September 7, 1995 report, ITI estimated that petitioner should have accomplished 48.71% of the project as of the October 12, 1995 takeover date.20 Petitioner repudiated this figure21 but qualifiedly admitted that it did not finish the project.22 Records showed that respondent did not merely take over the supervision of the project but took full control thereof.23 Petitioner consequently conducted an inventory. 24 On the basis thereof, petitioner demanded from respondent the payment of its balance amounting to P1,779,744.85.25 On February 19, 1996, petitioner sent a second letter to respondent demanding P2,023,876.25. This new figure included

TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION, petitioner, vs. PRIMETOWN PROPERTY GROUP, INC., respondent. DECISION CORONA, J.: This petition for review on certiorari1 seeks to set aside the decision of the Court of Appeals (CA) in CA-G.R. CV No. 613532 and its resolution3 denying reconsideration. In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural works4 of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and Development Corporation.5 The parties formalized their agreement in a construction contract6 dated February 4, 1993.7 Upon the completion of MPT's structural works, respondent awarded the P130,000,000 contract for the tower's architectural works8 (project) to petitioner. Thus, on January 31, 1994, the parties executed a supplemental agreement.9 The salient portions thereof were: 1. the [project] shall cover the scope of work of the detailed construction bid plans and specifications and bid documents dated 28 September 1993, attached and forming an integral part hereof as Annex A. 2. the contract price for the said works shall be P130 million. 3. the payment terms shall be "full swapping" or full payment in condominium units. The condominium units earmarked for the [petitioner] are shown in the attached Annex B. 4. the [respondent] shall transfer and surrender to [petitioner] the condominium units abovestated in accordance with the following schedule: (a) 80% of units upon posting and acceptance by [respondent] of the performance bond [and] (b) 20% or remaining balance upon completion of the project as provided in the construction contract and simultaneous with the posting by [petitioner] of the reglementary guarantee bond. 5. the contract period shall be fifteen (15) months reckoned from the release of the condominium certificates of title (CCTs) covering eighty percent (80%) of the units transferable to [petitioner] as aforesaid[.] Significantly, the supplemental agreement adopted those provisions of the construction contract which it did not specifically discuss or provide for.10 Among those carried over

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the cost of materials (P244,331.40) petitioner advanced from December 5, 1995 to January 26, 1996. 26 On November 22, 1996, petitioner demanded from respondent the delivery of MPT's management certificate27and the keys to the condominium units and the payment of its (respondent's) balance.28 Because respondent ignored petitioner's demand, petitioner, on December 9, 1996, filed a complaint for specific performance 29 in the Housing and Land Use Regulatory Board (HLURB). While the complaint for specific performance was pending in the HLURB, respondent sent a demand letter to petitioner asking it to reimburse the actual costs incurred in finishing the project (or P69,785,923.47).30 In view of the pendency of the HLURB case, petitioner did not heed respondent's demands. On April 29, 1997, the HLURB rendered a decision in favor of petitioner.31 It ruled that the instrument executed on June 30, 1994 was a deed of absolute sale because the conveyance of the condominium units and parking slots was not subject to any condition.32 Thus, it ordered respondent to issue MPTs management certificate and to deliver the keys to the condominium units to petitioner.33 Respondent did not appeal this decision. Consequently, a writ of execution was issued upon its finality.34 Undaunted by the finality of the HLURB decision, respondent filed a complaint for collection of sum of money35against petitioner in the Regional Trial Court (RTC) of Makati City, Branch 58 on July 2, 1997. It prayed for the reimbursement of the value of the projects unfinished portion amounting to P66,677,000.36 During trial, the RTC found that because respondent modified the MPT's architectural design, petitioner had to adjust the scope of work.37 Moreover, respondent belatedly informed petitioner of those modifications. It also failed to deliver the concrete mix and rebars according to schedule. For this reason, petitioner was not responsible for the project's delay.38 The trial court thus allowed petitioner to set-off respondent's other outstanding liabilities with respondents excess payment in the project.39 It concluded that respondent owed petitioner P2,023,876.25.40In addition, because respondent refused to deliver the keys to the condominium units and the management certificate to petitioner, the RTC found that petitioner lost rental income amounting to US$1,665,260. 41 The dispositive portion of the RTC decision stated: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered dismissing [respondent's] [c]omplaint for lack of merit. On the other hand, finding preponderance of evidence to sustain [petitioner's] counterclaim, judgment is hereby rendered in favor of [petitioner] ordering [respondent] to pay the former: 1. The unpaid balance of the consideration for [petitioner's] services in [the project] in the amount ofP2,023,867.25 with legal interest from the date of demand until fully paid; 2. Compensatory damages in the amount of US$1,665,260 or its peso equivalent at the current foreign exchange rate representing lost rental income due only as of July 1997 and the accrued lost earnings from then on until the date of actual payment, with legal interest from the date of demand until fully paid; and

3. Attorney's fees in the amount of P100,000 as acceptance fee, P1,000 appearance fee per hearing and 25% of the total amount awarded to [petitioner]. With costs against the [respondent]. SO ORDERED.42 Respondent appealed the RTC decision to the CA. 43 The appellate court found that respondent fully performed its obligation when it executed the June 30, 1994 deed of absolute sale in favor of petitioner.44 Moreover, ITI's report clearly established that petitioner had completed only 48.71% of the project as of October 12, 1995, the takeover date. Not only did it incur delay in the performance of its obligation but petitioner also failed to finish the project. The CA ruled that respondent was entitled to recover the value of the unfinished portion of the project under the principle of unjust enrichment.45 Thus: WHEREFORE, the appealed decision is REVERSED and a new one entered dismissing [petitioner's] counterclaims of P2,023,867.25 representing unpaid balance for [its] services in [the project]; US$1,665,260 as accrued lost earnings, and attorney's fees. [Petitioner] is hereby ordered to return to [respondent] the amount of P66,677,000 representing the value of unfinished [portion of the project], plus legal interest thereon until fully paid. Upon payment by [petitioner] of the aforementioned amount, [respondent] is hereby ordered to deliver the keys and [m]anagement [c]ertificate of the [Makati Prime Tower] paid to [petitioner] as consideration for the [project].46 Petitioner moved for reconsideration but it was denied. Hence, this petition. Petitioner contends that the CA erred in giving weight to ITI's report because the project evaluation was commissioned only by respondent,47 in disregard of industry practice. Project evaluations are agreed upon by the parties and conducted by a disinterested third party.48 We grant the petition. Review of Conflicting Factual Findings As a general rule, only questions of law may be raised in a petition for review on certiorari. Factual issues are entertained only in exceptional cases such as where the findings of fact of the CA and the trial court are conflicting.49 Here, a glaring contradiction exists between the factual findings of the RTC and the CA. The trial court found that respondent contributed to the project's delay because it belatedly communicated the modifications and failed to deliver the necessary materials on time. The CA, however, found that petitioner incurred delay in the performance of its obligation. It relied on ITI's report which stated that petitioner had accomplished only 48.71% of the project as of October 12, 1995. January 31, 1994 Supplemental Agreement Was Extinguished A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.50 This case involved two contracts entered into by the parties with regard to the project. The parties first entered into a contract for a piece of work51 when they executed the supplemental agreement. Petitioner as

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contractor bound itself to execute the project for respondent, the owner/developer, in consideration of a price certain (P130,000,000). The supplemental agreement was reciprocal in nature because the obligation of respondent to pay the entire contract price depended on the obligation of petitioner to complete the project (andvice versa). Thereafter, the parties entered into a second contract. They agreed to extinguish the supplemental agreement as evidenced by the October 12, 1995 letter-agreement which was duly acknowledged by their respective representatives.52 While the October 12, 1995 letter-agreement stated that respondent was to take over merely the supervision of the project, it actually took over the whole project itself. In fact, respondent subsequently hired two contractors in petitioner's stead.53 Moreover, petitioner's project engineer at site only monitored the progress of architectural works undertaken in its condominium units.54 Petitioner never objected to this arrangement; hence, it voluntarily surrendered its participation in the project. Moreover, it judicially admitted in its answer that respondent took over the entire project, not merely its supervision, pursuant to its (respondents) long-range plans.55 Because the parties agreed to extinguish the supplemental agreement, they were no longer required to fully perform their respective obligations. Petitioner was relieved of its obligation to complete the project while respondent was freed of its obligation to pay the entire contract price. However, respondent, by executing the June 30, 1994 deed of absolute sale, was deemed to have paid P112,416,716.88. Nevertheless, because petitioner applied part of what it received to respondents outstanding liabilities,56 it admitted overpayment. Because petitioner acknowledged that it had been overpaid, it was obliged to return the excess to respondent. Embodying the principle of solutio indebiti, Article 2154 of the Civil Code provides: Article 2154. If something is received when there is no right to demand it and it was unduly delivered through mistake, the obligation to return it arises. For the extra-contractual obligation of solutio indebiti to arise, the following requisites must be proven: 1. the absence of a right to collect the excess sums and 2. the payment was made by mistake.57 With regard to the first requisite, because the supplemental agreement had been extinguished by the mutual agreement of the parties, petitioner became entitled only to the cost of services it actually rendered (i.e., that fraction of the project cost in proportion to the percentage of its actual accomplishment in the project). It was not entitled to the excess (or extent of overpayment). On the second requisite, Article 2163 of the Civil Code provides: Article 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but, he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause. (emphasis supplied) In this instance, respondent paid part of the contract price under the assumption that petitioner would complete the project within

the stipulated period. However, after the supplemental agreement was extinguished, petitioner ceased working on the project. Therefore, the compensation petitioner received in excess of the cost of its actual accomplishment as of October 12, 1995 was never due. The condominium units and parking slots corresponding to the said excess were mistakenly delivered by respondent and were therefore not due to petitioner. Stated simply, respondent erroneously delivered excess units to petitioner and the latter, pursuant to Article 2154, was obliged to the return them to respondent.58 Article 2160 of the Civil Code provides: Article 2160. He who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for the impairment or loss of the same or its accessories and accessions insofar as he has thereby been benefited. If he has alienated it, he shall return the price or assign the action to collect the sum. One who receives payment by mistake in good faith is, as a general rule, only liable to return the thing delivered. 59 If he benefited therefrom, he is also liable for the impairment or loss of the thing delivered and its accessories and accessions. 60 If he sold the thing delivered, he should either deliver the proceeds of the sale or assign the action to collect to the other party. 61 The situation is, however, complicated by the following facts: a) the basis of the valuation (P112,416,716.99) of the condominium units and parking slots covered by the June 30, 1994 deed of sale is unknown; b) the percentage of petitioner's actual accomplishment in the project has not been determined and c) the records of this case do not show the actual number of condominium units and parking slots sold by petitioners. Because this Court is not a trier of facts, the determination of these matters should be remanded to the RTC for reception of further evidence. The RTC must first determine the percentage of the project petitioner actually completed and its proportionate cost. 62 This will be the amount due to petitioner. Thereafter, based on the stipulated valuation in the June 30, 1994 deed of sale, the RTC shall determine how many condominium units and parking slots correspond to the amount due to petitioner. It will only be the management certificate and the keys to these units that petitioner will be entitled to. The remaining units, having been mistakenly delivered by respondent, will therefore be the subject of solutio indebiti. What exactly must petitioner give back to respondent? Under Article 2160 in relation to Article 2154, it should return to respondent the condominium units and parking slots in excess of the value of its actual accomplishment (i.e., the amount due to it) as of October 12, 1995. If these properties include units and/or slots already sold to third persons, petitioner shall deliver the proceeds of the sale thereof or assign the actions for collection to respondent as required by Article 2160. Delay In The Completion Of The Project Mora or delay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence).63A debtor is deemed to have violated his obligation to the creditor from the

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time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay.64 The construction contract65 provided a procedure for protesting delay: Article XIV DELAYS AND ABANDONMENT 15.1. If at any time during the effectivity of this contract, [PETITIONER] shall incur unreasonable delay or slippages of more than fifteen percent (15%) of the scheduled work program, [RESPONDENT] should notify [PETITIONER] in writing to accelerate the work and reduce, if not erase, slippage. If after the lapse of sixty (60) days from receipt of such notice, [PETITIONER] fails to rectify the delay or slippage, [RESPONDENT] shall have the right to terminate this contract except in cases where the same was caused by force majeure. "FORCE MAJEURE" as contemplated herein, and in determination of delay includes, but is not limited to, typhoon, flood, earthquake, coup d'etat, rebellion, sedition, transport strike, stoppage of work, mass public action that prevents workers from reporting for work, and such other causes beyond [PETITIONER'S] control.66 (emphasis supplied) xxx xxx xxx

In Powton Conglomerate, Inc. v. Agcolicol,69 we reiterated that a claim for the cost of additional work arising from changes in the scope of work can only be allowed upon the: 1. written authority from the developer/owner ordering/allowing the changes in work; and 2. written agreement of parties with regard to the increase in cost (or price) due to the change in work or design modification. 70 Furthermore: Compliance with the two requisites of Article 1724, a specific provision governing additional works, is a condition precedent of the recovery. The absence of one or the other bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any other evidence for purposes of recovery.71 (emphasis supplied) Petitioner submitted neither one. In addition, petitioners project coordinator Estellita Garcia testified that respondent never approved any change order.72 Thus, under Article 1724 and pursuant to our ruling in Powton Conglomerate, Inc., petitioner cannot recover the cost it incurred in effecting the design modifications. A contractor who fails to secure the owner or developer's written authority to changes in the work or written assent to the additional cost to be incurred cannot invoke the principle of unjust enrichment.73 Recovery Of Compensatory Damages Indemnification for damages comprehends not only the loss suffered (actual damages or damnum emergens) but also the claimant's lost profits (compensatory damages or lucrum cessans). For compensatory damages to be awarded, it is necessary to prove the actual amount of the alleged loss by preponderance of evidence.74 The RTC awarded compensatory damages based on the rental pool rates submitted by petitioner75 and on the premise that all those units would have been leased had respondent only finished the project by December 31, 1995.76 However, other than bare assertions, petitioner submitted no proof that the rental pool was in fact able to lease out the units. We thus hold that the "losses" sustained by petitioner were merely speculative and there was no basis for the award. Remand Of Other Claims

Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. If delay had truly been the reason why respondent took over the project, it would have sent a written demand as required by the construction contract. Moreover, according to the October 12, 1995 letter-agreement, respondent took over the project for the sole reason that such move was part of its (respondent's) longterm plan. Respondent, on the other hand, relied on ITI's September 7, 1995 report. The construction contract named GEMM, not ITI, as construction manager.67 Because petitioner did not consent to the change of the designated construction manager, ITI's September 7, 1995 report could not bind it. In view of the foregoing, we hold that petitioner did not incur delay in the performance of its obligation. Recovery Of Additional Costs Resulting From Changes The supplemental agreement was a contract for a stipulated price.68 In such contracts, the recovery of additional costs (incurred due to changes in plans or specifications) is governed by Article 1724 of the Civil Code. Article 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in conformity with plans and specifications agreed upon with the landowner, can neither withdraw from the contract nor demand an increase in the price on account of higher cost of labor or materials, save when there has been a change in plans and specifications, provided: 1. such change has been authorized by the proprietor in writing; and 2. the additional price to be paid to the contractor has been determined in writing by both parties.

Since respondent did not repudiate petitioner's other claims stated in the inventory77 in the RTC and CA, it is estopped from questioning the validity thereof.78 However, because some of petitioner's claims have been disallowed, we remand the records of this case to the RTC for the computation of respondent's liability.79 WHEREFORE, the petition is hereby GRANTED. The March 15, 2002 decision and May 29, 2003 resolution of the Court of Appeals in CA-G.R. CV No. 61353 and the August 5, 1998 decision of the Regional Trial Court, Branch 58, Makati City in Civil Case No. 97-1501 are hereby SET ASIDE. New judgment is entered: 1. ordering petitioner Titan-Ikeda Construction and Development Corporation to return to respondent Primetown Property Group,

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Inc. the condominium units and parking slots corresponding to the payment made in excess of the proportionate (project) cost of its actual accomplishment as of October 12, 1995, subject to its (petitioners) allowable claims as stated in the inventory and 2. dismissing petitioner Titan-Ikeda Construction and Development Corporations claims for the cost of additional work (or change order) and damages. The records of this case are remanded to the Regional Trial Court of Makati City, Branch 58 for: 1. the reception of additional evidence to determine (a) the percentage of the architectural work actually completed by petitioner Titan-Ikeda Construction and Development Corporation as of October 12, 1995 on the Makati Prime Tower and (b) the number of condominium units and parking slots sold by petitioner Titan-Ikeda Construction and Development Corporation to third persons; 2. the computation of petitioner Titan-Ikeda Construction and Development Corporation's actual liability to respondent Primetown Property Group, Inc. or vice-versa, and the determination of imposable interests and/or penalties, if any. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila G.R. No. 181206 October 9, 2009

period. Tanseco pointed out that none of the excepted causes of delay existed.4 Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use Regulatory Boards (HLURB) Expanded National Capital Region Field Office a complaint against Megaworld for rescission of contract, refund of payment, and damages.5 In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of turnover.6 By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tansecos complaint for lack of cause of action, finding that Megaworld had effected delivery by the notice of turnover before Tanseco made a demand. Tanseco was thereupon ordered to pay Megaworld the balance of the purchase price, plus P25,000 as moral damages,P25,000 as exemplary damages, and P25,000 as attorneys fees. On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of November 28, 2003,8 sustained the HLURB Arbiters Decision on the ground of laches for failure to demand rescission when the right thereto accrued. It deleted the award of damages, however. Tansecos Motion for Reconsideration having been denied,9 she appealed to the Office of the President which dismissed the appeal by Decision of April 28, 2006 10 for failure to show that the findings of the HLURB were tainted with grave abuse of discretion. Her Motion for Reconsideration having been denied by Resolution dated August 30, 2006,11 Tanseco filed a Petition for Review under Rule 43 with the Court of Appeals. 12 By Decision of September 28, 2007,13 the appellate court granted Tansecos petition, disposing thus: WHEREFORE, premises considered, petition is hereby GRANTED and the assailed May 28, 2003 decision of the HLURB Field Office, the November 28, 2003 decision of the HLURB Board of Commissioners in HLURB Case No. REM-A030711-0162, the April 28, 2006 Decision and August 30, 2006 Resolution of the Office of the President in O.P. Case No. 05-I318, are hereby REVERSED and SET ASIDE and a new one entered: (1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the contract to buy and sell; (2) DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid totaling P14,281,731.70 with Twelve (12%) Percent interest per annum from October 31, 1998; (3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by way of exemplary damages; (4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorneys fees; and (5) ORDERINGMEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in the original; underscoring supplied) The appellate court held that under Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in default if the contract, as in the herein parties contract, states the date when the obligation should be performed; that time was of the essence because Tanseco relied on Megaworlds promise of timely delivery when she agreed to part with her money; that the delay should be reckoned from October 31, 1998, there being no force majeure to warrant the application of the April 30, 1999 alternative date; and that specific performance could not be ordered in lieu of rescission as the right to choose the remedy belongs to the aggrieved party.

MEGAWORLD GLOBUS ASIA, INC., Petitioner, vs. MILA S. TANSECO, Respondent. DECISION CARPIO MORALES, J.: On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or less) condominium unit at a pre-selling project, "The Salcedo Park," located along Senator Gil Puyat Avenue, Makati City. The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, orP4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 onOctober 31, 1998, the stipulated delivery date of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of turnover. Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows: 4. CONSTRUCTION SCHEDULE The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances, government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves the right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this contract if for any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it can only be completed at a financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property of the SELLER. (Underscoring supplied) Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305.63 pending delivery of the unit.2 Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month grace period. A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery. 3 Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworlds failure to deliver the unit on time, she was demanding the return ofP14,281,731.70 representing the total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace

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The appellate court awarded Tanseco exemplary damages on a finding of bad faith on the part of Megaworld in forcing her to accept its long-delayed delivery; and attorneys fees, she having been compelled to sue to protect her rights. Its Motion for Reconsideration having been denied by Resolution of January 8, 2008,14 Megaworld filed the present Petition for Review on Certiorari, echoing its position before the HLURB, adding that Tanseco had not shown any basis for the award of damages and attorneys fees.15 Tanseco, on the other hand, maintained her position too, and citing Megaworlds bad faith which became evident when it insisted on making the delivery despite the long delay, 16 insisted that she deserved the award of damages and attorneys fees. Article 1169 of the Civil Code provides: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Underscoring supplied) The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the contract, it is liable therefor.17 That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does not abate her cause. For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date. Article 1174 of the Civil Code provides: Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.18 The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A real estate enterprise engaged in the pre-selling of condominium

units is concededly a master in projections on commodities and currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito.19 Megaworlds excuse for its delay does not thus lie. As for Megaworlds argument that Tansecos claim is considered barred by laches on account of her belated demand, it does not lie too. Laches is a creation of equity and its application is controlled by equitable considerations.20 It bears noting that Tanseco religiously paid all the installments due up to January, 1998, whereas Megaworld reneged on its obligation to deliver within the stipulated period. A circumspect weighing of equitable considerations thus tilts the scale of justice in favor of Tanseco. Pursuant to Section 23 of Presidential Decree No. 957 21 which reads: Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount pai d includingamortization interests but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis and underscoring supplied), Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid Megaworld. While the appellate court correctly awarded P14,281,731.70 then, the interest rate should, however, be 6% per annum accruing from the date of demand on May 6, 2002, and then 12% per annum from the time this judgment becomes final and executory, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.22 The award of P200,000 attorneys fees and of costs of suit is in order too, the parties having stipulated in the Contract to Buy and Sell that these shall be borne by the losing party in a suit based thereon,23 not to mention that Tanseco was compelled to retain the services of counsel to protect her interest. And so is the award of exemplary damages. With pre-selling ventures mushrooming in the metropolis, there is an increasing need to correct the insidious practice of real estate companies of proffering all sorts of empty promises to entice innocent buyers and ensure the profitability of their projects. The Court finds the appellate courts award of P200,000 as exemplary damages excessive, however. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.24 The Court finds that P100,000 is reasonable in this case. Finally, since Article 119125 of the Civil Code does not apply to a contract to buy and sell, the suspensive condition of full payment of the purchase price not having occurred to trigger the obligation to convey title,cancellation, not rescission, of the contract is thus the correct remedy in the premises.26 WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the foregoing, AFFIRMED with MODIFICATION. As modified, the dispositive portion of the Decision reads:

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The July 7, 1995 Contract to Buy and Sell between the parties is cancelled. Petitioner, Megaworld Globus Asia, Inc., is directed to pay respondent, Mila S. Tanseco, the amount of P14,281,731.70, to bear 6% interest per annum starting May 6, 2002 and 12% interest per annum from the time the judgment becomes final and executory; and to pay P200,000 attorneys fees, P100,000 exemplary damages, and costs of suit. Costs against petitioner. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 193723 July 20, 2011

On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of the foreclosure was subsequently sold by public auction to GMC after the required posting and publication.5 It was foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per annum and attorneys fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness Division had closed its business and poultry operations. 7 On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no compliance with the requirements of posting and publication of notices under Act No. 3135, as amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. They likewise claimed that there was no sheriffs affidavit to prove compliance with the requirements on posting and publication of notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer for moral and exemplary damages and attorneys fees was also included in the complaint. 8 Librado Ramos alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure.9 During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate Mortgage; (2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages.10 In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It argued that it was compelled to foreclose the mortgage because of Spouses Ramos failure to pay their obligation. GMC insisted that it had observed all the requirements of posting and publication of notices under Act No. 3135.11 The Ruling of the Trial Court Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if its term was not fixed. Since the duration of the term was made to depend exclusively upon the will of the debtors-spouses, the trial court cited jurisprudence and said that "the obligation is not due and payable until an action is commenced by the mortgagee against the mortgagor for the purpose of having the court fix the date on and after which the instrument is payable and the date of maturity is fixed in pursuance thereto."12 The trial court held that the action of GMC in moving for the foreclosure of the spouses properties was premature, because the latters obligation under their contract was not yet due. The trial court awarded attorneys fees because of the premature action taken by GMC in filing extrajudicial foreclosure proceedings before the obligation of the spouses became due. The RTC ruled, thus: WHEREFORE, premises considered, judgment is rendered as follows: 1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void; 2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;

GENERAL MILLING CORPORATION, Petitioner, vs. SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents. DECISION VELASCO, JR., J.: The Case This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the May 31, 2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages. The Facts On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land in Barangay Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was built. The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an indefinite period with an interest of twelve percent (12%) per annum.2 The Deed of Real Estate Mortgage contained the following provision: WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of [MORTGAGORS] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and the improvements existing thereon, situated in the Barrio/s ofBanaybanay, Municipality of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00), Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the payment of the same plus interest of twelve percent (12%) per annum. Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses because of the negligence of GMC and its violation of the Growers Contract.3 On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their mortgaged property.4

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3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos attorneys fees in the total amount of P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or a total appearance fee of P 27,000.00; 4. The claims for moral and exemplary damages are denied for lack of merit. IT IS SO ORDERED.13 The Ruling of the Appellate Court On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null and void; (2) ordering GMC to pay Spouses Ramos attorneys fees; and (3) not awarding damages in favor of GMC. The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the findings of the trial court, the CA ruled that the requirements of posting and publication of notices under Act No. 3135 were complied with. The CA, however, still found that GMCs action against Spouses Ramos was premature, as they were not in default when the action was filed on May 7, 1997.14 The CA ruled: In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to spouses Ramos for the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit constituting the direct testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were sent to spouses Ramos, the documentary evidence proves otherwise. A perusal of the letters presented and offered as evidence by defendantappellant GMC did not "demand" but only request spouses Ramos to go to the office of GMC to "discuss" the settlement of their account.15 According to the CA, however, the RTC erroneously awarded attorneys fees to Spouses Ramos, since the presumption of good faith on the part of GMC was not overturned. The CA disposed of the case as follows: WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorneys fees to plaintiffs-appellees spouses Librado Ramos and Remedios Ramos.16 Hence, We have this appeal. The Issues

PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.17 The Ruling of this Court Can the CA consider matters not alleged? GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by considering such issue, violated the basic requirements of fair play, justice, and due process.18 In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not assigned as errors on appeal if these are indispensable or necessary to the just resolution of the pleaded issues. In Diamonon v. Department of Labor and Employment, 20 We explained that an appellate court has a broad discretionary power in waiving the lack of assignment of errors in the following instances: (a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter; (b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice; (d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) Matters not assigned as errors on appeal but closely related to an error assigned; (f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent. Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there is a ruling on whether the Spouses Ramos were actually in default of their obligation to GMC. Was there sufficient demand?

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT. B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL

We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was made on Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a demand. We disagree. There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor

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delays performance; and third, the creditor judicially or extrajudicially requires the debtors performance.21 According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMCs office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of demand. Indeed, Article 1169 of the Civil Code on delay requires the following: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; x x x As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage. Development Bank of the Philippines v. Licuanan finds application to the instant case: The issue of whether demand was made before the foreclosure was effected is essential.1avvphi1 If demand was made and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of his obligation.22 In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of Court shall raise only questions of law. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will defer to the factual findings of the trial court, because petitioner GMC has not shown any circumstances making this case an exception to the rule. WHEREFORE, the petition is DENIED. The CA Decision in CAG.R. CR-H.C. No. 85400 is AFFIRMED. SO ORDERED.

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ARTICLE 1170 Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 125536 March 16, 2000

Valenzuela Branch of Prudential Bank on July 4, 1988, to inquire why her check was dishonored. She approached one Albert Angeles Reyes, the officer in charge of current account, and requested him for the ledger of her current account. Private respondent discovered a debit of P300.00 penalty for the dishonor of her Prudential Check No. 983395. She asked why her check was dishonored when there were sufficient funds in her account as reflected in her passbook. Reyes told her that there was no need to review the passbook because the bank ledger was the best proof that she did not have sufficient funds. Then, he abruptly faced his typewriter and started typing. Later, it was found out that the check in the amount of P35,271.60 deposited by private respondent on June 1, 1988, was credited in her savings account only on June 24, 1988, or after a period of 23 days. Thus the P11,500.00 check was redeposited by Lhuillier on June 24, 1988, and properly cleared on June 27, 1988. Because of this incident, the bank tried to mollify private respondent by explaining to Legaspi and Lhuillier that the bank was at fault. Since this was not the first incident private respondent had experienced with the bank, private respondent was unmoved by the bank's apologies and she commenced the present suit for damages before the RTC of Valenzuela. After trial, the court rendered a decision on August 30, 1991, dismissing the complaint of private respondent, as well as the counterclaim filed by the defendant, now petitioner. Undeterred, private respondent appealed to the Court of Appeals. On January 31, 1996, respondent appellate court rendered a decision in her favor, setting aside the trial court's decision and ordering herein petitioner to pay private respondent the sum of P100,000.00 by way of moral damages; P50,000.00 exemplary damages; P50,000.00 for and as attorney's fees; and to pay the costs.3 Petitioner filed a timely motion for reconsideration but it was denied. Hence, this petition, raising the following issues: I. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DEVIATING FROM ESTABLISHED JURISPRUDENCE IN REVERSING THE DISMISSAL JUDGMENT OF THE TRIAL COURT AND INSTEAD AWARDED MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S FEES. II. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHERE, EVEN IN THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL COURT, AWARDED MORAL DAMAGES IN THE AMOUNT OF P100,000.00. III. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, WHERE, EVEN IN THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL COURT, AWARDED P50,000.00 BY WAY OF EXEMPLARY DAMAGES. IV. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION WHERE EVEN IN THE

PRUDENTIAL BANK, petitioner, vs. COURT OF APPEALS and LETICIA TUPASIVALENZULA joined by husband Francisco Valenzuela,respondents. QUISUMBING, J.: This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision dated January 31, 1996, and the Resolution dated July 2, 1997, of the Court of Appeals in CA G.R. CV No. 35532, which reversed the judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, in Civil Case No. 2913-V-88, dismissing the private respondent's complaint for damages.1 In setting aside the trial court's decision, the Court of Appeals disposed as follows: WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and, another rendered ordering the appellee bank to pay appellant the sum of P100,000.00 by way of moral damages; P50,000.00 by way of exemplary damages, P50,000.00 for and as attorney's fees; and to pay the costs. SO ORDERED.2 The facts of the case on record are as follows: Private respondent Leticia Tupasi-Valenzuela opened Savings Account No. 5744 and Current Account No. 01016-3 in the Valenzuela Branch of petitioner Prudential Bank, with automatic transfer of funds from the savings account to the current account. On June 1, 1988, herein private respondent deposited in her savings account Check No. 666B (104561 of even date) the amount of P35,271.60, drawn against the Philippine Commercial International Bank (PCIB). Taking into account that deposit and a series of withdrawals, private respondent as of June 21, 1988 had a balance of P35,993.48 in her savings account and P776.93 in her current account, or total deposits of P36,770.41, with petitioner. Thereafter, private respondent issued Prudential Bank Check No. 983395 in the amount of P11,500.00 post-dated June 20, 1988, in favor of one Belen Legaspi. It was issued to Legaspi as payment for jewelry which private respondent had purchased. Legaspi, who was in jewelry trade, endorsed the check to one Philip Lhuillier, a businessman also in the jewelry business. When Lhuillier deposited the check in his account with the PCIB, Pasay Branch, it was dishonored for being drawn against insufficient funds. Lhuillier's secretary informed the secretary of Legaspi of the dishonor. The latter told the former to redeposit the check, Legaspi's secretary tried to contact private respondent but to no avail. Upon her return from the province, private respondent was surprised to learn of the dishonor of the check. She went to the

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ABSENCE OF EVIDENCE, AWARDED ATTORNEY'S FEES. Simply stated, the issue is whether the respondent court erred and gravely abused its discretion in awarding moral and exemplary damages and attorney's fees to be paid by petitioner to private respondent. Petitioner claims that generally the factual findings of the lower courts are final and binding upon this Court. However, there are exceptions to this rule. One is where the trial court and the Court of Appeals had arrived at diverse factual findings.4 Petitioner faults the respondent court from deviating from the basic rule that finding of facts by the trial court is entitled to great weight, because the trial court had the opportunity to observe the deportment of witness and the evaluation of evidence presented during the trial. Petitioner contends that the appellate court gravely abused its discretion when it awarded damages to the plaintiff, even in the face of lack of evidence to prove such damages, as found by the trial court. Firstly, petitioner questions the award of moral damages. It claims that private respondent did not suffer any damage upon the dishonor of the check. Petitioner avers it acted in good faith. It was an honest mistake on its part, according to petitioner, when misposting of private respondent's deposit on June 1, 1988, happened. Further, petitioner contends that private respondent may not "claim" damages because the petitioner's manager and other employees had profusely apologized to private respondent for the error. They offered to make restitution and apology to the payee of the check, Legaspi, as well as the alleged endorsee, Lhuillier. Regrettably, it was private respondent who declined the offer and allegedly said, that there was nothing more to it, and that the matter had been put to rest.5 Admittedly, as found by both the respondent appellate court and the trial court, petitioner bank had committed a mistake.1wphi1.nt It misposted private respondent's check deposit to another account and delayed the posting of the same to the proper account of the private respondent. The mistake resulted to the dishonor of the private respondent's check. The trial court found "that the misposting of plaintiff's check deposit to another account and the delayed posting of the same to the account of the plaintiff is a clear proof of lack of supervision on the part of the defendant bank."6 Similarly, the appellate court also found that "while it may be true that the bank's negligence in dishonoring the properly funded check of appellant might not have been attended with malice and bad faith, as appellee [bank] submits, nevertheless, it is the result of lack of due care and caution expected of an employee of a firm engaged in so sensitive and accurately demanding task as banking."7 In Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360, 367 (1990), and Bank of Philippine Islands vs. IAC, et al., 206 SCRA 408, 412-413 (1992), this Court had occasion to stress the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected of the former in handling the accounts entrusted to its care, thus: In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of bank, such as the dishonor of a check without good reason, can cause the depositor not a little

embarrassment if not also financial loss and perhaps even civil and criminal litigation. The paint is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. . . . In the recent case of Philippine National Bank vs. Court of Appeals,8 we held that "a bank is under obligation to treat the accounts of its depositors with meticulous care whether such account consists only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable. While petitioner's negligence in this case may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation". Hence we ruled that the offended party in said case was entitled to recover reasonable moral damages. Even if malice or bad faith was not sufficiently proved in the instant case, the fact remains that petitioner has committed a serious mistake. It dishonored the check issued by the private respondent who turned out to have sufficient funds with petitioner. The bank's negligence was the result of lack of due care and caution required of managers and employees of a firm engaged in so sensitive and demanding business as banking. Accordingly, the award of moral damages by the respondent Court of Appeals could not be said to be in error nor in grave abuse of its discretion. There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive. In our view, the award of P100,000.00 is reasonable, considering the reputation and social standing of private respondent Leticia T. Valenzuela. 9 The law allows the grant of exemplary damages by way of example for the public good. 10 The public relies on the banks' sworn profession of diligence and meticulousness in giving irreproachable service. The level of meticulousness must be maintained at all times by the banking sector. Hence, the Court of Appeals did not err in awarding exemplary damages. In our view, however, the reduced amount of P20,000.00 is more appropriate. The award of attorney's fees is also proper when exemplary damages are awarded and since private respondent was compelled to engage the services of a lawyer and incurred expenses to protect her interest. 11 The standards in fixing attorney's fees are: (1) the amount and the character of the services rendered; (2) labor, time and trouble involved; (3) the nature and importance of the litigation and business in which the services were rendered; (4) the responsibility imposed; (5) the amount of money and the value of the property affected by the controversy or involved in the employment; (6) the skill and the experience called for in the performance of the services; (7) the professional character and the social standing of the attorney; (8) the results secured, it being a recognized rule that an attorney may properly charge a much larger fee when it is contingent than when it is not. 12 In this case, all the aforementioned weighed, and considering that the amount involved in the controversy is only P36,770.41, the total deposit of private respondent which was misposted by the bank, we find the award of respondent court of P50,000.00 for attorney's fees, excessive and reduce the same to P30,000.00. WHEREFORE, the assailed DECISION of the Court of Appeals is hereby AFFIRMED, with MODIFICATION. The petitioner is ordered to pay P100,000.00 by way of moral damages in favor of private respondent Leticia T. Valenzuela. It is further ordered to

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pay her exemplary damages in the amount of P20,000.00 and P30,000.00, attorney's fees. Costs against petitioner. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 141968 February 12, 2001

Manager's check - the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to .secure said Manager's Check, over which appellants have no control; 2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorney's fees, and 3. to pay the cost of suit. In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED.4 The case was elevated to the Court of Appeals, which on February 17, 2000, issued the assailed decision, the decretal portion of which reads: WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible error, is AFFIRMED in toto. Costs against petitioner. SO ORDERED.5 The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages. The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court, raising the following assigned errors: I

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents. KAPUNAN, J.: The respondent Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes.1wphi1.nt The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for "Sum of Money with Prayer for a Writ of Replevin"1 before the Metropolitan Trial Court of Pasay City, Branch 45.2 On August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank's Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the bank's compound. On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. On August 29, 1995, Dr. Gueco delivered a manager's check in amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit.3 On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank: 1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit the

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT. II THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS. III THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIER'S CHECK THAT ALREADY BECAME STALE.6 As to the first issue, we find for the respondents. The issue as to what constitutes the terms of the oral compromise or any subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are

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binding upon this Court.7 While there are exceptions to this rule,8 the present case does not fall under anyone of them, the petitioner's claim to the contrary, notwithstanding. Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the oral compromise entered into by the parties on August 28, 1995 included the stipulation that the parties would jointly file a motion to dismiss. This petitioner failed to do. Notably, even the Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the complaint, did not make a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss. The Court of Appeals made the factual findings in this wise: In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who related that respondent Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32). The trial court, whose factual findings are entitled to respect since it has the 'opportunity to directly observe the witnesses and to determine by their demeanor on the stand the probative value of their testimonies' (People vs. Yadao, et al. 216 SCRA 1, 7 [1992]), failed to make a categorical finding on the issue. In dismissing the claim of damages of the respondents, it merely observed that respondents are not entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the release of the car. The trial court opined, thus: 'As regards the third issue, plaintiffs' claim for damages is unavailing. First, the plaintiffs could have avoided the renting of another car and could have avoided this litigation had he signed the Joint Motion to Dismiss. While it is true that herein defendant can unilaterally dismiss the case for collection of sum of money with replevin, it is equally true that there is nothing wrong for the plaintiff to affix his signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against him is for his own good and benefit. In fact, the signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages. First, he will recover his car. Second, he will pay his obligation to the bank on its reduced amount of P150,000.00 instead of its original claim of P184,985.09. And third, the case against him will be dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and exemplary damages as there is no showing that the defendant bank acted fraudulently or in bad faith.' (Rollo, p. 15) The Court has noted, however, that the trial court, in its findings of facts, clearly indicated that the agreement of the parties on August 28, 1995 was merely for the lowering of the price, hence 'xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement, whereby the

original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which, plaintiff was informed that the subject motor vehicle would be released to him.' (Rollo, p. 12) The lower court, on the other hand, expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. In dismissing petitioner's claim, the lower court declared, thus: 'If it is true, as the appellees allege, that the signing of the joint motion was a condition sine qua nonfor the reduction of the appellants' obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a copy of the joint motion that day of August 28, 1995, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in manager's check form to be submitted on the following day on August 29, 1995? (sic) [I]s a question whereby the answer up to now eludes this Court's comprehension. The appellees would like this Court to believe that Dr Gueco was informed by Mr. Rivera Rivera of the bank requirement of signing the joint motion on August 28, 1995 but he did not bother to show a copy thereof to his family or legal counsel that day August 28, 1995. This part of the theory of appellee is too complicated for any simple oral agreement. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a deal surfaced only on August 29, 1995. 'This Court is not convinced by the appellees' posturing. Such claim rests on too slender a frame, being inconsistent with human experience. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants' substantive right, it is more in accord with human experience to expect Dr. Gueco, upon being shown the Joint Motion to Dismiss, to refuse to pay the Manager's Check and for the bank to refuse to accept the manager's check. The only logical explanation for this inaction is that Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing was never put into consideration in reaching a compromise.' xxx.9 We see no reason to reverse. Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both .the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared: The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the 'deliberate and intentional evasion of the normal fulfillment of obligation' When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former intentionally evaded its

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obligation and thereby became liable for moral and exemplary damages, as well as attorney's fees.10 We disagree. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation.11 We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith.12 The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fait. In no way, may the conduct of petitioner be characterized as "wanton, fraudulent, reckless, oppressive or malevolent."13 We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of August 29, 1995, respondent Dr. Gueco delivered a manager's check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of respondent bank. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check.14 Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco instructed the bank to disregard the 'hold order" letter and demanded the immediate release of his car,15 to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime.16 While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by petitioners,17 it appears from the pleadings that said check has not been encashed. The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals, orders the petitioner: 1. to return immediately the subject car to the appellants in good working condition. Appellee may deposit the Manager's Check - the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have

long been paid by appellants to secure said Manager's Check over which appellants have no control.18 Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale.19 It is their position that delivery of the manager's check produced the effect of payment20 and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance respondents' position. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof.21 A check must be presented for payment within a reasonable time after its issue,22 and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case.23 The test is whether the payee employed such diligence as a prudent man exercises in his own affairs.24 This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check.25 Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale.26 Thus, even a delay of one (1) week27 or two (2) days,28 under the specific circumstances of the cited cases constituted unreasonable time as a matter of law. In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. 29 It is really the bank's own check and may be treated as a promissory note with the bank as a maker.30The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.31 Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay.32 Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined.33 In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint

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motion to dismiss. We see no bad faith or negligence in this position taken by the Bank.1wphi1.nt WHEREFORE, premises considered, the petition for review is given due course. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE. Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the petitioner upon surrender or cancellation of the manager's check in the latter's possession, afterwhich, petitioner is to return the subject motor vehicle in good working condition. SO ORDERED.

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ARTICLE 1174 Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-55300 March 15, 1990 FRANKLIN G. GACAL and CORAZON M. GACAL, the latter assisted by her husband, FRANKLIN G. GACAL,petitioners, vs. PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO SAMSON C. ANIMAS, in his capacity as PRESIDING JUDGE of the COURT OF FIRST INSTANCE OF SOUTH COTABATO, BRANCH I, respondents. Vicente A. Mirabueno for petitioners. Siguion Reyna, Montecillo & Ongsiako for private respondent.

company as hostage and that they be given $375,000 and six (6) armalites, otherwise they will blow up the plane if their demands will not be met by the government and Philippine Air Lines. Meanwhile, the passengers were not served any food nor water and it was only on May 23, a Sunday, at about 1:00 o'clock in the afternoon that they were served 1/4 slice of a sandwich and 1/10 cup of PAL water. After that, relatives of the hijackers were allowed to board the plane but immediately after they alighted therefrom, an armored car bumped the stairs. That commenced the battle between the military and the hijackers which led ultimately to the liberation of the surviving crew and the passengers, with the final score of ten (10) passengers and three (3) hijackers dead on the spot and three (3) hijackers captured. City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries in the course of her jumping out of the plane when it was peppered with bullets by the army and after two (2) hand grenades exploded inside the plane. She was hospitalized at General Santos Doctors Hospital, General Santos City, for two (2) days, spending P245.60 for hospital and medical expenses, Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt but Mrs. Anislag suffered a fracture at the radial bone of her left elbow for which she was hospitalized and operated on at the San Pedro Hospital, Davao City, and therefore, at Davao Regional Hospital, Davao City, spending P4,500.00. Elma de Guzman died because of that battle. Hence, the action of damages instituted by the plaintiffs demanding the following damages, to wit: Civil Case No. 1701 City Fiscal Franklin G. Gacal and Mrs. Corazon M. Gacal actual damages: P245.60 for hospital and medical expenses of Mrs Gacal; P8,995.00 for their personal belongings which were lost and not recovered; P50,000.00 each for moral damages; and P5,000.00 for attorney's fees, apart from the prayer for an award of exemplary damages (Record, pp. 4-6, Civil Case No. 1701). Civil Case No. 1773 xxx xxx xxx Civil Case No. 1797 xxx xxx xxx The trial court, on August 26, 1980, dismissed the complaints finding that all the damages sustained in the premises were attributed to force majeure.

PARAS, J.: This is a, petition for review on certiorari of the decision of the Court of First Instance of South Cotabato, Branch 1,* promulgated on August 26, 1980 dismissing three (3) consolidated cases for damages: Civil Case No. 1701, Civil Case No. 1773 and Civil Case No. 1797 (Rollo, p. 35). The facts, as found by respondent court, are as follows: Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal, Bonifacio S. Anislag and his wife, Mansueta L. Anislag, and the late Elma de Guzman, were then passengers boarding defendant's BAC 1-11 at Davao Airport for a flight to Manila, not knowing that on the same flight, Macalinog, Taurac Pendatum known as Commander Zapata, Nasser Omar, Liling Pusuan Radia, Dimantong Dimarosing and Mike Randa, all of Marawi City and members of the Moro National Liberation Front (MNLF), were their copassengers, three (3) armed with grenades, two (2) with .45 caliber pistols, and one with a .22 caliber pistol. Ten (10) minutes after take off at about 2:30 in the afternoon, the hijackers brandishing their respective firearms announced the hijacking of the aircraft and directed its pilot to fly to Libya. With the pilot explaining to them especially to its leader, Commander Zapata, of the inherent fuel limitations of the plane and that they are not rated for international flights, the hijackers directed the pilot to fly to Sabah. With the same explanation, they relented and directed the aircraft to land at Zamboanga Airport, Zamboanga City for refueling. The aircraft landed at 3:00 o'clock in the afternoon of May 21, 1976 at Zamboanga Airport. When the plane began to taxi at the runway, it was met by two armored cars of the military with machine guns pointed at the plane, and it stopped there. The rebels thru its commander demanded that a DC-aircraft take them to Libya with the President of the defendant

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On September 12, 1980 the spouses Franklin G. Gacal and Corazon M. Gacal, plaintiffs in Civil Case No. 1701, filed a notice of appeal with the lower court on pure questions of law (Rollo, p. 55) and the petition for review oncertiorari was filed with this Court on October 20, 1980 (Rollo, p. 30). The Court gave due course to the petition (Rollo, p. 147) and both parties filed their respective briefs but petitioner failed to file reply brief which was noted by the Court in the resolution dated May 3, 1982 (Rollo, p. 183). Petitioners alleged that the main cause of the unfortunate incident is the gross, wanton and inexcusable negligence of respondent Airline personnel in their failure to frisk the passengers adequately in order to discover hidden weapons in the bodies of the six (6) hijackers. They claimed that despite the prevalence of skyjacking, PAL did not use a metal detector which is the most effective means of discovering potential skyjackers among the passengers (Rollo, pp. 6-7). Respondent Airline averred that in the performance of its obligation to safely transport passengers as far as human care and foresight can provide, it has exercised the utmost diligence of a very cautious person with due regard to all circumstances, but the security checks and measures and surveillance precautions in all flights, including the inspection of baggages and cargo and frisking of passengers at the Davao Airport were performed and rendered solely by military personnel who under appropriate authority had assumed exclusive jurisdiction over the same in all airports in the Philippines. Similarly, the negotiations with the hijackers were a purely government matter and a military operation, handled by and subject to the absolute and exclusive jurisdiction of the military authorities. Hence, it concluded that the accident that befell RPC1161 was caused by fortuitous event, force majeure and other causes beyond the control of the respondent Airline. The determinative issue in this case is whether or not hijacking or air piracy during martial law and under the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft from payment of damages to its passengers whose lives were put in jeopardy and whose personal belongings were lost during the incident. Under the Civil Code, common carriers are required to exercise extraordinary diligence in their vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case (Article 1733). They are presumed at fault or to have acted negligently whenever a passenger dies or is injured (Philippine Airlines, Inc. v. National Labor Relations Commission, 124 SCRA 583 [1983]) or for the loss, destruction or deterioration of goods in cases other than those enumerated in Article 1734 of the Civil Code (Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463 [1987]). The source of a common carrier's legal liability is the contract of carriage, and by entering into said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide. There is breach of this obligation if it fails to exert extraordinary diligence according to all the circumstances of the case in exercise of the utmost diligence of a very cautious person (Isaac v. Ammen Transportation Co., 101 Phil. 1046 [1957]; Juntilla v. Fontanar, 136 SCRA 624 [1985]). It is the duty of a common carrier to overcome the presumption of negligence (Philippine National Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it must be shown that the carrier had observed the required extraordinary diligence of a very cautious person as far as human care and foresight can provide or that the

accident was caused by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523 [1976]). Thus, as ruled by this Court, no person shall be responsible for those "events which could not be foreseen or which though foreseen were inevitable. (Article 1174, Civil Code). The term is synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which is of the same sense as "force majeure" (Words and Phrases Permanent Edition, Vol. 17, p. 362). In order to constitute a caso fortuito or force majeure that would exempt a person from liability under Article 1174 of the Civil Code, it is necessary that the following elements must concur: (a) the cause of the breach of the obligation must be independent of the human will (the will of the debtor or the obligor); (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor (Lasam v. Smith, 45 Phil. 657 [1924]; Austria v. Court of Appeals, 39 SCRA 527 [1971]; Estrada v. Consolacion, supra; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]). Caso fortuito or force majeure, by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same (Republic v. Luzon Stevedoring Corporation, 21 SCRA 279 [1967]). Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao to Manila was due to the skyjacking incident staged by six (6) passengers of the same plane, all members of the Moro National Liberation Front (MNLF), without any connection with private respondent, hence, independent of the will of either the PAL or of its passengers. Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been avoided had there been a more thorough frisking of passengers and inspection of baggages as authorized by R.A. No. 6235. But the incident in question occurred during Martial Law where there was a military take-over of airport security including the frisking of passengers and the inspection of their luggage preparatory to boarding domestic and international flights. In fact military take-over was specifically announced on October 20, 1973 by General Jose L. Rancudo, Commanding General of the Philippine Air Force in a letter to Brig. Gen. Jesus Singson, then Director of the Civil Aeronautics Administration (Rollo, pp. 71-72) later confirmed shortly before the hijacking incident of May 21, 1976 by Letter of Instruction No. 399 issued on April 28, 1976 (Rollo, p. 72). Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a nominal manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the Armed Forces of the Philippines to the exclusion of the former. Finally, there is no dispute that the fourth element has also been satisfied. Consequently the existence of force majeure has been established exempting respondent PAL from the payment of damages to its passengers who suffered death or injuries in their persons and for loss of their baggages. PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the decision of the Court of First Instance of South Cotabato, Branch I is hereby AFFIRMED. SO ORDERED.

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ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs. COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents. DECISION ROMERO, J.: In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that exempts the carrier from liability for the death of a passenger. On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy and physical injuries to other passengers. On November 21, 1988, a complaint for breach of contract of carriage, damages and attorneys fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito. They also filed a third-party complaint against Philippine Phoenix Surety and Insurance, Inc. This third-party defendant filed an answer with compulsory counterclaim. At the pre-trial conference, the parties agreed to a stipulation of facts.[1] Upon a finding that the third party defendant was not liable under the insurance contract, the lower court dismissed the third party complaint. No amicable settlement having been arrived at by the parties, trial on the merits ensued. The plaintiffs asserted that violation of the contract of carriage between them and the defendants was brought about by the drivers failure to exercise the diligence required of the carrier in transporting passengers safely to their place of destination. According to Leny Tumboy, the bus left Mangagoy at 3:00 oclock in the afternoon. The winding road it traversed was not cemented and was wet due to the rain; it was rough with crushed rocks. The bus which was full of passengers had cargoes on top. Since it was running fast, she cautioned the driver to slow down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she heard something explode and immediately, the bus fell into a ravine. For their part, the defendants tried to establish that the accident was due to a fortuitous event. Abundio Salce, who was the bus conductor when the incident happened, testified that the 42-seater bus was not full as there were only 32 passengers, such that he himself managed to get a seat. He added that the bus was running at a speed of 60 to 50 and that it was going slow because of the zigzag road. He affirmed that the left front tire that exploded was a brand new tire that he mounted on the bus on April 21, 1988 or only five (5) days before the incident. The Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts on April 20, 1988 and she was present when it was mounted on the bus by Salce. She stated that all driver applicants in Yobido Liner underwent actual driving tests before they were employed. Defendant Cresencio Yobido underwent such test and submitted his professional drivers license and clearances from the barangay, the fiscal and the police. On August 29, 1991, the lower court rendered a decision[2] dismissing the action for lack of merit. On the issue of whether or not the tire blowout was a caso fortuito, it found that the falling of the bus to the cliff was a result of no other outside

factor than the tire blow-out. It held that the ruling in the La Mallorca and Pampanga Bus Co. v. De Jesus[3] that a tire blowout is a mechanical defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had been subjected to a more thorough or rigid check-up before it took to the road that morning is inapplicable to this case. It reasoned out that in said case, it was found that the blowout was caused by the established fact that the inner tube of the left front tire was pressed between the inner circle of the left wheel and the rim which had slipped out of the wheel. In this case, however, the cause of the explosion remains a mystery until at present. As such, the court added, the tire blowout was a caso fortuito which is completely an extraordinary circumstance independent of the will of the defendants who should be relieved of whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to Article 1174[4] of the Civil Code. Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court the following errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold that the defendants did not exercise utmost and/or extraordinary diligence required of carriers under Article 1755 of the Civil Code, and (c) deciding the case contrary to the ruling in Juntilla v. Fontanar,[5] and Necesito v. Paras.[6] On August 23, 1993, the Court of Appeals rendered the Decision[7] reversing that of the lower court. It held that: To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blow-out, if due to a factory defect, improper mounting, excessive tire pressure, is not an unavoidable event. On the other hand, there may have been adverse conditions on the road that were unforeseeable and/or inevitable, which could make the blow-out a caso fortuito. The fact that the cause of the blow-out was not known does not relieve the carrier of liability. Owing to the statutory presumption of negligence against the carrier and its obligation to exercise the utmost diligence of very cautious persons to carry the passenger safely as far as human care and foresight can provide, it is the burden of the defendants to prove that the cause of the blow-out was a fortuitous event. It is not incumbent upon the plaintiff to prove that the cause of the blow-out is not caso-fortuito. Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge defendants burden. As enunciated in Necesito vs. Paras, the passenger has neither choice nor control over the carrier in the selection and use of its equipment, and the good repute of the manufacturer will not necessarily relieve the carrier from liability. Moreover, there is evidence that the bus was moving fast, and the road was wet and rough. The driver could have explained that the blow-out that precipitated the accident that caused the death of Toto Tumboy could not have been prevented even if he had exercised due care to avoid the same, but he was not presented as witness. The Court of Appeals thus disposed of the appeal as follows: WHEREFORE, the judgment of the court a quo is set aside and another one entered ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy, P30,000.00 in moral damages, and P7,000.00 for funeral and burial expenses. SO ORDERED. The defendants filed a motion for reconsideration of said decision which was denied on November 4, 1993 by the Court of Appeals. Hence, the instant petition asserting the position that the tire blowout that caused the death of Tito Tumboy was a caso

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fortuito. Petitioners claim further that the Court of Appeals, in ruling contrary to that of the lower court, misapprehended facts and, therefore, its findings of fact cannot be considered final which shall bind this Court. Hence, they pray that this Court review the facts of the case. The Court did re-examine the facts and evidence in this case because of the inapplicability of the established principle that the factual findings of the Court of Appeals are final and may not be reviewed on appeal by this Court. This general principle is subject to exceptions such as the one present in this case, namely, that the lower court and the Court of Appeals arrived at diverse factual findings.[8] However, upon such re-examination, we found no reason to overturn the findings and conclusions of the Court of Appeals. As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely and at all events to carry them safely and without injury.[9] However, when a passenger is injured or dies while travelling, the law presumes that the common carrier is negligent. Thus, the Civil Code provides: Art. 1756. In case of death or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755. Article 1755 provides that (a) common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. This disputable presumption may only be overcome by evidence that the carrier had observed extraordinary diligence as prescribed by Articles 1733,[10] 1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to a fortuitous event.[11] Consequently, the court need not make an express finding of fault or negligence on the part of the carrier to hold it responsible for damages sought by the passenger.[12] In view of the foregoing, petitioners contention that they should be exempt from liability because the tire blowout was no more than a fortuitous event that could not have been foreseen, must fail. A fortuitous event is possessed of the following characteristics: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.[13] As Article 1174 provides, no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from the cause of injury or loss.[14] Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous event. There are human factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could not explode within five days use. Be that as it may, it is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages. [15]

Moreover, a common carrier may not be absolved from liability in case of force majeure or fortuitous event alone. The common carrier must still prove that it was not negligent in causing the death or injury resulting from an accident. [16] This Court has had occasion to state: While it may be true that the tire that blew-up was still good because the grooves of the tire were still visible, this fact alone does not make the explosion of the tire a fortuitous event. No evidence was presented to show that the accident was due to adverse road conditions or that precautions were taken by the jeepney driver to compensate for any conditions liable to cause accidents. The sudden blowing-up, therefore, could have been caused by too much air pressure injected into the tire coupled by the fact that the jeepney was overloaded and speeding at the time of the accident.[17] It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was running at 60-50 kilometers per hour only or within the prescribed lawful speed limit. However, they failed to rebut the testimony of Leny Tumboy that the bus was running so fast that she cautioned the driver to slow down. These contradictory facts must, therefore, be resolved in favor of liability in view of the presumption of negligence of the carrier in the law. Coupled with this is the established condition of the road rough, winding and wet due to the rain. It was incumbent upon the defense to establish that it took precautionary measures considering partially dangerous condition of the road. As stated above, proof that the tire was new and of good quality is not sufficient proof that it was not negligent. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary check-ups of the vehicles parts. As the late Justice J.B.L. Reyes said: It may be impracticable, as appellee argues, to require of carriers to test the strength of each and every part of its vehicles before each trip; but we are of the opinion that a due regard for the carriers obligations toward the traveling public demands adequate periodical tests to determine the condition and strength of those vehicle portions the failure of which may endanger the safety of the passengers.[18] Having failed to discharge its duty to overthrow the presumption of negligence with clear and convincing evidence, petitioners are hereby held liable for damages. Article 1764[19] in relation to Article 2206[20] of the Civil Code prescribes the amount of at least three thousand pesos as damages for the death of a passenger. Under prevailing jurisprudence, the award of damages under Article 2206 has been increased to fifty thousand pesos (P50,000.00).[21] Moral damages are generally not recoverable in culpa contractual except when bad faith had been proven. However, the same damages may be recovered when breach of contract of carriage results in the death of a passenger,[22] as in this case. Exemplary damages, awarded by way of example or correction for the public good when moral damages are awarded,[23] may likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.[24] Because petitioners failed to exercise the extraordinary diligence required of a common carrier, which resulted in the death of Tito Tumboy, it is deemed to have acted recklessly.[25] As such, private respondents shall be entitled to exemplary damages. WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the modification that petitioners shall, in addition to the monetary awards therein, be liable for the award of exemplary damages in the amount of P20,000.00. Costs against petitioners. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

It then recommended that "to avoid any further loss and damage to lives, limbs and property of persons living in the vicinity," the fourth floor of subject school building be declared as a "structural hazard." In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for damages based on culpa aquiliana, private respondents alleged that the damage to their house rendered the same uninhabitable, forcing them to stay temporarily in others' houses. And so they sought to recover from petitioner P117,116.00, as actual damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary damages and P100,000.00, for and as attorney's fees; plus costs. In its Answer, petitioner averred that subject school building had withstood several devastating typhoons and other calamities in the past, without its roofing or any portion thereof giving way; that it has not been remiss in its responsibility to see to it that said school building, which houses school children, faculty members, and employees, is "in tip-top condition"; and furthermore, typhoon "Saling" was "an act of God and therefore beyond human control" such that petitioner cannot be answerable for the damages wrought thereby, absent any negligence on its part. The trial court, giving credence to the ocular inspection report to the effect that subject school building had a "defective roofing structure," found that, while typhoon "Saling" was accompanied by strong winds, the damage to private respondents' houses "could have been avoided if the construction of the roof of [petitioner's] building was not faulty." The dispositive portion of the lower court's decision 7 reads, thus: WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of the plaintiff (sic) and against the defendants, (sic) ordering the latter to pay jointly and severally the former as follows: a) P117,116.00, as actual damages, plus litigation expenses; b) P1,000,000.00 as moral damages; c) P100,000.00 as attorney's fees; d) Costs of the instant suit.

G.R. No. 126389 July 10, 1998 SOUTHEASTERN COLLEGE INC., petitioner, vs. COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO, CONSOLACION DIMAANO and MILAGROS DIMAANO, respondents.

PURISIMA, J.: Petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision 1 promulgated on July 31, 1996, and Resolution 2 dated September 12, 1996 of the Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda. de Dimaano, et al. vs. Southeastern College, Inc.", which reduced the moral damages awarded below from P1,000,000.00 to P200,000.00. 4 The Resolution under attack denied petitioner's motion for reconsideration. Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner owns a four-storey school building along the same College Road. On October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit Metro Manila. Buffeted by very strong winds, the roof of petitioner's building was partly ripped off and blown away, landing on and destroying portions of the roofing of private respondents' house. After the typhoon had passed, an ocular inspection of the destroyed building was conducted by a team of engineers headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's Report 5 dated October 18, 1989 stated, as follows: 5. One of the factors that may have led to this calamitous event is the formation of the building in the area and the general direction of the wind. Situated in the peripheral lot is an almost U-shaped formation of 4-storey building. Thus, with the strong winds having a westerly direction, the general formation of the building becomes a big funnel-like structure, the one situated along College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of the roofing, those located on both ends of the building, which remained intact after the storm. 6. Another factor and perhaps the most likely reason for the dislodging of the roofing structural trusses is the improper anchorage of the said trusses to the roof beams. The 1/2' diameter steel bars embedded on the concrete roof beams which serve as truss anchorage are not bolted nor nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses, thus, those trusses are not anchored at all to the roof beams.

The claim for exemplary damages is denied for the reason that the defendants (sic) did in a wanton fraudulent, reckless, oppressive or malevolent manner. In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that: I THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON "SALING", AS AN ACT OF GOD, IS NOT "THE SOLE AND ABSOLUTE REASON" FOR THE RIPPINGOFF OF THE SMALL PORTION OF THE ROOF OF SOUTHEASTERN'S FOUR (4) STOREY SCHOOL BUILDING. II THE TRIAL COURT ERRED IN HOLDING THAT "THE CONSTRUCTION OF THE ROOF OF DEFENDANT'S SCHOOL

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BUILDING WAS FAULTY" NOTWITHSTANDING THE ADMISSION THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS TYPHOON "SALING" WHICH IS THE DIRECT AND PROXIMATE CAUSE OF THE INCIDENT. III THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS WELL AS ATTORNEY'S FEES AND LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND ACADEMIC. IV THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF EXECUTION INSPITE OF THE PERFECTION OF SOUTHEASTERN'S APPEAL WHEN THERE IS NO COMPELLING REASON FOR THE ISSUANCE THERETO. As mentioned earlier, respondent Court of Appeals affirmed with modification the trial court's disposition by reducing the award of moral damages from P1,000,000.00 to P200,000.00. Hence, petitioner's resort to this Court, raising for resolution the issues of: 1. Whether or not the award of actual damages [sic] to respondent Dimaanos on the basis of speculation or conjecture, without proof or receipts of actual damage, [sic] legally feasible or justified. 2. Whether or not the award of moral damages to respondent Dimaanos, with the latter having suffered, actual damage has legal basis. 3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject matter of the case, during its pendency, has the right to pursue their complaint against petitioner when the case was already moot and academic by the sale of the property to third party. 4. Whether or not the award of attorney's fees when the case was already moot academic [sic] legally justified. 5. Whether or not petitioner is liable for damage caused to others by typhoon "Saling" being an act of God. 6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without hearing, has support in law. The pivot of inquiry here, determinative of the other issues, is whether the damage on the roof of the building of private respondents resulting from the impact of the falling portions of

the school building's roof ripped off by the strong winds of typhoon "Saling", was, within legal contemplation, due to fortuitous event? If so, petitioner cannot be held liable for the damages suffered by the private respondents. This conclusion finds support in Article 1174 of Civil Code, which provides: Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as "an event which takes place by accident and could not have been foreseen." 9 Escriche elaborates it as "an unexpected event or act of God which could neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino adds that "[f]ortuitous events may be produced by two general causes: (1) by nature, such as earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc." 11 In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous negligence or misconduct by reason of which the loss may have been occasioned. 12 An act of God cannot be invoked for the protection of a person who has been guilty of gross negligence in not trying to forestall its possible adverse consequences. When a person's negligence concurs with an act of God in producing damage or injury to another, such person is not exempt from liability by showing that the immediate or proximate cause of the damages or injury was a fortuitous event. When the effect is found to be partly the result of the participation of man whether it be from active intervention, or neglect, or failure to act the whole occurrence is hereby humanized, and removed from the rules applicable to acts of God. 13 In the case under consideration, the lower court accorded full credence to the finding of the investigating team that subject school building's roofing had "no sufficient anchorage to hold it in position especially when battered by strong winds." Based on such finding, the trial court imputed negligence to petitioner and adjudged it liable for damages to private respondents. After a thorough study and evaluation of the evidence on record, this Court believes otherwise, notwithstanding the general rule that factual findings by the trail court, especially when affirmed by the appellate court, are binding and conclusive upon this Court. 14 After a careful scrutiny of the records and the pleadings submitted by the parties, we find exception to this rule and hold that the lower courts misappreciated the evidence proffered. There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is unavoidable despite any amount of foresight, diligence or care. 15 In order to be exempt from liability arising from any adverse consequence engendered thereby, there should have been no human participation amounting to a negligent act. 16 In other words; the person seeking exoneration from liability must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance which the circumstances justify demand, 17 or the omission to do something which a prudent and reasonable man, guided by considerations which ordinarily regulate the conduct of human affairs, would do. 18 From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the damage caused to private respondents' house could have been avoided?

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At the outset, it bears emphasizing that a person claiming damages for the negligence of another has the burden of proving the existence of fault or negligence causative of his injury or loss. The facts constitutive of negligence must be affirmatively established by competent evidence, 19 not merely by presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of petitioner, merely relied on the aforementioned report submitted by a team which made an ocular inspection of petitioner's school building after the typhoon. As the term imparts, an ocular inspection is one by means of actual sight or viewing. 20 What is visual to the eye through, is not always reflective of the real cause behind. For instance, one who hears a gunshot and then sees a wounded person, cannot always definitely conclude that a third person shot the victim. It could have been self-inflicted or caused accidentally by a stray bullet. The relationship of cause and effect must be clearly shown. In the present case, other than the said ocular inspection, no investigation was conducted to determine the real cause of the partial unroofing of petitioner's school building. Private respondents did not even show that the plans, specifications and design of said school building were deficient and defective. Neither did they prove any substantial deviation from the approved plans and specifications. Nor did they conclusively establish that the construction of such building was basically flawed. 21 On the other hand, petitioner elicited from one of the witnesses of private respondents, city building official Jesus Reyna, that the original plans and design of petitioner's school building were approved prior to its construction. Engr. Reyna admitted that it was a legal requirement before the construction of any building to obtain a permit from the city building official (city engineer, prior to the passage of the Building Act of 1977). In like manner, after construction of the building, a certification must be secured from the same official attesting to the readiness for occupancy of the edifice. Having obtained both building permit and certificate of occupancy, these are, at the very least, prima facie evidence of the regular and proper construction of subject school building. 22 Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon "Saling", the same city official gave the gosignal for such repairs without any deviation from the original design and subsequently, authorized the use of the entire fourth floor of the same building. These only prove that subject building suffers from no structural defect, contrary to the report that its "U-shaped" form was "structurally defective." Having given his unqualified imprimatur, the city building official is presumed to have properly performed his duties 23 in connection therewith. In addition, petitioner presented its vice president for finance and administration who testified that an annual maintenance inspection and repair of subject school building were regularly undertaken. Petitioner was even willing to present its maintenance supervisor to attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and simply stipulated that it would be corroborative of the vice president's narration. Moreover, the city building official, who has been in the city government service since 1974, admitted in open court that no complaint regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at bench. It is a matter of judicial notice that typhoons are common occurrences in this country. If subject school building's roofing was not firmly anchored to its trusses, obviously, it could not have withstood long years and several typhoons even stronger than "Saling."

In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the appellate court. We thus hold that petitioner has not been shown negligent or at fault regarding the construction and maintenance of its school building in question and that typhoon "Saling" was the proximate cause of the damage suffered by private respondents' house. With this disposition on the pivotal issue, private respondents' claim for actual and moral damages as well as attorney's fees must fail. 24 Petitioner cannot be made to answer for a purely fortuitous event. 25 More so because no bad faith or willful act to cause damage was alleged and proven to warrant moral damages. Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred. 26 It is not enough that the damage be capable of proof but must be actually proved with a reasonable degree of certainty, pointing out specific facts that afford a basis for measuring whatever compensatory damages are borne.27 Private respondents merely submitted an estimated amount needed for the repair of the roof their subject building. What is more, whether the "necessary repairs" were caused ONLY by petitioner's alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house itself, is an essential question that remains indeterminable. The Court deems unnecessary to resolve the other issues posed by petitioner. As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial court is hereby nullified and set aside. Private respondents are ordered to reimburse any amount or return to petitioner any property which they may have received by virtue of the enforcement of said writ. WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The complaint of private respondents in Civil Case No. 7314 before the trial court a quo is ordered DISMISSED and the writ of execution issued on April 1, 1993 in said case is SET ASIDE. Accordingly, private respondents are ORDERED to return to petitioner any amount or property received by them by virtue of said writ. Costs against the private respondents. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 147324 May 25, 2004

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same. On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that was supposed to extend the term of the use by the US of Subic Naval Base, among others.5 The last two paragraphs of the Resolution state: FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries in the spirit of friendship, cooperation and sovereign equality: Now, therefore, be it Resolved by the Senate, as it is hereby resolved, To express its decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements, at the same time reaffirming its desire to continue friendly relations with the government and people of the United States of America.6 On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US Embassy, notifying it of the Philippines termination of the RP-US Military Bases Agreement. The Note Verbalestated that since the RP-US Military Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of all US military forces from Subic Naval Base should be completed by said date. In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the RPUS Military Bases Agreement. Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement, which provides: Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either party is thus precluded from performing its obligation until such force majeure or fortuitous event shall terminate. For the purpose of this paragraph, force majeure shall mean circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God. Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to know its commitment to pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of the earth station after November 08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows: 7. DISCONTINUANCE OF SERVICE Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination. Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no case shall be less than the first two (2) T1 circuits,

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner, vs. GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents. x-----------------------------x GLOBE TELECOM, INC., petitioner, vs. PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent. DECISION TINGA, J.: Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.1 The facts of the case are undisputed. For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had been engaged in the coordination of the provision of various communication facilities for the military bases of the United States of America (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities were installed and configured for the exclusive use of the US Defense Communications Agency (USDCA), and for security reasons, were operated only by its personnel or those of American companies contracted by it to operate said facilities. The USDCA contracted with said American companies, and the latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the other hand, contracted with local service providers such as the Philippine Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities. On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA.2 The term of the contract was for 60 months, or five (5) years.3 In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved.4 At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities, which include those located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast by the people in a national referendum when the Congress so requires, and such new treaty is recognized as such by the US Government.

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for the remaining life of the agreement. However, should PHILCOMSAT make use or sell the earth station subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such monthly rate as may be agreed upon by the parties.8 After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe refused to heed Philcomsats demand. On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorneys fees and costs of suit. The case was raffled to Branch 59 of said court. Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events constituted force majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of the Agreement. On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency (computed at the exchange rate prevailing at the time of compliance or payment) representing rentals for the month of December 1992 with interest thereon at the legal rate of twelve percent (12%) per annum starting December 1992 until the amount is fully paid; 2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand (P300,000.00) Pesos as and for attorneys fees; 3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and 4. With costs against the defendant. SO ORDERED.9 Both parties appealed the trial courts Decision to the Court of Appeals. Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements constitutes force majeure which exempts Globe from complying with its obligations under the Agreement; (2) Globe is not liable to pay the rentals for the remainder of the term of the Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages. Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth station for

December 1992 and of attorneys fees. It explained that it terminated Philcomsats services on 08 November 1992; hence, it had no reason to pay for rentals beyond that date. On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats appeal for lack of merit and affirming the trial courts finding that certain events constituting force majeure under Section 8 the Agreement occurred and justified the non-payment by Globe of rentals for the remainder of the term of the Agreement. The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security, and its Supplementary Agreements, and the termination by the Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as stated in the Philippine Governments Note Verbale to the US Government, are acts, directions, or requests of the Government of the Philippines which constitute force majeure. In addition, there were circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter Corliss of the US Navy, the issuance of the letter notification from ATT and the complete withdrawal of all US military forces and personnel from Cubi Point, which prevented further use of the earth station under the Agreement. However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services by 08 November 1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992.10 Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals. In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error: A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT. B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE AGREEMENT. C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF PHILCOMSAT. D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12 Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event because the happening thereof was foreseeable. Although the Agreement was freely entered into by both parties, Section 8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the validity of the

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parties definition of force majeure in Section 8 of the Agreement as "circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which defines fortuitous events as events which could not be foreseen, or which, though foreseen, were inevitable.13 Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the parties in Section 7 thereof. Moreover, said ruling is inconsistent with the appellate courts pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated Philcomsats services effective 08 November 1992, because the US military and personnel completely withdrew from Cubi Point only in December 1992. Philcomsat points out that it was Globe which proposed the five-year term of the Agreement, and that the other provisions of the Agreement, such as Section 4.1 14 thereof, evince the intent of Globe to be bound to pay rentals for the entire fiveyear term.15 Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to attorneys fees and exemplary damages. 16 In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a contract from providing for other instances when they would be exempt from fulfilling their contractual obligations. Globe also claims that the termination of the RP-US Military Bases Agreement constitutes force majeure and exempts it from complying with its obligations under the Agreement.17 On the issue of the propriety of awarding attorneys fees and exemplary damages to Philcomsat, Globe maintains that Philcomsat is not entitled thereto because in refusing to pay rentals for the remainder of the term of the Agreement, Globe only acted in accordance with its rights.18 In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for the amount of US$92,238.00, representing rentals for December 1992, since Philcomsats services were actually terminated on 08 November 1992.20 In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual issue which is not cognizable by the Court in a petition for review on certiorari.21 On 15 August 2001, the Court issued a Resolution giving due course to Philcomsats Petition in G.R. No. 147324 and required the parties to submit their respective memoranda.22 Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by Globe inG.R. No. 147334 and required both parties to submit their memoranda.23 Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases, reiterating their arguments in their respective petitions. The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases Agreement, the nonratification of the Treaty of Friendship, Cooperation and Security,

and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the Agreement for the month of December 1992; and (3) whether Philcomsat is entitled to attorneys fees and exemplary damages. No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are denied. There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect because the enumeration of events constituting force majeure therein unduly expands the concept of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid. In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen in order to exempt a party to a contract from complying with its obligations therein. It insists that since the expiration of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US military forces and personnel from Cubi Point were not unforeseeable, but were possibilities known to it and Globe at the time they entered into the Agreement, such events cannot exempt Globe from performing its obligation of paying rentals for the entire five-year term thereof. However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable: Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though foreseen were inevitable. A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or typhoons, 24 or an "act of man," such as riots, strikes or wars.25 Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force majeure: 1. Any law, order, regulation, direction or request of the Philippine Government; 2. Strikes or other labor difficulties; 3. Insurrection; 4. Riots; 5. National emergencies; 6. War; 7. Acts of public enemies; 8. Fire, floods, typhoons or other catastrophies or acts of God; 9. Other circumstances beyond the control of the parties.

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Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174. Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs, public order or public policy.27 Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."28 Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto.29 Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has the force of law between them. 30 In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor.31 The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992: Obviously the non-ratification by the Senate of the RPUS Military Bases Agreement (and its Supplemental Agreements) under its Resolution No. 141. (Exhibit "2") on September 16, 1991 is beyond the control of the parties. This resolution was followed by the sending on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government to the US Government notifying the latter of the formers termination of the RP-US Military Bases Agreement (as amended) on 31 December 1992 and that accordingly, the withdrawal of all U.S. military forces from Subic Naval Base should be completed by said date. Subsequently, defendant [Globe] received a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a notification from ATT dated July 29, 1992 to terminate the provision of T1s services (via an IBS Standard B Earth Station) effective November 08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the defendant on August 06, 1992. Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts, direction or request of the Government of the Philippines and circumstances beyond the control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of the defendant.

Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute "force majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement. From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility for the remaining term of the contract. As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position to render the service it was obligated under the Agreement. To put it blantly (sic), since the US military forces and personnel left or withdrew from Cubi Point in the year end December 1992, there was no longer any necessity for the plaintiff to continue maintaining the IBS facility.32 (Emphasis in the original.) The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement. Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding obligation under the Agreement. As noted by the appellate court: We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to charge GLOBE rentals for the balance of the lease term without there being any corresponding telecommunications service subject of the lease. It will be grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and could not have been rendered due to an act of the government which was clearly beyond GLOBEs control. The binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other party free therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33 With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992, the Court likewise affirms the appellate courts ruling that Globe should pay the same. Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station subject of the Agreement was not established during the trial.34 However, the trial court found that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. 35 Thus, until that date, the USDCA had control over the earth station and had the option of using the same. Furthermore, Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time. Hence, the

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Court of Appeals did not err when it affirmed the trial courts ruling that Globe is liable for payment of rentals until December 1992. Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorneys fees and exemplary damages. The award of attorneys fees is the exception rather than the rule, and must be supported by factual, legal and equitable justifications.36 In previously decided cases, the Court awarded attorneys fees where a party acted in gross and evident bad faith in refusing to satisfy the other partys claims and compelled the former to litigate to protect his rights;37 when the action filed is clearly unfounded,38 or where moral or exemplary damages are awarded.39 However, in cases where both parties have legitimate claims against each other and no party actually prevailed, such as in the present case where the claims of both parties were sustained in part, an award of attorneys fees would not be warranted.40 Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 41 In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsats demands for payment of rentals. It was established during the trial of the case before the trial court that Globe had valid grounds for refusing to comply with its contractual obligations after 1992. WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 159617 August 8, 2007

20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous. Respondents subsequently filed an Amended Complaint to include petitioner corporation. Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989.5 After trial on the merits, the RTC rendered its Decision 6 dated January 12, 1993, dismissing respondents complaint as well as petitioners counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder. The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen. Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8 In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation. The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners, vs. LULU V. JORGE and CESAR JORGE, respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia deR.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision 1 of the Court of Appeals dated March 31, 2003, and its Resolution 2 dated August 8, 2003, in CA G.R. CV No. 56633. It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan in the total amount of P59,500.00. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Paraaque Police Station as follows: Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above. Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number. 3 Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry. On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035. Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April

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The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry. Petitioners motion for reconsideration was denied in a Resolution dated August 8, 2003. Hence, the instant petition for review with the following assignment of errors: THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE. THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9 Anent the first assigned error, petitioners point out that the CAs finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants brief."10 Petitioners argue that the reproduced arguments of respondents in their Appellants Brief suffer from infirmities, as follows: (1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of respondents; (2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and (3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members. Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents brief which had the following defects: (1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place; (2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance companies refused to cover

pawnshops and banks because of high probability of losses due to robberies; (3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers. Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda. We find no merit in the petition. To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents (appellants) brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the Constitution. The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of the parties, as long as these are legally tenable and supported by law and the facts on records.11 Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. Generally, the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo.12 This rule, however, is not without exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case. However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability. The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them. 15 Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong impression to respondents and the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation. Even petitioners counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987. We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis. Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the

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proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter exception allows one to contradict an admission by denying that he made such an admission.17 The Committee on the Revision of the Rules of Court explained the second exception in this wise: x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one making the "admission" may show that he made no "such" admission, or that his admission was taken out of context. x x x that the party can also show that he made no "such admission", i.e., not in the sense in which the admission is made to appear. That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no admission was made," the rule would not really be providing for a contradiction of the admission but just a denial.18 (Emphasis supplied). While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the pawnshop was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry. Markedly, respondents, in their Opposition to petitioners Motion to Dismiss Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows: Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now the real party in interest in this case." It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. It is a matter of defense, the merit of which can only be reached after consideration of the evidence to be presented in due course.19 Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts under his name and

not under the corporation's name militates for the piercing of the corporate veil. We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC. Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and known as Agencia deR.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real party in interest against whom the complaint should be directed.20 In fact, he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its Decision in this manner: x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the reason that he cannot be made personally liable for a claim arising from a corporate transaction. This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop." It has been held that " as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of a corporation.21 Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case. The next question is whether petitioners are liable for the loss of the pawned articles in their possession. Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all. We are not persuaded. Article 1174 of the Civil Code provides: Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable. Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. 22 To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes

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the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. 23 The burden of proving that the loss was due to a fortuitous event rests on him who invokes it.24 And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. 25 It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. 26 Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners defense of fortuitous event. Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held: It is 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.28 Just like in Co, petitioners merely presented the police report of the Paraaque Police Station on the robbery committed based on the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault. On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit: Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.29 Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis. The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property. In this connection, Article 1173 of the Civil Code further provides: Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do.31 It is want of care required by the circumstances. A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus: Court: Q. Do you have security guards in your pawnshop? A. Yes, your honor. Q. Then how come that the robbers were able to enter the premises when according to you there was a security guard?

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A. Sir, if these robbers can rob a bank, how much more a pawnshop. Q. I am asking you how were the robbers able to enter despite the fact that there was a security guard? A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Paraaque they pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in and it was only when it was announced that it was a hold up. Q. Did you come to know how the vault was opened? A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The combination is off. Q. No one open (sic) the vault for the robbers? A. No one your honor it was open at the time of the robbery. Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get all the items pawned to you inside the vault. A. Yes sir.
32

Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the Insurance Commissioner. However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit: Sec. 17 Insurance of Office Building and Pawns The office building/premises and pawns of a pawnshop must be insured against fire. (emphasis supplied). where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to require insurance of pawned articles against burglary. The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent. Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code. The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform.34 Thus, the cases ofAustria v. Court of Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery were exonerated from liability, find no application to the present case. In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which Abad failed to subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a criminal case filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place without any concurrent fault on the debtors part, and this can be done by preponderance of evidence; that to be free from liability for reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence.38 We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971.

revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the employees.33 Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified in court. Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Paraaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles. We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries. Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:

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In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed. In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages of the employees and the operating expenses of the project. However for some reason, the processing of the check was delayed and was completed at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the check on July 5, the next working day after July 1, would have caused discomfort to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical at that time. We further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his imprudence and negligence. Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart away the pawned articles. In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular phone. She then reported the incident to the police authorities; however, the thief was not located, and the cellphone was not recovered. She also reported the loss to the Regional Director of TESDA, and she requested that she be freed from accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient justification to grant the request for relief from accountability. We

reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act more so because Cruzs mode of transit was influenced by time and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance can reasonably be expected to do the same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position and pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and negligence can never be presumed. Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop. WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED. Costs against petitioners. SO ORDERED.

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Republic of the Philippines SUPREME COURT Baguio City THIRD DIVISION G.R. No. 179337 April 30, 2008

plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the abovementioned amounts; 3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs. SO ORDERED.9 Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal portion of which provides, viz: WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against appellant Far Eastern University and its President in Civil Case No. 98-89483 is DISMISSED. SO ORDERED.10 Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the following grounds: THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND JURISPRUDENCE IN RULING THAT: 5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT; 5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT; 5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and 5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.11 Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe learning environment. The pertinent portions of petitioner's Complaint read: 6.0. At the time of plaintiff's confinement, the defendants or any of their representative did not bother to visit and inquire about his condition. This abject indifference on the part of the defendants continued even after plaintiff was discharged from the hospital when not even a word of consolation was heard from

JOSEPH SALUDAGA, petitioner, vs. FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of FEU,respondents. DECISION YNARES-SANTIAGO, J.: This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29, 2007 Decision2 of the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the November 10, 2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the complaint filed by petitioner; as well as its August 23, 2007 Resolution4 denying the Motion for Reconsideration.5 The antecedent facts are as follows: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained.6 Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him. Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint7 against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance.8 On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads: WHEREFORE, from the foregoing, judgment is hereby rendered ordering: 1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally Joseph Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from the filing of the complaint until fully paid; moral damages of P300,000.00, exemplary damages of P500,000.00, attorney's fees of P100,000.00 and cost of the suit; 2. Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify jointly and severally 3rd party

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them. Plaintiff waited for more than one (1) year for the defendants to perform their moral obligation but the wait was fruitless. This indifference and total lack of concern of defendants served to exacerbate plaintiff's miserable condition. xxxx 11.0. Defendants are responsible for ensuring the safety of its students while the latter are within the University premises. And that should anything untoward happens to any of its students while they are within the University's premises shall be the responsibility of the defendants. In this case, defendants, despite being legally and morally bound, miserably failed to protect plaintiff from injury and thereafter, to mitigate and compensate plaintiff for said injury; 12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff when he was shot at by, of all people, their security guard who was tasked to maintain peace inside the campus.12 In Philippine School of Business Administration v. Court of Appeals,13 we held that: When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.14 It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was created a contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the rules and regulations of the school. On the other hand, respondent FEU, as a learning institution is mandated to impart knowledge and equip its students with the necessary skills to pursue higher education or a profession. At the same time, it is obliged to ensure and take adequate steps to maintain peace and order within the campus. It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.15 In the instant case, we find that, when petitioner was shot inside the campus by no

less the security guard who was hired to maintain peace and secure the premises, there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students. In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee;16 and that they complied with their obligation to ensure a safe learning environment for their students by having exercised due diligence in selecting the security services of Galaxy. After a thorough review of the records, we find that respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a security guard for the university was offered. Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students. Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered, respondents must show that no negligence or misconduct was committed that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation - whether by active intervention, neglect or failure to act - the whole occurrence is humanized and removed from the rules applicable to acts of God.17 Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts.18 In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other medical expenses.19 While the trial court correctly imposed interest on said amount, however, the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the complaint until the finality of this Decision.20 After this Decision becomes final and executory, the

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applicable rate shall be twelve percent (12%) per annum until its satisfaction. The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts.21 In the absence thereof, no actual damages may be awarded. Nonetheless, temperate damages under Art. 2224 of the Civil Code may be recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner. As regards the award of moral damages, there is no hard and fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar circumstances.22 The testimony of petitioner about his physical suffering, mental anguish, fright, serious anxiety, and moral shock resulting from the shooting incident23 justify the award of moral damages. However, moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court.24 We deem it just and reasonable under the circumstances to award petitioner moral damages in the amount of P100,000.00. Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is reasonable in view of Article 2208 of the Civil Code.25 However, the award of exemplary damages is deleted considering the absence of proof that respondents acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton Conglomerate, Inc. v. Agcolicol,26 we held that: [A] corporation is invested by law with a personality separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when - (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action.27 None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus should not be held solidarily liable with respondent FEU.

Incidentally, although the main cause of action in the instant case is the breach of the school-student contract, petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of the Civil Code, which provides: Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. They cannot be construed as the element of control as to treat respondents as the employers of Rosete. 28 As held in Mercury Drug Corporation v. Libunao:29 In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and assigns the works of its watchmen or security guards to a client, the employer of such guards or watchmen is such agency, and not the client, since the latter has no hand in selecting the security guards. Thus, the duty to observe the diligence of a good father of a family cannot be demanded from the said client: [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards, the agency is the employer of such guards or watchmen. Liability for illegal or harmful acts committed by the security guards attaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a client or customer of a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in the ordinary course of events, be demanded from the client whose premises or property are protected by the security guards. xxxx The fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render the client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions.31

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We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber Company of the Philippines v. Tempengko,32 we held that: The third-party complaint is, therefore, a procedural device whereby a 'third party' who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-party in the original and principal case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts.33 Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only in the selection of its employees but also in their supervision. Indeed, no administrative sanction was imposed against Rosete despite the shooting incident; moreover, he was even allowed to go on leave of absence which led eventually to his disappearance.34 Galaxy also failed to monitor petitioner's condition or extend the necessary assistance, other than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their pledge to reimburse petitioner's medical expenses. For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the security agency. It was Imperial who assured petitioner that his medical expenses will be shouldered by Galaxy but said representations were not fulfilled because they presumed that petitioner and his family were no longer interested in filing a formal complaint against them.35 WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 87050 nullifying the Decision of the trial court and dismissing the complaint as well as the August 23, 2007 Resolution denying the Motion for Reconsideration are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 finding respondent FEU liable for damages for breach of its obligation to provide students with a safe and secure learning atmosphere, is AFFIRMED with the followingMODIFICATIONS: a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this Decision. After this decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00; c. the award of exemplary damages is DELETED. The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of respondents are likewise DISMISSED. Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial are ORDEREDto jointly and severally pay respondent FEU damages equivalent to the abovementioned amounts awarded to petitioner. SO ORDERED.

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ARTICLE 1181 Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

The loan application of respondent spouses was nevertheless eventually approved by DBP in the sum of P140,000.00, despite the aforesaid certification of the bureau, on the understanding of the parties that DBP would work for the release of the land by the former Ministry of Natural Resources. To secure payment of the loan, respondent spouses executed a real estate mortgage over the land on March 17, 1982, which document was registered in the Registry of Deeds pursuant to Act No. 3344. The loan was then released to respondent spouses on a staggered basis. After a substantial sum of P118,540.00 had been received by private respondents, they asked for the release of the remaining amount of the loan. It does not appear that their request was acted upon by DBP, ostensibly because the release of the land from the then Ministry of Natural Resources had not been obtained. On July 7, 1983, respondent spouses, as plaintiffs, filed a complaint against DBP in the trial court 4 seeking the annulment of the subject deed of absolute sale on the ground that the object thereof was verified to be timberland and, therefore, is in law an inalienable part of the public domain. They also alleged that petitioner, as defendant therein, acted fraudulently and in bad faith by misrepresenting itself as the absolute owner of the land and in incorporating the waiver of warranty against eviction in the deed of sale. 5 In its answer, DBP contended that it was actually the absolute owner of the land, having purchased it for value at an auction sale pursuant to an extrajudicial foreclosure of mortgage; that there was neither malice nor fraud in the sale of the land under the terms mutually agreed upon by the parties; that assuming arguendo that there was a flaw in its title, DBP can not be held liable for anything inasmuch as respondent spouses had full knowledge of the extent and nature of DBP's rights, title and interest over the land. It further averred that the annulment of the sale and the return of the purchase price to respondent spouses would redound to their benefit but would result in petitioner's prejudice, since it had already released P118,540.00 to the former while it would be left without any security for the P140,000.00 loan; and that in the remote possibility that the land is reverted to the public domain, respondent spouses should be made to immediately pay, jointly and severally, the total amount of P118,540.00 with interest at 15% per annum, plus charges and other expenses. 6 On May 25, 1990, the trial court rendered judgment annulling the subject deed of absolute sale and ordering DBP to return the P25,500.00 purchase price, plus interest; to reimburse to respondent spouses the taxes paid by them, the cost of the relocation survey, incidental expenses and other damages in the amount of P50,000.00; and to further pay them attorney's fees and litigation expenses in the amount of P10,000.00, and the costs of suit. 7 In its recourse to the Court of Appeals, DBP raised the following assignment of errors: 1. The trial court erred in declaring the deed of absolute sale executed between the parties canceled and annulled on the ground that therein defendant-appellant had no title over the property subject of the sale. 2. The trial court erred in finding that defendant-appellant DBP acted fraudulently and in bad faith or that it had misrepresented facts since it had prior knowledge that subject

G.R. No. 110053 October 16, 1995 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, CELEBRADA MANGUBAT and ABNER MANGUBAT, respondents.

REGALADO, J.: This appeal by certiorari sprouted from the judgment of respondent Court of Appeals promulgated on September 9, 1992 in CA-G.R. CV No. 28311, and its resolution dated April 7, 1993 denying petitioner's motion for reconsideration. 1 Said adjudgments, in turn, were rooted in the factual groundwork of this case which is laid out hereunder. On July 20, 1981, herein petitioner Development Bank of the Philippines (DBP) executed a "Deed of Absolute Sale" in favor of respondent spouses Celebrada and Abner Mangubat over a parcel of unregistered land identified as Lot 1, PSU-142380, situated in the Barrio of Toytoy, Municipality of Garchitorena, Province of Camarines Sur, containing an area of 55.5057 hectares, more or less. The land, covered only by a tax declaration, is known to have been originally owned by one Presentacion Cordovez, who, on February 4, 1937, donated it to Luciano Sarmiento. On June 8, 1964, Luciano Sarmiento sold the land to Pacifico Chica. On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of P6,000.00. However, he defaulted in the payment of the loan, hence DBP caused the extrajudicial foreclosure of the mortgage. In the auction sale held on September 9, 1970, DBP acquired the property as the highest bidder and was issued a certificate of sale on September 17, 1970 by the sheriff. The certificate of sale was entered in the Book of Unregistered Property on September 23, 1970. Pacifico Chica failed to redeem the property, and DBP consolidated its ownership over the same. On October 14, 1980, respondent spouses offered to buy the property for P18,599.99. DBP made a counter-offer of P25,500.00 which was accepted by respondent spouses. The parties further agreed that payment was to be made within six months thereafter for it to be considered as cash payment. On July 20, 1981, the deed of absolute sale, which is now being assailed herein, was executed by DBP in favor of respondent spouses. Said document contained a waiver of the seller's warranty against eviction. 2 Thereafter, respondent spouses applied for an industrial tree planting loan with DBP. The latter required the former to submit a certification from the Bureau of Forest Development that the land is alienable and disposable. However, on October 29, 1981, said office issued a certificate attesting to the fact that the said property was classified as timberland, hence not subject to disposition. 3

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property was part of the public domain at the time of sale to therein plaintiffs-appellees. 3. The trial court erred in finding said plaintiffs-appellees' waiver of warranty against eviction void. 4. The trial court erred awarding to therein plaintiffs-appellees damages arising from an alleged breach of contract. 5. The trial court erred in not ordering said plaintiffs-appellees to pay their loan obligation to defendant-appellant DBP in the amount of P118,540. 8 As substantially stated at the outset, respondent Court of Appeals rendered judgment modifying the disposition of the court below by deleting the award for damages, attorney's fees, litigation expenses and the costs, but affirming the same in all its other aspects. 9 On April 7, 1993, said appellate court also denied petitioner's motion for reconsideration. 10 Not satisfied therewith, DBP interposed the instant petition for review on certiorari, raising the following issues: 1. Whether or not private respondent spouses Celebrada and Abner Mangubat should be ordered to pay petitioner DBP their loan obligation due under the mortgage contract executed between them and DBP; and 2. Whether or not petitioner should reimburse respondent spouses the purchase price of the property and the amount of P11,980.00 for taxes and expenses for the relocation Survey. 11 Considering that neither party questioned the legality and correctness of the judgment of the court a quo, as affirmed by respondent court, ordering the annulment of the deed of absolute sale, such decreed nullification of the document has already achieved finality. We only need The Court of Appeals, after an extensive discussion, found that there had been no bad faith on the part of either party, and this r, therefore, to dwell on the effects of that declaration of nullity.emains uncontroverted as a fact in the case at bar. Correspondingly, respondent court correctly applied the rule that if both parties have no fault or are not guilty, the restoration of what was given by each of them to the other is consequently in order. 12 This is because the declaration of nullity of a contract which is void ab initio operates to restore things to the state and condition in which they were found before the execution thereof. 13 We also find ample support for said propositions in American jurisprudence. The effect of an application of the aforequoted rule with respect to the right of a party to recover the amount given as consideration has been passed upon in the case of Leather Manufacturers National Bank vs. Merchants National Bank 14 where it was held that: "Whenever money is paid upon the representation of the receiver that he has either a certain title in property transferred in consideration of the payment or a certain authority to receive the money paid, when in fact he has no such title or authority, then, although there be no fraud or intentional misrepresentation on his part, yet there is no consideration for the payment, the money remains, in equity and good conscience, the property of the payer and may be recovered back by him."

Therefore, the purchaser is entitled to recover the money paid by him where the contract is set aside by reason of the mutual material mistake of the parties as to the identity or quantity of the land sold. 15 And where a purchaser recovers the purchase money from a vendor who fails or refuses to deliver the title, he is entitled as a general rule to interest on the money paid from the time of payment. 16 A contract which the law denounces as void is necessarily no contract whatever, and the acts of the parties in an effort to create one can in no wise bring about a change of their legal status. The parties and the subject matter of the contract remain in all particulars just as they did before any act was performed in relation thereto. 17 An action for money had and received lies to recover back money paid on a contract, the consideration of which has failed. 18 As a general rule, if one buys the land of another, to which the latter is supposed to have a good title, and, in consequence of facts unknown alike to both parties, he has no title at all, equity will cancel the transaction and cause the purchase money to be restored to the buyer, putting both parties in status quo. 19 Thus, on both local and foreign legal principles, the return by DBP to respondent spouses of the purchase price, plus corresponding interest thereon, is ineluctably called for. Petitioner likewise contends that the trial court and respondent Court of Appeals erred in ordering the reimbursement of taxes and the cost of the relocation survey, there being no factual or legal basis therefor. It argues that private respondents merely submitted a "list of damages" allegedly incurred by them, and not official receipts of expenses for taxes and said survey. Furthermore, the same list has allegedly not been identified or even presented at any stage of the proceedings, since it was vigorously objected to by DBP. Contrary to the claim of petitioner, the list of damages was presented in the trial court and was correspondingly marked as "Exhibit P." 20 The said exhibit was, thereafter, admitted by the trial court but only as part of the testimonial evidence for private respondents, as stated in its Order dated August 16, 1988. 21 However, despite that admission of the said list of damages as evidence, we agree with petitioner that the same cannot constitute sufficient legal basis for an award of P4,000.00 and P7,980.00 as reimbursement for land taxes and expenses for the relocation survey, respectively. The list of damages was prepared extrajudicially by respondent spouses by themselves without any supporting receipts as bases thereof or to substantiate the same. That list, per se, is necessarily self-serving and, on that account, should have been declared inadmissible in evidence as the factum probans. In order that damages may be recovered, the best evidence obtainable by the injured party must be presented. Actual or compensatory damages cannot be presumed, but must be duly proved, and so proved with a reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered and on evidence of the actual amount thereof. If the proof is flimsy and unsubstantial, no damages will be awarded. 22 Turning now to the issue of whether or not private respondents should be made to pay petitioner their loan obligation amounting to P118,540.00, we answer in the affirmative. In its legal context, the contract of loan executed between the parties is entirely different and discrete from the deed of sale they

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entered into. The annulment of the sale will not have an effect on the existence and demandability of the loan. One who has received money as a loan is bound to pay to the creditor an equal amount of the same kind and quality. 23 The fact that the annulment of the sale will also result in the invalidity of the mortgage does not have an effect on the validity and efficacy of the principal obligation, for even an obligation that is unsupported by any security of the debtor may also be enforced by means of an ordinary action. Where a mortgage is not valid, as where it is executed by one who is not the owner of the property, 24 or the consideration of the contract is simulated 25 or false, 26 the principal obligation which it guarantees is not thereby rendered null and void. That obligation matures and becomes demandable in accordance with the stipulations pertaining to it. Under the foregoing circumstances, what is lost is only the right to foreclose the mortgage as a special remedy for satisfying or settling the indebtedness which is the principal obligation. In case of nullity, the mortgage deed remains as evidence or proof of a personal obligation of the debtor, and the amount due to the creditor may be enforced in an ordinary personal action. 27 It was likewise incorrect for the Court of Appeals to deny the claim of petitioner for payment of the loan on the ground that it failed to present the promissory note therefor. While respondent court also made the concession that its judgment was accordingly without prejudice to the filing by petitioner of a separate action for the collection of that amount, this does not detract from the adverse effects of that erroneous ruling on the proper course of action in this case. The fact is that a reading of the mortgage contract 28 executed by respondent spouses in favor of petitioner, dated March 17, 1982, will readily show that it embodies not only the mortgage but the complete terms and conditions of the loan agreement as well. The provisions of said contract, specifically paragraphs 16 and 28 thereof, are so precise and clear as to thereby render unnecessary the introduction of the promissory note which would merely serve the same purpose. Furthermore, respondent Celebrada Mangubat expressly acknowledged in her testimony that she and her husband are indebted to petitioner in the amount of P118,000.00, more or less. 29 Admissions made by the parties in the pleadings or in the course of the trial or other proceedings do not require proof and can not be contradicted unless previously shown to have been made through palpable mistake. 30 Thus, the mortgage contract which embodies the terms and conditions of the loan obligation of respondent spouses, as well as respondent Celebrada Mangubat's admission in open court, are more than adequate evidence to sustain petitioner's claim for payment of private respondents' aforestated indebtedness and for the adjudication of DBP's claim therefor in the very same action now before us. It is also worth noting that the adjustment and allowance of petitioner's demand by counterclaim or set-off in the present action, rather than by another independent action, is favored or encouraged by law. Such a practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the time of the court. The trend of judicial decisions is toward a liberal extension of the right to avail of counterclaims or set-offs. 31 The rules on counterclaim are designed to achieve the disposition of a whole controversy of the conflicting claims of interested parties at one time and in one action, provided all parties can be

brought before the court and the matter decided without prejudicing the rights of any party. 32 WHEREFORE, the judgment appealed from is hereby MODIFIED, by deleting the award of P11,980.00 as reimbursement for taxes and expenses for the relocation survey, and ordering respondent spouses Celebrada and Abner Mangubat to pay petitioner Development Bank of the Philippines the amount of P118,540.00, representing the total amount of the loan released to them, with interest of 15% per annum plus charges and other expenses in accordance with their mortgage contract. In all other respects, the said judgment of respondent Court of Appeals is AFFIRMED. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein. Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable. The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision and remanding the case to the court of origin for the determination of the time within which petitioner should comply with the first condition annotated in the certificate of title. Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which petitioner would establish a medical college. 2 We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on the land was considered an onerous donation. 3 Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration. Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property rights of the donor. The donation had to be valid before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished. The claim of petitioner that prescription bars the instant action of private respondents is unavailing. The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the

G.R. No. 112127 July 17, 1995 CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.: CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the property donated to it by their predecessor-in-interest. Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from the deed of donation 1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum; 2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land; 3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a building thereon. 1 On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange the donated property with another land owned by the latter. In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party.

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donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of donation. 6 Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done, or that which should not have been done is done. 7 In cases where there is no special provision for such computation, recourse must be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor. The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot be quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of an educational institution, such as government laws and regulations pertaining to education, building requirements and property restrictions which are beyond the control of the donee. Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period has arrived. 8 This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed. Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interests.10 Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment. Costs against petitioner. SO ORDERED.

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ARTICLE 1186 Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 96053 March 3, 1993 JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners, vs. COURT OF APPEALS and ALBRIGIDO LEYVA, respondents. Facundo T. Bautista for petitioners. Jesus T. Garcia for private respondent.

execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979. Concerning private respondent's assumption of the vendors' obligation to the Philippine Veterans Bank, the vendee paid only the sum of P6,926.41 while the difference the indebtedness came from Celerina Labuguin (p. 73, Rollo). Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the remaining balance was paid to them. Because of the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract inked by their predecessor, private respondent filed the complaint for specific performance. In addressing the issue of whether the conditions of the instrument were performed by herein private respondent as vendee, the Honorable Godofredo Rilloraza, Presiding Judge of Branch 31 of the Regional Trial Court, Third Judicial Region stationed at Guimba, Nueva Ecija, decided to uphold private respondent's theory on the basis of constructive fulfillment under Article 1186 and estoppel through acceptance of piecemeal payments in line with Article 1235 of the Civil Code. Anent the P10,000.00 specified as second installment, the lower court counted against the vendors the candid statement of Josefina Tayag who sat on the witness stand and made the admission that the check issued as payment thereof was nonetheless paid on a staggered basis when the check was dishonored (TSN, September 1, 1983, pp. 3-4; p. 3, Decision; p. 66, Rollo). Regarding the third condition, the trial court noted that plaintiff below paid more than P6,000.00 to the Philippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid P3,778.77 which circumstance was construed to be a ploy under Article 1186 of the Civil Code that "prematurely prevented plaintiff from paying the installment fully" and "for the purpose of withdrawing the title to the lot". The acceptance by petitioners of the various payments even beyond the periods agreed upon, was perceived by the lower court as tantamount to faithful performance of the obligation pursuant to Article 1235 of the Civil Code. Furthermore, the trial court noted that private respondent consigned P18,520.00, an amount sufficient to offset the remaining balance, leaving the sum of P1,315.00 to be credited to private respondent. On September 12, 1984, judgment was rendered: 1. Ordering the defendants heirs of Juan Galicia, to execute the Deed of Sale of their undivided ONE HALF (1/2) portion of Lot No. 1130, Guimba Cadastre, covered by TCT No. NT-120563, in favor of plaintiff Albrigido Leyva, with an equal frontage facing the national road upon finality of judgment; that, in their default, the Clerk of Court II, is hereby ordered to execute the deed of conveyance in line with the provisions of Section 10, Rule 39 of the Rules of Court; 2. Ordering the defendants, heirs of Juan Galicia, jointly and severally to pay attorney's fees of P6,000.00 and the further sum of P3,000.00 for actual and compensatory damages; 3. Ordering Celerina Labuguin and the other defendants herein to surrender to the Court the owner's duplicate of TCT No. NT-120563, province of Nueva Ecija, for the use of plaintiff in registering the portion, subject matter of the instant suit;

MELO, J.: The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the following terms: 1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged to have been paid upon the execution of this agreement; 2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10) days from and after the execution of this agreement; 3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS' indebtedness with the Philippine Veterans Bank which is hereby assumed by the VENDEE; and 4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be paid within one (1) year from and after the execution of this instrument. (p. 53, Rollo) is the subject matter of the present litigation between the heirs of Juan Galicia, Sr. who assert breach of the conditions as against private respondent's claim anchored on full payment and compliance with the stipulations thereof. The court of origin which tried the suit for specific performance filed by private respondent on account of the herein petitioners' reluctance to abide by the covenant, ruled in favor of the vendee (p. 64, Rollo) while respondent court practically agreed with the trial court except as to the amount to be paid to petitioners and the refund to private respondent are concerned (p. 46, Rollo). There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from

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4. Ordering the withdrawal of the amount of P18,520.00 now consigned with the Court, and the amount of P17,204.75 be delivered to the heirs of Juan Galicia as payment of the balance of the sale of the lot in question, the defendants herein after deducting the amount of attorney's fees and damages awarded to the plaintiff hereof and the delivery to the plaintiff of the further sum of P1,315.25 excess or over payment and, defendants to pay the cost of the suit. (p. 69, Rollo) and following the appeal interposed with respondent court, Justice Dayrit with whom Justices Purisima and Aldecoa, Jr. concurred, modified the fourth paragraph of the decretal portion to read: 4. Ordering the withdrawal of the amount of P18,500.00 now consigned with the Court, and that the amount of P16,870.52 be delivered to the heirs of Juan Galicia, Sr. as payment to the unpaid balance of the sale, including the reimbursement of the amount paid to Philippine Veterans Bank, minus the amount of attorney's fees and damages awarded in favor of plaintiff. The excess of P1,649.48 will be returned to plaintiff. The costs against defendants. (p. 51, Rollo) As to how the foregoing directive was arrived at, the appellate court declared: With respect to the fourth condition stipulated in the contract, the period indicated therein is deemed modified by the parties when the heirs of Juan Galicia, Sr. accepted payments without objection up to November 3, 1979. On the basis of receipts presented by appellee commencing from August 8, 1975 up to November 3, 1979, a total amount of P13,908.25 has been paid, thereby leaving a balance of P13,091.75. Said unpaid balance plus the amount reimbursable to appellant in the amount of P3,778.77 will leave an unpaid total of P16,870.52. Since appellee consigned in court the sum of P18,500.00, he is entitled to get the excess of P1,629.48. Thus, when the heirs of Juan Galicia, Sr. (obligees) accepted the performance, knowing its incompleteness or irregularity and without expressing any protest or objection, the obligation is deemed fully complied with (Article 1235, Civil Code). (p. 50, Rollo) Petitioners are of the impression that the decision appealed from, which agreed with the conclusions of the trial court, is vulnerable to attack via the recourse before Us on the principal supposition that the full consideration of the agreement to sell was not paid by private respondent and, therefore, the contract must be rescinded. The suggestion of petitioners that the covenant must be cancelled in the light of private respondent's so-called breach seems to overlook petitioners' demeanor who, instead of immediately filing the case precisely to rescind the instrument because of noncompliance, allowed private respondent to effect numerous payments posterior to the grace periods provided in the contract. This apathy of petitioners who even permitted private respondent to take the initiative in filing the suit for specific performance against them, is akin to waiver or abandonment of the right to rescind normally conferred by Article 1191 of the Civil Code. As aptly observed by Justice Gutierrez, Jr. inAngeles vs.

Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the Philippines Annotated, Twelfth Ed. [1989], p. 203: . . . We agree with the plaintiffs-appellees that when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have waived, and are now estopped from exercising their alleged right of rescission . . . In Development Bank of the Philippines vs. Sarandi (5 CAR (25) 811; 817-818; cited in 4 Padilla, Civil Code Annotated, Seventh Ed. [1987], pp. 212-213) a similar opinion was expressed to the effect that: In a perfected contract of sale of land under an agreed schedule of payments, while the parties may mutually oblige each other to compel the specific performance of the monthly amortization plan, and upon failure of the buyer to make the payment, the seller has the right to ask for a rescission of the contract under Art. 1191 of the Civil Code, this shall be deemed waived by acceptance of posterior payments. Both the trial and appellate courts were, therefore, correct in sustaining the claim of private respondent anchored on estoppel or waiver by acceptance of delayed payments under Article 1235 of the Civil Code in that: When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting the latter's delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance (p. 27, Memorandum for petitioners; p. 166, Rollo). Indeed, the right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments (4 Caguioa, Comments and Cases on Civil Law, First Ed. [1968] p. 132). By and large, petitioners' actuation is susceptible of but one construction that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent. Now, as to the issue of whether payments had in fact been made, there is no doubt that the second installment was actually paid to the heirs of Juan Galicia, Sr. due to Josefina Tayag's admission in judicio that the sum of P10,000.00 was fully liquidated. It is thus erroneous for petitioners to suppose that "the evidence in the records do not support this conclusion" (p. 18, Memorandum for Petitioners; p. 157, Rollo). A contrario, when the court of origin, as well as the appellate court, emphasized the frank representation along this line of Josefina Tayag before the trial court (TSN, September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p. 50, Rollo; p. 3, Decision in Civil Case No. 681-G, p. 66, Rollo), petitioners chose to remain completely mute even at this stage despite the opportunity accorded to them, for clarification. Consequently, the prejudicial aftermath of Josefina Tayag's spontaneous reaction may no longer be obliterated on the basis of estoppel (Article 1431, Civil Code;Section 4, Rule 129; Section 2(a), Rule 131, Revised Rules on Evidence).

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Insofar as the third item of the contract is concerned, it may be recalled that respondent court applied Article 1186 of the Civil Code on constructive fulfillment which petitioners claim should not have been appreciated because they are the obligees while the proviso in point speaks of the obligor. But, petitioners must concede that in a reciprocal obligation like a contract of purchase, (Ang vs. Court of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at p. 201), both parties are mutually obligors and also obligees (4 Padilla, supra, at p. 197), and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees under the contract since they are also bound as obligors to respect the stipulation in permitting private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as determined hereafter. Lastly, petitioners argue that there was no valid tender of payment nor consignation of the sum of P18,520.00 which they acknowledge to have been deposited in court on January 22, 1981 five years after the amount of P27,000.00 had to be paid (p. 23, Memorandum for Petitioners; p. 162, Rollo). Again this suggestion ignores the fact that consignation alone produced the effect of payment in the case at bar because it was established below that two or more heirs of Juan Galicia, Sr. claimed the same right to collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in Civil Case No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did not bother to refute the evidence on hand that, aside from the P18,520.00 (not P18,500.00 as computed by respondent court) which was consigned, private respondent also paid the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo). These two figures representing private respondent's payment of the fourth condition amount to P32,428.25, less the P3,778.77 paid by petitioners to the bank, will lead us to the sum of P28,649.48 or a refund of P1,649.48 to private respondent as overpayment of the P27,000.00 balance. WHEREFORE, the petition is hereby DISMISSED and the decision appealed from is hereby AFFIRMED with the slight modification of Paragraph 4 of the dispositive thereof which is thus amended to read: 4. ordering the withdrawal of the sum of P18,520.00 consigned with the Regional Trial Court, and that the amount of P16,870.52 be delivered by private respondent with legal rate of interest until fully paid to the heirs of Juan Galicia, Sr. as balance of the sale including reimbursement of the sum paid to the Philippine Veterans Bank, minus the attorney's fees and damages awarded in favor of private respondent. The excess of P1,649.48 shall be returned to private respondent also with legal interest until fully paid by petitioners. With costs against petitioners. SO ORDERED.

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ARTICLE 1191 Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 144934 January 15, 2004

The following day, Mariano Rivera returned to the office of Atty. Barangan, bringing with him the signed documents. He also brought with him Fidela and her son Oscar del Rosario, so that the latter two may sign the mortgage and the Kasunduan there. Although Fidela intended to sign only the Kasunduan and the Real Estate Mortgage, she inadvertently affixed her signature on all the three documents in the office of Atty. Barangan on the said day, March 10, 1987. Mariano then gave Fidela the amount of P250,000. On October 30, 1987, he also gave Fidela a check for P200,000. In the ensuing months, also, Mariano gave Oscar del Rosario several amounts totaling P67,800 upon the latters demand for the payment of the balance despite Oscars lack of authority to receive payments under the Kasunduan. 13 While Mariano was making payments to Oscar, Fidela entrusted the owners copy of TCT No. T-50.668 (M) to Mariano to guarantee compliance with the Kasunduan. When Mariano unreasonably refused to return the TCT, 14 one of the respondents, Carlos del Rosario, caused the annotation on TCT No. T-50.668 (M) of an Affidavit of Loss of the owners duplicate copy of the title on September 7, 1992. This annotation was offset, however, when Mariano registered the Deed of Absolute Sale on October 13, 1992, and afterwards caused the annotation of an Affidavit of Recovery of Title on October 14, 1992. Thus, TCT No. T-50.668 (M) was cancelled, and in its place was issued TCT No. 158443 (M) in the name of petitioners Adelfa, Cynthia and Jose Rivera.15 Meanwhile, the Riveras, representing themselves to be the new owners of Lot No. 1083-C, were also negotiating with the tenant, Feliciano Nieto, to rid the land of the latters tenurial right. When Nieto refused to relinquish his tenurial right over 9,000 sq. m. of the land, the Riveras offered to give 4,500 sq. m. in exchange for the surrender. Nieto could not resist and he accepted. Subdivision Plan No. Psd-031404-052505 was then made on August 12, 1992. Later, it was inscribed on TCT No. 158443 (M), and Lot No. 1083-C was divided into Lots 1083 C-1 and 1083 C-2.16 To document their agreement with Feliciano Nieto, the Riveras executed a Kasulatan sa Pagtatakwil ng Karapatan sa Pagmamay-ari ng Bahagi ng Isang Lagay na Lupa (Written Abdication of Rights over a Portion of a Parcel of Land)17 on November 16, 1992. Four days later, they registered the document with the Registry of Deeds. Two titles were then issued: TCT No. T-161784 (M) in the name of Nieto, for 4,500 sq. m. of land, and TCT No. T-161785 (M) in the name of petitioners Adelfa, Cynthia and Jose Rivera, over the remaining 10,529 sq. m. of land.18 On February 18, 1993, respondents filed a complaint 19 in the Regional Trial Court of Malolos, asking that theKasunduan be rescinded for failure of the Riveras to comply with its conditions, with damages. They also sought the annulment of the Deed of Absolute Sale on the ground of fraud, the cancellation of TCT No. T-161784 (M) and TCT No. T-161785 (M), and the reconveyance to them of the entire property with TCT No. T50.668 (M) restored.20 Respondents claimed that Fidela never intended to enter into a deed of sale at the time of its execution and that she signed the said deed on the mistaken belief that she was merely signing copies of the Kasunduan. According to respondents, the position where Fidelas name was typed and where she was supposed to sign her name in theKasunduan was roughly in the same location where it was typed in the Deed of Absolute Sale. They argued that given Fidelas advanced age (she was then around 72 at the time)21 and the fact that the documents were stacked one on top of the other at the time of signing, Fidela could have easily and mistakenly presumed that she was merely signing additional

ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA, petitioners, vs. FIDELA DEL ROSARIO (deceased and substituted by her co-respondents), and her children, OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed DEL ROSARIO, respondents. DECISION QUISUMBING, J.: Before us is a petition for review on certiorari of the Court of Appeals decision1, dated November 29, 1999, in CA-G.R. CV No. 60552, which affirmed the judgment2 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 17, in Civil Case No. 151-M-93. The RTC granted respondents complaint for nullity of contract of sale and annulment of the transfer certificates of title issued in favor of petitioners. The facts, as found by the Court of Appeals, are as follows: Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr., Carlos, Juanito and Eloisa, all surnamed Del Rosario, were the registered owners of Lot No. 1083-C, a parcel of land situated at Lolomboy, Bulacan. This lot spanned an area of 15,029 square meters and was covered by TCT No. T-50.668 (M) registered in the Registry of Deeds of Bulacan. On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa, executed a Special Power of Attorney3in favor of their mother and co-respondent, Fidela, authorizing her to sell, lease, mortgage, transfer and convey their rights over Lot No. 1083C.4 Subsequently, Fidela borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the loan, she and Mariano Rivera agreed to execute a deed of real estate mortgage and an agreement to sell the land. Consequently, on March 9, 1987, Mariano went to his lawyer, Atty. Efren Barangan, to have three documents drafted: the Deed of Real Estate Mortgage5, a Kasunduan (Agreement to Sell)6, and a Deed of Absolute Sale.7 The Kasunduan provided that the children of Mariano Rivera, herein petitioners Adelfa, Cynthia and Jose, would purchase Lot No. 1083-C for a consideration of P2,141,622.50. This purchase price was to be paid in three installments: P250,000 upon the signing of the Kasunduan, P750,000 on August 31, 1987, and P1,141,622.50 on December 31, 1987.8 It also provided that the Deed of Absolute Sale would be executed only after the second installment is paid and a postdated check for the last installment is deposited with Fidela.9 As previously stated, however, Mariano had already caused the drafting of the Deed of Absolute Sale. But unlike the Kasunduan, the said deed stipulated a purchase price of only P601,160, and covered a certain Lot No. 1083-A in addition to Lot No. 1083-C.10 This deed, as well as the Kasunduan and the Deed of Real Estate Mortgage11, was signed by Marianos children, petitioners Adelfa, Cynthia and Jose, as buyers and mortgagees, on March 9, 1987. 12

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copies of the Kasunduan.22 They also alleged that petitioners acquired possession of the TCT through fraud and machination. In their defense, petitioners denied the allegations and averred that the Deed of Absolute Sale was validly entered into by both parties. According to petitioners, Fidela del Rosario mortgaged Lot No. 1083-C to their predecessor in interest, Mariano Rivera, on March 9, 1987. But on the following day Fidela decided to sell the lot to petitioners forP2,161,622.50. When Mariano agreed (on the condition that Lot No. 1083-C will be delivered free from all liens and encumbrances), the Kasunduan was consequently drawn up and signed. After that, however, Fidela informed Mariano of the existence of Feliciano Nietos tenancy right over the lot to the extent of 9,000 sq. m. When Mariano continued to want the land, albeit on a much lower price of only P601,160, as he had still to deal with Feliciano Nieto, the parties drafted the Deed of Absolute Sale on March 10, 1987, to supersede the Kasunduan. Petitioners likewise argued that respondents cause of action had been barred by laches or estoppel since more than four years has lapsed from the time the parties executed the Deed of Absolute Sale on March 10, 1987, to the time respondents instituted their complaint on February 18, 1993. Petitioners also filed a counterclaim asking for moral and exemplary damages and the payment of attorneys fees and costs of suit. After trial, the RTC ruled in favor of respondents: WHEREFORE, in the light of all the foregoing, judgment is hereby rendered: 1. Declaring the Deed of Absolute Sale dated March 10, 1987 as null and void; 2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M) both in the names of Adelfa, Cynthia and Jose, all surnamed Rivera; 3. Declaring the plaintiffs to be the legitimate owners of the land covered by TCT No. T161785 (M) and ordering defendant Adelfa, Cynthia, and Jose, all surnamed Rivera, to reconvey the same to the plaintiffs; 4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-161785 (M) and to issue in its place a new certificate of title in the name of the plaintiffs as their names appear in TCT No. T-50.668; 5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto as valid; 6. Ordering the defendant Riveras to pay the plaintiffs solidarily the following amounts: a) P191,246.98 as balance for the 4,500 square-meter portion given to defendant Feliciano Nieto b) P200,000.00 as moral damages c) P50,000.00 as exemplary damages d) P50,000.00 as attorneys fees

e) costs of the suit. 7. Dismissing the counterclaim of the defendant Riveras; 8. Dismissing the counterclaim and the crossclaim of defendant Feliciano Nieto. SO ORDERED.23 The trial court ruled that Fidelas signature in the Deed of Absolute Sale was genuine, but found that Fidela never intended to sign the said deed. Noting the peculiar differences between the Kasunduan and the Deed of Absolute Sale, the trial court concluded that the Riveras were guilty of fraud in securing the execution of the deed and its registration in the Registry of Deeds.24 This notwithstanding, the trial court sustained the validity of TCT No. T-161784 (M) in the name of Feliciano Nieto since there was no fraud proven on Nietos part. The trial court found him to have relied in good faith on the representations of ownership of Mariano Rivera. Thus, Nietos rights, according to the trial court, were akin to those of an innocent purchaser for value.25 On the foregoing, the trial court rescinded the Kasunduan but ruled that the P450,000 paid by petitioners be retained by respondents as payment for the 4,500 sq. m. portion of Lot No. 1083-C that petitioners gave to Nieto.26 The trial court likewise ordered petitioners to pay P191,246.98 as balance for the price of the land given to Nieto, P200,000 as moral damages, P50,000 as exemplary damages, P50,000 as attorneys fees, and the costs of suit.27 On appeal to the Court of Appeals, the trial courts judgment was modified as follows: WHEREFORE, the judgment appealed from is hereby AFFIRMED with the MODIFICATION that the Deed of Absolute Sale dated March 10, 1987 is declared null and void only insofar as Lot No. 1083-C is concerned, but valid insofar as it conveyed Lot No. 1083-A, that TCT No. 158443 (M) is valid insofar as Lot No. 1083-A is concerned and should not be annulled, and increasing the amount to be paid by the defendants-appellants to the plaintiffs-appellees for the 4,500 square meters of land given to Feliciano Nieto toP323,617.50. Costs against the defendants-appellants. SO ORDERED.28 Petitioners motion for reconsideration was denied. Hence, this petition. While this petition was pending, respondent Fidela del Rosario died. She was substituted by her children, herein respondents. In this petition, petitioners rely on the following grounds: I THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS, GRAVE AND REVERSIBLE ERROR IN AWARDING LOT 1083-A IN FAVOR OF THE PETITIONERS AND FELICIANO NIETO WHICH IS ADMITTEDLY A PART AND PORTION OF THE EXISTING NORTH LUZON EXPRESSWAY AND AS SUCH ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION, OR WITH GRAVE ABUSE

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OF JUDICIAL DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION. II RESPONDENTS FAILED TO PAY THE CORRECT DOCKET, FILING AND OTHER LAWFUL FEES WITH THE OFFICE OF THE CLERK OF COURT OF THE COURT A QUO (RTC, MALOLOS, BULACAN) AT THE TIME OF THE FILING OF THE ORIGINAL COMPLAINT IN 1993 PURSUANT TO THE SIOL29 DOCTRINE. III [THE] TRIAL COURT AWARDED RELIEFS NOT SPECIFICALLY PRAYED FOR IN THE AMENDED COMPLAINT WITHOUT REQUIRING THE PAYMENT OF THE CORRECT DOCKET, FILING AND OTHER LAWFUL FEES. IV THE COURT A QUO HAS NO JURISDICTION OVER THE RESPONDENTS CAUSE OF ACTION AND OVER THE RES CONSIDERING THAT FELICIANO NIETO IS AN AGRICULTURAL TENANT OF THE RICELAND IN QUESTION. V RESPONDENTS[] MAIN CAUSE OF ACTION [IS] FOR RESCISSION OF CONTRACT WHICH IS SUBSIDIARY IN NATURE[,] AND ANNULMENT OF SALE[,] BOTH OF WHICH HAVE ALREADY PRESCRIBED UNDER ARTICLES 1389 AND 1391 OF THE CIVIL CODE.30 Petitioners assignment of errors may be reduced into three issues: (1) Did the trial court acquire jurisdiction over the case, despite an alleged deficiency in the amount of filing fees paid by respondents and despite the fact that an agricultural tenant is involved in the case? (2) Did the Court of Appeals correctly rule that the Deed of Absolute Sale is valid insofar as Lot 1083-A is concerned? (3) Is the respondents cause of action barred by prescription? On the first issue, petitioners contend that jurisdiction was not validly acquired because the filing fees respondents paid was only P1,554.45 when the relief sought was reconveyance of land that was worth P2,141,622.50 under the Kasunduan. They contend that respondents should have paid filing fees amounting to P12,183.70. In support of their argument, petitioners invoke the doctrine in Sun Insurance Office, Ltd., (SIOL) v. Asuncion 31 and attach a certification32 from the Clerk of Court of the RTC of Quezon City. Respondents counter that it is beyond dispute that they paid the correct amount of docket fees when they filed the complaint. If the assessment was inadequate, they could not be faulted because the clerk of court made no notice of demand or reassessment, respondents argue. Respondents also add that since petitioners failed to contest the alleged underpayment of docket fees in the lower court, they cannot raise the same on appeal.33 We rule in favor of respondents. Jurisdiction was validly acquired over the complaint. In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,34 this Court ruled that the filing of the complaint or appropriate initiatory pleading and the payment of the prescribed docket fee vest a trial court with jurisdiction over the subject matter or nature of the action. If the amount of docket fees paid is

insufficient considering the amount of the claim, the clerk of court of the lower court involved or his duly authorized deputy has the responsibility of making a deficiency assessment. The party filing the case will be required to pay the deficiency, but jurisdiction is not automatically lost. Here it is beyond dispute that respondents paid the full amount of docket fees as assessed by the Clerk of Court of the Regional Trial Court of Malolos, Bulacan, Branch 17, where they filed the complaint. If petitioners believed that the assessment was incorrect, they should have questioned it before the trial court. Instead, petitioners belatedly question the alleged underpayment of docket fees through this petition, attempting to support their position with the opinion and certification of the Clerk of Court of another judicial region. Needless to state, such certification has no bearing on the instant case. Petitioners also contend that the trial court does not have jurisdiction over the case because it involves an agricultural tenant. They insist that by virtue of Presidential Decree Nos. 316 and 1038,35 it is the Department of Agrarian Reform Adjudication Board (DARAB) that has jurisdiction.36 Petitioners contention lacks merit. The DARAB has exclusive original jurisdiction over cases involving the rights and obligations of persons engaged in the management, cultivation and use of all agricultural lands covered by the Comprehensive Agrarian Reform Law.37 However, the cause of action in this case is primarily against the petitioners, as indispensable parties, for rescission of the Kasunduan and nullification of the Deed of Sale and the TCTs issued because of them. Feliciano Nieto was impleaded merely as a necessary party, stemming from whatever rights he may have acquired by virtue of the agreement between him and the Riveras and the corresponding TCT issued. Hence, it is the regular judicial courts that have jurisdiction over the case. On the second issue, contrary to the ruling of the Court of Appeals that the Deed of Absolute Sale is void only insofar as it covers Lot No. 1083-C, we find that the said deed is void in its entirety. Noteworthy is that during the oral arguments before the Court of Appeals, both petitioners and respondents admitted that Lot No. 1083-A had been expropriated by the government long before the Deed of Absolute Sale was entered into.38 Whats more, this case involves only Lot No. 1083-C. It never involved Lot 1083-A. Thus, the Court of Appeals had no jurisdiction to adjudicate on Lot 1083-A, as it was never touched upon in the pleadings or made the subject of evidence at trial.39 As to the third issue, petitioners cite Articles 1383,40 138941 and 139142 of the New Civil Code. They submit that the complaint for rescission of the Kasunduan should have been dismissed, for respondents failure to prove that there was no other legal means available to obtain reparation other than to file a case for rescission, as required by Article 1383. Moreover, petitioners contend that even assuming respondents had satisfied this requirement, prescription had already set in, the complaint having been filed in 1992 or five years after the execution of the Deed of Absolute Sale in March 10, 1987. Respondents counter that Article 1383 of the New Civil Code applies only to rescissible contracts enumerated under Article 1381 of the same Code, while the cause of action in this case is for rescission of a reciprocal obligation, to which Article 119143 of the Code applies. They assert that their cause of action had not prescribed because the four-year prescriptive period is counted from the date of discovery of the fraud, which, in this case, was only in 1992. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383 of the same Code. Both presuppose

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contracts validly entered into as well as subsisting, and both require mutual restitution when proper, nevertheless they are not entirely identical.44 In countless times there has been confusion between rescission under Articles 1381 and 1191 of the Civil Code. Through this case we again emphasize that rescission of reciprocal obligations under Article 1191 is different from rescissible contracts under Chapter 6 of the law on contracts under the Civil Code. 45 While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution.46 Resolution is a principal action that is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code,47which expressly enumerates the following rescissible contracts: ART. 1381. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. Obviously, the Kasunduan does not fall under any of those situations mentioned in Article 1381. Consequently, Article 1383 is inapplicable. Hence, we rule in favor of the respondents. May the contract entered into between the parties, however, be rescinded based on Article 1191? A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. 48 In a contract to sell, the payment of the purchase price is a positive suspensive condition,49 the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. 50 Respondents in this case bound themselves to deliver a deed of absolute sale and clean title covering Lot No. 1083-C after petitioners have made the second installment. This promise to sell was subject to the fulfillment of the suspensive condition that petitioners pay P750,000 on August 31, 1987, and deposit a postdated check for the third installment of P1,141,622.50.51 Petitioners, however, failed to complete payment of the second installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to

comply with an obligation already extant, not a failure of a condition to render binding that obligation. 52 Failure to pay, in this instance, is not even a breach but an event that prevents the vendors obligation to convey title from acquiring binding force.53 Hence, the agreement of the parties in the instant case may be set aside, but not because of a breach on the part of petitioners for failure to complete payment of the second installment. Rather, their failure to do so prevented the obligation of respondents to convey title from acquiring an obligatory force.54 Coming now to the matter of prescription. Contrary to petitioners assertion, we find that prescription has not yet set in. Article 1391 states that the action for annulment of void contracts shall be brought within four years. This period shall begin from the time the fraud or mistake is discovered. Here, the fraud was discovered in 1992 and the complaint filed in 1993. Thus, the case is well within the prescriptive period. On the matter of damages, the Court of Appeals awarded respondents P323,617.50 as actual damages for the loss of the land that was given to Nieto, P200,000 as moral damages, P50,000 as exemplary damages, P50,000 as attorneys fees and the costs of suit. Modifications are in order, however. Moral damages may be recovered in cases where one willfully causes injury to property, or in cases of breach of contract where the other party acts fraudulently or in bad faith. 55 Exemplary damages are imposed by way of example or correction for the public good,56 when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner.57 Attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest.58 While it has been sufficiently proven that the respondents are entitled to damages, the actual amounts awarded by the lower court must be reduced because damages are not intended for a litigants enrichment, at the expense of the petitioners. 59 The purpose for the award of damages other than actual damages would be served, in this case, by reducing the amounts awarded. Respondents were amply compensated through the award of actual damages, which should be sustained. The other damages awarded total P300,000, or almost equivalent to the amount of actual damages. Practically this will double the amount of actual damages awarded to respondents. To avoid breaching the doctrine on enrichment, award for damages other than actual should be reduced. Thus, the amount of moral damages should be set at only P30,000, and the award of exemplary damages at only P20,000. The award of attorneys fees should also be reduced to P20,000, which under the circumstances of this case appears justified and reasonable. WHEREFORE, the assailed decision of the Court of Appeals is MODIFIED. The Deed of Absolute Sale in question is declared NULL and VOID in its entirety. Petitioners are ORDERED to pay respondents P323,617.50 as actual damages, P30,000.00 as moral damages, P20,000.00 as exemplary damages and P20,000.00 as attorneys fees. No pronouncement as to costs. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 139523 May 26, 2005

A Deed of Sale with Assumption of Mortgage Obligation 10 dated 20 August 1990 was made and entered into by and between spouses Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe Cannu (vendees) over the house and lot in question which contains, inter alia, the following: NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine Currency, receipt of which is hereby acknowledged by the Vendors and the assumption of the mortgage obligation, the Vendors hereby sell, cede and transfer unto the Vendees, their heirs, assigns and successor in interest the abovedescribed property together with the existing improvement thereon. It is a special condition of this contract that the Vendees shall assume and continue with the payment of the amortization with the National Home Mortgage Finance Corporation Inc. in the outstanding balance ofP_______________, as of __________ and shall comply with and abide by the terms and conditions of the mortgage document dated Feb. 27, 1989 and identified as Doc. No. 82, Page 18, Book VII, S. of 1989 of Notary Public for Quezon City Marites Sto. Tomas Alonzo, as if the Vendees are the original signatories. Petitioners immediately took possession and occupied the house and lot. Petitioners made the following payments to the NHMFC: Date July 9, 1990 March 12, 1991 February 4, 1992 March 31, 1993 April 19, 1993 April 27, 1993

SPS. FELIPE AND LETICIA CANNU, petitioners, vs. SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION,respondents. DECISION CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari which seeks to set aside the decision1 of the Court of Appeals dated 30 September 1998 which affirmed with modification the decision of Branch 135 of the Regional Trial Court (RTC) of Makati City, dismissing the complaint for Specific Performance and Damages filed by petitioners, and its Resolution 2 dated 22 July 1999 denying petitioners motion for reconsideration. A complaint3 for Specific Performance and Damages was filed by petitioners-spouses Felipe and Leticia Cannu against respondentsspouses Gil and Fernandina Galang and the National Home Mortgage Finance Corporation (NHMFC) before Branch 135 of the RTC of Makati, on 24 June 1993. The case was docketed as Civil Case No. 93-2069. The facts that gave rise to the aforesaid complaint are as follows: Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association forP173,800.00 to purchase a house and lot located at Pulang Lupa, Las Pias, with an area of 150 square meters covered by Transfer Certificate of Title (TCT) No. T-8505 in the names of respondents-spouses. To secure payment, a real estate mortgage was constituted on the said house and lot in favor of Fortune Savings & Loan Association. In early 1990, NHMFC purchased the mortgage loan of respondentsspouses from Fortune Savings & Loan Association for P173,800.00. Respondent Fernandina Galang authorized4 her attorney-in-fact, Adelina R. Timbang, to sell the subject house and lot. Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty5 (the Developer of the property). Of the P120,000.00, the following payments were made by petitioners: Date July 19, 1990 March 13, 1991 April 6, 1991 November 28, 1991 Total Thus, leaving a balance of P45,000.00. Amount Paid P40,000.006 15,000.007 15,000.008 5,000.009 P75,000.00

Amount P 14,312.47 D-503 8,000.00 D-729 10,000.00 D-999 6,000.00 E-563 10,000.00 E-582 7,000.00 E-618 P 55,312.47

Petitioners paid the "equity" or second mortgage to CERF Realty.17 Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so. In a letter18 dated 29 March 1993, petitioner Leticia Cannu informed Mr. Fermin T. Arzaga, Vice President, Fund Management Group of the NHMFC, that the ownership rights over the land covered by TCT No. T-8505 in the names of respondents-spouses had been ceded and transferred to her and her husband per Deed of Sale with Assumption of Mortgage, and that they were obligated to assume the mortgage and pay the remaining unpaid loan balance. Petitioners formal assumption of mortgage was not approved by the NHMFC.19 Because the Cannus failed to fully comply with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233,957.64 as full payment of her remaining mortgage loan with NHMFC.20 Petitioners opposed the release of TCT No. T-8505 in favor of respondents-spouses insisting that the subject property had already been sold to them. Consequently, the NHMFC held in abeyance the release of said TCT.

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Thereupon, a Complaint for Specific Performance and Damages was filed asking, among other things, that petitioners (plaintiffs therein) be declared the owners of the property involved subject to reimbursements of the amount made by respondents-spouses (defendants therein) in preterminating the mortgage loan with NHMFC. Respondent NHMFC filed its Answer.21 It claimed that petitioners have no cause of action against it because they have not submitted the formal requirements to be considered assignees and successors-in-interest of the property under litigation. In their Answer,22 respondents-spouses alleged that because of petitioners-spouses failure to fully pay the consideration and to update the monthly amortizations with the NHMFC, they paid in full the existing obligations with NHMFC as an initial step in the rescission and annulment of the Deed of Sale with Assumption of Mortgage. In their counterclaim, they maintain that the acts of petitioners in not fully complying with their obligations give rise to rescission of the Deed of Sale with Assumption of Mortgage with the corresponding damages. After trial, the lower court rendered its decision ratiocinating: On the basis of the evidence on record, testimonial and documentary, this Court is of the view that plaintiffs have no cause of action either against the spouses Galang or the NHMFC. Plaintiffs have admitted on record they failed to pay the amount of P45,000.00 the balance due to the Galangs in consideration of the Deed of Sale With Assumption of Mortgage Obligation (Exhs. "C" and "3"). Consequently, this is a breach of contract and evidently a failure to comply with obligation arising from contracts. . . In this case, NHMFC has not been duly informed due to lack of formal requirements to acknowledge plaintiffs as legal assignees, or legitimate tranferees and, therefore, successors-in-interest to the property, plaintiffs should have no legal personality to claim any right to the same property.23 The decretal portion of the decision reads: Premises considered, the foregoing complaint has not been proven even by preponderance of evidence, and, as such, plaintiffs have no cause of action against the defendants herein. The above-entitled case is ordered dismissed for lack of merit. Judgment is hereby rendered by way of counterclaim, in favor of defendants and against plaintiffs, to wit: 1. Ordering the Deed of Sale With Assumption of Mortgage Obligation (Exhs. "C" and "3") rescinded and hereby declared the same as nullified without prejudice for defendants-spouses Galang to return the partial payments made by plaintiffs; and the plaintiffs are ordered, on the other hand, to return the physical and legal possession of the subject property to spouses Galang by way of mutual restitution; 2. To pay defendants spouses Galang and NHMFC, each the amount of P10,000.00 as litigation expenses, jointly and severally; 3. To pay attorneys fees to defendants in the amount of P20,000.00, jointly and severally; and 4. The costs of suit.

5. No moral and exemplary damages awarded.24 A Motion for Reconsideration25 was filed, but same was denied. Petitioners appealed the decision of the RTC to the Court of Appeals. On 30 September 1998, the Court of Appeals disposed of the appeal as follows: Obligations arising from contract have the force of law between the contracting parties and should be complied in good faith. The terms of a written contract are binding on the parties thereto. Plaintiffs-appellants therefore are under obligation to pay defendants-appellees spouses Galang the sum of P250,000.00, and to assume the mortgage. Records show that upon the execution of the Contract of Sale or on July 19, 1990 plaintiffs-appellants paid defendants-appellees spouses Galang the amount of only P40,000.00. The next payment was made by plaintiffs-appellants on March 13, 1991 or eight (8) months after the execution of the contract. Plaintiffs-appellants paid the amount of P5,000.00. The next payment was made on April 6, 1991 for P15,000.00 and on November 28, 1991, for another P15,000.00. From 1991 until the present, no other payments were made by plaintiffs-appellants to defendants-appellees spouses Galang. Out of the P250,000.00 purchase price which was supposed to be paid on the day of the execution of contract in July, 1990 plaintiffs-appellants have paid, in the span of eight (8) years, from 1990 to present, the amount of only P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the time of the execution of contract in 1990. Eight (8) years have already lapsed and plaintiffs-appellants have not yet complied with their obligation. We consider this breach to be substantial. The tender made by plaintiffs-appellants after the filing of this case, of the Managerial Check in the amount of P278,957.00 dated January 24, 1994 cannot be considered as an effective mode of payment. Performance or payment may be effected not by tender of payment alone but by both tender and consignation. It is consignation which is essential in order to extinguish plaintiffs-appellants obligation to pay the balance of the purchase price. In addition, plaintiffs-appellants failed to comply with their obligation to pay the monthly amortizations due on the mortgage. In the span of three (3) years from 1990 to 1993, plaintiffs-appellants made only six payments. The payments made by plaintiffs-appellants are not even sufficient to answer for the arrearages, interests and penalty charges. On account of these circumstances, the rescission of the Contract of Sale is warranted and justified.

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... WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification. Defendants-appellees spouses Galang are hereby ordered to return the partial payments made by plaintiffappellants in the amount of P135,000.00. No pronouncement as to cost.26 The motion for reconsideration27 filed by petitioners was denied by the Court of Appeals in a Resolution 28 dated 22 July 1999. Hence, this Petition for Certiorari. Petitioners raise the following assignment of errors: 1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT PETITIONERS BREACH OF THE OBLIGATION WAS SUBSTANTIAL. 2. THE HONORABLE COURT OF APPEALS ERRED WHEN IN EFFECT IT HELD THAT THERE WAS NO SUBSTANTIAL COMPLIANCE WITH THE OBLIGATION TO PAY THE MONTHLY AMORTIZATION WITH NHMFC. 3. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THE OTHER FACTS AND CIRCUMSTANCES THAT MILITATE AGAINST RESCISSION. 4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THAT THE ACTION FOR RESCISSION IS SUBSIDIARY.29 Before discussing the errors allegedly committed by the Court of Appeals, it must be stated a priori that the latter made a misappreciation of evidence regarding the consideration of the property in litigation when it relied solely on the Deed of Sale with Assumption of Mortgage executed by the respondentsspouses Galang and petitioners-spouses Cannu. As above-quoted, the consideration for the house and lot stated in the Deed of Sale with Assumption of Mortgage is P250,000.00, plus the assumption of the balance of the mortgage loan with NHMFC. However, after going over the record of the case, more particularly the Answer of respondents-spouses, the evidence shows the consideration therefor is P120,000.00, plus the payment of the outstanding loan mortgage with NHMFC, and of the "equity" or second mortgage with CERF Realty (Developer of the property).30 Nowhere in the complaint and answer of the petitioners-spouses Cannu and respondents-spouses Galang shows that the consideration is "P250,000.00." In fact, what is clear is that of the P120,000.00 to be paid to the latter, only P75,000.00 was paid to Adelina Timbang, the spouses Galangs attorney-in-fact. This debunks the provision in the Deed of Sale with Assumption of Mortgage that the amount of P250,000.00 has been received by petitioners. Inasmuch as the Deed of Sale with Assumption of Mortgage failed to express the true intent and agreement of the parties regarding its consideration, the same should not be fully relied upon. The foregoing facts lead us to hold that the case on hand falls within one of the recognized exceptions to the parole evidence rule. Under the Rules of Court, a party may present evidence to modify, explain or add to the terms of the written

agreement if he puts in issue in his pleading, among others, its failure to express the true intent and agreement of the parties thereto.31 In the case at bar, when respondents-spouses enumerated in their Answer the terms and conditions for the sale of the property under litigation, which is different from that stated in the Deed of Sale with Assumption with Mortgage, they already put in issue the matter of consideration. Since there is a difference as to what the true consideration is, this Court has admitted evidence aliunde to explain such inconsistency. Thus, the Court has looked into the pleadings and testimonies of the parties to thresh out the discrepancy and to clarify the intent of the parties. As regards the computation32 of petitioners as to the breakdown of the P250,000.00 consideration, we find the same to be selfserving and unsupported by evidence. On the first assigned error, petitioners argue that the Court erred when it ruled that their breach of the obligation was substantial. Settled is the rule that rescission or, more accurately, resolution,33 of a party to an obligation under Article 1191 34is predicated on a breach of faith by the other party that violates the reciprocity between them.35 Article 1191 reads: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement.36The question of whether a breach of contract is substantial depends upon the attending circumstances37 and not merely on the percentage of the amount not paid. In the case at bar, we find petitioners failure to pay the remaining balance of P45,000.00 to be substantial. Even assuming arguendo that only said amount was left out of the supposed consideration of P250,000.00, or eighteen (18%) percent thereof, this percentage is still substantial. Taken together with the fact that the last payment made was on 28 November 1991, eighteen months before the respondent Fernandina Galang paid the outstanding balance of the mortgage loan with NHMFC, the intention of petitioners to renege on their obligation is utterly clear. Citing Massive Construction, Inc. v. Intermediate Appellate Court,38 petitioners ask that they be granted additional time to complete their obligation. Under the facts of the case, to give petitioners additional time to comply with their obligation will be putting premium on their blatant non-compliance of their obligation. They had all the time to do what was required of them (i.e., pay the P45,000.00 balance and to properly assume the mortgage loan with the NHMFC), but still they failed to comply. Despite demands for them to pay the balance, no payments were made.39

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The fact that petitioners tendered a Managers Check to respondents-spouses Galang in the amount of P278,957.00 seven months after the filing of this case is of no moment. Tender of payment does not by itself produce legal payment, unless it is completed by consignation.40 Their failure to fulfill their obligation gave the respondents-spouses Galang the right to rescission. Anent the second assigned error, we find that petitioners were not religious in paying the amortization with the NHMFC. As admitted by them, in the span of three years from 1990 to 1993, their payments covered only thirty months. 41 This, indeed, constitutes another breach or violation of the Deed of Sale with Assumption of Mortgage. On top of this, there was no formal assumption of the mortgage obligation with NHMFC because of the lack of approval by the NHMFC42 on account of petitioners non-submission of requirements in order to be considered as assignees/successors-in-interest over the property covered by the mortgage obligation.43 On the third assigned error, petitioners claim there was no clear evidence to show that respondents-spouses Galang demanded from them a strict and/or faithful compliance of the Deed of Sale with Assumption of Mortgage. We do not agree. There is sufficient evidence showing that demands were made from petitioners to comply with their obligation. Adelina R. Timbang, attorney-in-fact of respondents-spouses, per instruction of respondent Fernandina Galang, made constant follow-ups after the last payment made on 28 November 1991, but petitioners did not pay.44Respondent Fernandina Galang stated in her Answer45 that upon her arrival from America in October 1992, she demanded from petitioners the complete compliance of their obligation by paying the full amount of the consideration (P120,000.00) or in the alternative to vacate the property in question, but still, petitioners refused to fulfill their obligations under the Deed of Sale with Assumption of Mortgage. Sometime in March 1993, due to the fact that full payment has not been paid and that the monthly amortizations with the NHMFC have not been fully updated, she made her intentions clear with petitioner Leticia Cannu that she will rescind or annul the Deed of Sale with Assumption of Mortgage. We likewise rule that there was no waiver on the part of petitioners to demand the rescission of the Deed of Sale with Assumption of Mortgage. The fact that respondents-spouses accepted, through their attorney-in-fact, payments in installments does not constitute waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage. Adelina Timbang merely accepted the installment payments as an accommodation to petitioners since they kept on promising they would pay. However, after the lapse of considerable time (18 months from last payment) and the purchase price was not yet fully paid, respondents-spouses exercised their right of rescission when they paid the outstanding balance of the mortgage loan with NHMFC. It was only after petitioners stopped paying that respondents-spouses moved to exercise their right of rescission. Petitioners cite the case of Angeles v. Calasanz46 to support their claim that respondents-spouses waived their right to rescind. We cannot apply this case since it is not on all fours with the case before us. First, in Angeles, the breach was only slight and casual which is not true in the case before us. Second, in Angeles, the buyer had already paid more than the principal obligation, while in the instant case, the buyers (petitioners) did not pay P45,000.00 of the P120,000.00 they were obligated to pay. We find petitioners statement that there is no evidence of prejudice or damage to justify rescission in favor of respondents-

spouses to be unfounded. The damage suffered by respondentsspouses is the effect of petitioners failure to fully comply with their obligation, that is, their failure to pay the remaining P45,000.00 and to update the amortizations on the mortgage loan with the NHMFC. Petitioners have in their possession the property under litigation. Having parted with their house and lot, respondents-spouses should be fully compensated for it, not only monetarily, but also as to the terms and conditions agreed upon by the parties. This did not happen in the case before us. Citing Seva v. Berwin & Co., Inc.,47 petitioners argue that no rescission should be decreed because there is no evidence on record that respondent Fernandina Galang is ready, willing and able to comply with her own obligation to restore to them the total payments they made. They added that no allegation to that effect is contained in respondents-spouses Answer. We find this argument to be misleading. First, the facts obtaining in Seva case do not fall squarely with the case on hand. In the former, the failure of one party to perform his obligation was the fault of the other party, while in the case on hand, failure on the part of petitioners to perform their obligation was due to their own fault. Second, what is stated in the book of Justice Edgardo L. Paras is "[i]t (referring to the right to rescind or resolve) can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation, and the other is not." In other words, if one party has complied or fulfilled his obligation, and the other has not, then the former can exercise his right to rescind. In this case, respondents-spouses complied with their obligation when they gave the possession of the property in question to petitioners. Thus, they have the right to ask for the rescission of the Deed of Sale with Assumption of Mortgage. On the fourth assigned error, petitioners, relying on Article 1383 of the Civil Code, maintain that the Court of Appeals erred when it failed to consider that the action for rescission is subsidiary. Their reliance on Article 1383 is misplaced. The subsidiary character of the action for rescission applies to contracts enumerated in Articles 138148 of the Civil Code. The contract involved in the case before us is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191. In the concurring opinion of Justice Jose B.L. Reyes in Universal Food Corp. v. Court of Appeals,49 rescission under Article 1191 was distinguished from rescission under Article 1381. Justice J.B.L. Reyes said: . . . The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary.

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On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison d tre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191. From the foregoing, it is clear that rescission ("resolution" in the Old Civil Code) under Article 1191 is a principal action, while rescission under Article 1383 is a subsidiary action. The former is based on breach by the other party that violates the reciprocity between the parties, while the latter is not. In the case at bar, the reciprocity between the parties was violated when petitioners failed to fully pay the balance of P45,000.00 to respondents-spouses and their failure to update their amortizations with the NHMFC. Petitioners maintain that inasmuch as respondents-spouses Galang were not granted the right to unilaterally rescind the sale under the Deed of Sale with Assumption of Mortgage, they should have first asked the court for the rescission thereof before they fully paid the outstanding balance of the mortgage loan with the NHMFC. They claim that such payment is a unilateral act of rescission which violates existing jurisprudence. In Tan v. Court of Appeals,50 this court said: . . . [T]he power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him is clear from a reading of the Civil Code provisions. However, it is equally settled that, in the absence of a stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a partys own judgment that the other has committed a breach of the obligation. Where there is nothing in the contract empowering the petitioner to rescind it without resort to the courts, the petitioners action in unilaterally terminating the contract in this case is unjustified. It is evident that the contract under consideration does not contain a provision authorizing its extrajudicial rescission in case one of the parties fails to comply with what is incumbent upon him. This being the case, respondents-spouses should have asked for judicial intervention to obtain a judicial declaration of rescission. Be that as it may, and considering that respondents-spouses Answer (with affirmative defenses) with Counterclaim seeks for the rescission of the Deed of Sale with Assumption of Mortgage, it behooves the court to settle the matter once and for all than to have the case re-litigated again on an issue already heard on the merits and which this court has already taken cognizance of. Having found that petitioners seriously breached the contract, we, therefore, declare the same is rescinded in favor of respondentsspouses. As a consequence of the rescission or, more accurately, resolution of the Deed of Sale with Assumption of Mortgage, it is the duty of the court to require the parties to surrender whatever they may have received from the other. The parties should be restored to their original situation.51 The record shows petitioners paid respondents-spouses the amount of P75,000.00 out of the P120,000.00 agreed upon. They also made payments to NHMFC amounting to P55,312.47. As to

the petitioners alleged payment to CERF Realty of P46,616.70, except for petitioner Leticia Cannus bare allegation, we find the same not to be supported by competent evidence. As a general rule, one who pleads payment has the burden of proving it.52 However, since it has been admitted in respondents-spouses Answer that petitioners shall assume the second mortgage with CERF Realty in the amount of P35,000.00, and that Adelina Timbang, respondents-spouses very own witness, testified53 that same has been paid, it is but proper to return this amount to petitioners. The three amounts total P165,312.47 -- the sum to be returned to petitioners. WHEREFORE, premises considered, the decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION. Spouses Gil and Fernandina Galang are hereby ordered to return the partial payments made by petitioners in the amount of P165,312.47. With costs. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 133208 July 31, 2006

On November 18, 1983, petitioners applied for a re-structuring of the mortgage loan with the DBP for a period of ten years, allegedly with the conformity of respondents. The bank approved the loan re-structuring.8 Under the new scheme, the loan was to be paid with a semi-annual amortization of P8,634.15 beginning May 21, 1984 for five years. Thereafter, the loan shall be paid with a semi-annual amortization of P4,904.60 starting on the 6th to the 10th year.9 On October 1, 1984, petitioners went to DBP to pay for the amortization but they found out that respondents had paid the bank P72,703.06. Petitioners offered to return to respondents the said sum but the latter refused to accept the offer. Instead, respondents told petitioners that they would return whatever they have paid for the land, and threatened to withdraw the certificate of title of the land from the bank. The manager of the bank accepted the money tendered by respondents as "deposit" and gave the parties time to settle the matter on their own, but to no avail. On October 9, 1984, petitioners filed with the trial court for Specific Performance with Preliminary Injunction and Damages. On October 12, 1984, the trial court restrained the respondents from withdrawing the certificate of title and the Release of Mortgage. The bank was also enjoined from releasing the title to respondents. On even date, respondents withdrew the amount of P72,703.06 which they had paid to the bank. Meanwhile, during the pendency of the case, petitioners made the following payments to DBP in full settlement of the loan: P30,000.00 on November 29, 1984; P50,000.00 on April 30, 1986; and P5,118.42 on May 2, 1986, or a total of around P108,216.00. The DBP then deposited the Release of Mortgage to the Clerk of Court. Respondent spouses alleged that petitioners agreed to pay them P35,000.00, not P25,000.00. They further alleged that petitioners agreed to assume in full the then remaining mortgage loan with DBP and to withdraw the certificate of title of the land not later than December 31, 1983. Respondents allegedly set this period because they needed the title to claim the area taken by the NIA for an irrigation canal. However, petitioners defaulted to pay the bank within the period agreed upon and re-structured the loan without their consent. Upon learning of petitioners re-structuring the loan, respondents decided to revoke the sale, sold a portion of Lot No. 2080 and tendered P72,703.06 from its proceeds to DBP on October 1, 1984 in full settlement of the loan. Respondents-Intervenors Benjamin Aquino and Virginia Aquino are the siblings of respondent Aquino and intervened as coowners of Lot No. 2080. An amicable settlement10 was entered into between respondent Aquino and the intervenors on March 2, 1985. The trial court issued an Order dated March 11, 1986 stating the following material parts of the stipulations of the parties during the pre-trial conference: STIPULATIONS OF FACTS

LAURENCIO C. RAMEL, SOCORRO B. RAMEL and RENE LEMAR B. RAMEL, petitioners, vs. DANIEL AQUINO and GUADALUPE ABALAHIN, respondents. BENJAMIN AQUINO and VIRGINIA AQUINO, respondents-Intervenors. DECISION PUNO, J.: At bar is a Petition for Review on Certiorari of the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 28654 dated April 16, 1997 and March 25, 1998, respectively, affirming the decision of the Regional Trial Court of Santiago, Isabela, Branch 21, in Civil Case No. 0302. The instant case originated from a suit filed by petitioners Laurencio C. Ramel, Socorro B. Ramel and Rene Lemar B. Ramel against respondent Daniel Aquino, married to respondent Guadalupe Abalahin, for Specific Performance with Preliminary Injunction and Damages. Daniel Aquino is the registered owner of Lot No. 2080, a 14.1825-hectare land situated in Tanggal, Cordon, Isabela under Transfer Certificate of Title (TCT) No. T-36937. On October 21, 1975, Aquino mortgaged the property to the Development Bank of the Philippines (DBP), Ilagan Branch, Ilagan, Isabela for P50,000.00. In 1983, the property was in danger of being foreclosed as respondents had no means to pay for the loan. Thus, on August 7, 1983, they offered to sell to petitioners 8.2030 hectares of the mortgaged property. Petitioners agreed to purchase the property but the agreement was not reduced into writing. Petitioners were to buy the 8.2030 hectares at P13,500.00 per hectare or at a total sum of around P110,700.00. Petitioners would assume the remaining mortgage obligation of respondents with DBP as of July 31, 1983 in the amount ofP85,543.00 and the balance of about P25,000.00 shall be paid to respondents on installment. 1 On the same day that the offer was made and accepted, petitioners gave respondents an earnest money ofP5,000.00.2 Further additional partial payments were made on September 7, 1983 in the sum of P15,000.003 andP4,800.004 on February 12, 1984. All three payments were duly receipted by respondents. Petitioners also made the following payments to DBP:5 P10,000.00 on September 7, 1983; P3,097.00 on November 18, 1983; and, P10,000.00 on April 2, 1984, for a total of P23,097.00. Respondents also sold to petitioners 2,484 square meters of the southern portion of the mortgaged property forP2,700.00. Petitioners paid the full amount on September 7, 1983. 6 On even date, petitioners were allowed by respondents to take possession of the parcels of land sold. Since then, they allegedly introduced improvements7to the property, such as rice paddies, drainage canal, fence and a house.

xxx 2. That the 8.2030 hectares of riceland located at Cordon, Isabela is covered by Transfer Certificate of Title No. 36937, Isabela Registry, in the name of Daniel Aquino; xxx 5. That the payments made by Rene Lemar R. Ramel and duly receipted are:

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(1) On Feb. 12, 1983,11 the amount of P4,800.00 xxx; (2) On August 7, 1983, the amount of P5,000.00 xxx; (3) On Sept. 7, 1983, the amount of P15,000.00 xxx; (4) On Sept. 7, 1983, the amount of P2,700.00 xxx; and admitted by all the parties.
12

I.C. Based on the findings of facts which are contrary to those of the trial court and contrary to the admission of the respondents herein. II. The judgment of the trial court which was affirmed by the Court of Appeals is not in accord with the existing laws and the applicable decisions of this Honorable Court, being an erroneous application of Articles 1191 and 1545 of the Civil Code and the applicable jurisprudence.14 The hinge issues are the following: (1) whether petitioners substantially breached their obligation warranting the rescission of the contract and (2) whether there is legal ground to order the offsetting of the claim of improvements by petitioners to the claim of fruits derived from the land by respondents. First to be determined is the total amount paid by petitioners to respondents to show the former's compliance or non-compliance with their obligation. There is no question that petitioners were obligated to pay the remaining mortgage obligation of respondents with the DBP as of July 31, 1983. The official receipt15 dated September 7, 1983 issued by DBP shows that the remaining mortgage obligation of respondents as of September 7, 1983 was P75,544.92, that is after petitioners had paid the bank P10,000.00 on the same date. Hence, the total remaining mortgage obligation as of July 31, 1983 which was supposed to be assumed by petitioners was P85,544.92. Deducting this from the total value of the land which is about P110,700.00, the balance of about P25,000.00, and not P35,000.00, was to be paid by petitioners to respondents. The courts a quo erred in concluding that petitioners were able to pay respondents a total sum of P29,800.00. Per stipulation by the parties themselves, petitioners paid to respondents the total sum of P27,500.00.16 This even includes the amount of P2,700.00 which petitioners paid for the additional 2,484-square meter strip of land which they purchased from respondents. Deducting this P2,700.00 from the total payments made for the 8.2030 hectares, petitioners were able to pay a sum of P24,800.00 of the P25,000.00 balance for the subject parcel. This small discrepancy is not a ground for respondents to rescind their contract with petitioners. We look, however, to the other ground the failure of petitioners to pay the remaining balance of the mortgage obligation of respondents to the DBP. The record shows that at the time petitioners filed the case with the trial court on October 9, 1984, they were able to pay only P23,097.00 of the then P85,544.92 outstanding mortgage obligation of respondents. Instead of petitioners paying the remaining balance on or before December 31, 1983, they asked the DBP to re-structure the payment of the loan for ten years in November 1983. They did so without the consent of respondents. Their claim to the contrary is not substantiated by evidence. First, after respondents learned that petitioners had re-structured the loan, respondents paid the amount ofP72,703.06 to DBP. The fact that respondents later on withdrew the amount cannot operate against them because the trial court had enjoined them from withdrawing the certificate of title and the bank from releasing the same. Second, the subject property was facing foreclosure that December of 1983. It was precisely due to the impending foreclosure that respondents offered to sell the subject property to petitioners. It was never the intention of respondents to be left at the mercy of petitioners as to when the latter would complete payment of the remaining mortgage obligation. It goes against the

On June 28, 1990, the trial court decided as follows, viz.: WHEREFORE, in light of the foregoing considerations[,] judgment is hereby rendered: 1. ORDERING the spouses Daniel Aquino and Guadalupe Aquino to execute a deed of sale over a portion of lot 2080 located and bounded by Ilut Creek on the south, Juan Mariano's lot on the east, portion of lot 2080 on the north and Castillo's lot on the west, containing an area of [2,484] square meters more or less, in favor of Rene Lemar Ramel. 2. DECLARING that the oral contract of sale between the plaintiff Rene Lemar Ramel and the defendants spouses Daniel and Guadalupe Aquino as rescinded. 3. ORDERING the defendants spouses Daniel and Guadalupe Aquino to pay to the plaintiff Rene Lemar Ramel the sums of P29,800.00 representing the amount received by said defendants for the land, plusP108,216.00 representing the amount paid by the plaintiffs to the bank. 4. ORDERING the plaintiffs to return the peaceful possession of the land, lot 2080[,] after they shall have been paid the aforesaid amount by the defendants. 5. ORDERING the intervenors Benjamin Aquino and Virginia Aquino to reimburse to the defendant Daniel Aquino their one-third share each of the amount of P138,016[.00] which the latter paid to the plaintiff. 6. DECLARING that the intervenors Benjamin Aquino and Virginia Aquino are the co-owners of the 8.2030 southern portion of lot 2080 in equal shares. 13 Petitioners appealed to the Court of Appeals which affirmed the decision of the trial court and denied their Motion for Reconsideration. Hence, this petition assailing the decision of the appellate court, viz.: I.A. Based not only on misapprehension and appreciation of facts, but also on the findings which manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion, as well as on an inference which is manifestly mistaken. I.B. Based on A false, fabricated and self-serving testimony of the respondents.

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common sense of man and the ordinary course of business that an owner of land sells his property without any definite agreement as to when the obligation shall be paid, especially if his property is facing foreclosure. Though petitioners were able to subsequently fully settle the mortgage loan in May 1986 two years and five months from December 1983, and one and a half years after they filed this case the fact remains that they reneged on their obligation to pay within the agreed period. They could have asked respondents to give them a grace period to settle the remaining loan obligation but they did not. It is true that petitioners sent a Notice of Loan Approval17 dated November 24, 1983 addressed to respondent Aquino informing that the application for loan re-structuring had been approved by the DBP. But this does not prove their claim that respondents authorized the loan re-structuring for the following reasons: one, it was petitioners themselves who applied for the loan restructuring; two, the document is a mere notice; three, the notice does not even show that it was received by respondents; and four, after the manager of the DBP informed respondents about the loan re-structuring, respondents rushed to sell another portion of their land so they could pay the remaining obligation. They later withdrew the amount because of the restraining order issued by the trial court and not because they waived their right to rescind the contract. With the breach committed by petitioners, the trial court ruled and the appellate court rightly affirmed that petitioners substantially violated their obligation. Hence, respondents are entitled to a rescission of the contract under Article 1191 of the Civil Code, viz.: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. xxx Petitioners can not argue that their breach is merely casual and slight, especially that they were able to subsequently pay the loan and the purpose of the contract has been fulfilled by petitioners, i.e., that the mortgage obligation shall be paid and respondents shall be able to retain at least the rest of the land free from any liens or encumbrances.18 The ruling of the trial court on this issue is correct, viz.: x x x It is admitted that the underlying purpose of the Aquinos to sell a portion of the land was in order that their mortgage obligation shall be paid and they shall be able to retain at least the rest of the land free from any liens and encumbrances. It was imperative then for Rene Ramel to pay the mortgage obligation. He did not do so. x x x x More important[,] he did not even intend to pay the bank because he had the loan re-structured so as to be payable in ten years. Of course, he finally paid the mortgage loan but only after one and one-half years after the filing of this case. To the mind of the [c]ourt, the non-payment of the mortgage obligation until after one and one-half years after the filing of this case constitutes a substantial breach that entitles the Aquinos to rescind the contract.19

Rightly, the appellate court affirmed the ruling, viz.: Since Ramel failed to settle Aquino's mortgage obligation on or before December 31, 1983 as in fact he restructured it for a period of ten years, he committed a substantial breach of his agreement with Aquino. That the breach is substantial is all the more appreciated when note is taken of the fact that the entire 14.1825hectare property, not just the 8.2030 hectares portion thereof sold to Ramel, remained encumbered beyond the agreed deadline of December 31, 1983, thus restricting the owners' rights thereto.20 Petitioners further invoke Article 1592 of the Civil Code and argue that respondents are not entitled to rescission because no demand has been made upon them either judicially or by notarial act. They contend that respondents "merely raised rescission as a defense in this case of Specific Performance and they have never informed the Ramels about their alleged decision to exercise the said right before this case was filed xxx."21 They aver that the act of the Aquinos in tendering payment to DBP does not constitute demand as the term is defined under Article 1592,22 viz.: Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. Again, we reject the argument. We held in the case of Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. 23 that even a cross-claim found in the Answer filed in the trial court constitutes judicial demand for rescission that satisfies the requirements of Article 1592. Further, in Iringan v. Court of Appeals,24 we held that an action for Judicial Confirmation of Rescission and Damages before the Regional Trial Court complied with the requirement of the law for judicial demand of rescission even if the intention of the moving party was to compel the other party to formalize in a public document their extrajudicial mutual agreement to rescind. In this case, the mutual agreement to rescind was forged when the injured party sent to the defaulting party a letter stating that he had considered the contract rescinded and that he would not accept any further payment. The defaulting party replied that he was not opposing the revocation of the sale, save for some reimbursements. We held that though the letter declaring the intention to rescind did not satisfy the "demand" required by the law, the subsequent case filed for a judicial confirmation of the rescission did meet the requirement for a valid demand. We rule that respondents satisfied Article 1592 when they raised rescission as a defense in their Answer. To be sure, petitioners learned of respondents' intention to rescind even before they filed their Answer. Petitioners knew the intent to rescind when respondents deposited the amount of P72,703.06 with DBP to fully settle their remaining obligation. Petitioners were told by respondents that they were rescinding the contract after the mortgage was re-structured without their consent. Indeed, it was this declaration by respondents that prompted petitioners to file the case of Specific Performance with the trial court. Finally, petitioners question the ruling of the courts a quo offsetting the claim of improvements by petitioners and the claim of the fruits derived from the land by respondents. Petitioners claim that the offsetting of claims is erroneous citing Articles 546 and 547 of the Civil Code, viz.:

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Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. Art. 547. If the useful improvements can be removed without damage to the principal thing, the possessor in good faith may remove them, unless the person who recovers the possession exercises the option under paragraph 2 of the preceding article. Under these provisions, petitioners argue that as possessors in good faith and in the concept of an owner, they are entitled to the fruits received before possession was legally interrupted and they must be reimbursed for their expenses or for the increase in the value the subject property may have acquired by reason thereof. 25 The records show that both parties failed to prove their claims through any receipt or document. Despite the lack of proof, the trial court ordered that whatever improvements spent on the land shall be offset from the fruits derived therefrom, viz.:26 The plaintiffs claimed that they were able to improve the land after possession was given to them. No receipts were shown to guide the [c]ourt as to how much [were] the costs of the improvements. Likewise the defendants claimed that the plaintiffs were able to cultivate the land and harvest palay although their testimonies to this effect [are] based on their presumptions and calculations not on actual harvest such that the [c]ourt also cannot make determination of the real fruits derived from the land. This being so, the [c]ourt shall just offset the claim of improvements to the claim of fruits derived from the land and then place the parties in their previous positions before the agreement. Whatever improvements spent on the land shall be compensated from the fruits derived therefrom.27 The appellate court found the setting off by the trial court to be in order, viz.: [W]e find in order the Solomonic setting off by the court a quo the appellants' claim of improvements on, with the appellees' claims for value of the fruits of, the subject land, given the paucity of evidence on the matter. Along the same vein, We find it just and fair to set off the compensation arising from the possession and enjoyment of the fruits of subject lot by appellants during the pendency of the case with the interests due on the amounts paid by them to the Aquinos and to the DBP.28 We can not order an offsetting of the claims as did the trial court and the appellate court. The evidence show that both parties failed to prove their respective claims. In the absence of evidence from both parties on their claims, offsetting is improper. The right to offset may exist but the question of how much is to be offset is factual in nature and needs to be proved by proper evidence. IN VIEW WHEREOF, the Decision and the Resolution of the Court of Appeals in CA-G.R. CV No. 28654 dated April 16, 1997 and March 25, 1998, respectively, are AFFIRMED with the MODIFICATION that respondents are ordered to pay petitioners the sum of P24,800.00, not P29,800.00 as ordered by

the trial court, representing the amounts they received from petitioners, plus the sum of P108,216.00 representing the amounts petitioners paid to DBP. The order on the offsetting of claims is DELETED for lack of evidence. Respondents-intervenors, as co-owners, are likewise ordered to reimburse respondent Aquino their one-third share each of the total amount to be paid by Aquino to petitioners. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 147695 September 13, 2007

installments after December 1979, but that she resumed paying in 1980 until her balance dwindled to P5,650. She claimed that despite several months of delay in payment, Patricio never sued for ejectment and even accepted her late payments. Respondent also averred that on September 14, 1981, she and Patricio signed an agreement (Exh. 2) whereby he consented to the suspension of respondents monthly payments until December 1981. However, even before the lapse of said period, Patricio resumed demolishing respondents house, prompting her to lodge a complaint with the Barangay Captain who advised her that she could continue suspending payment even beyond December 31, 1981 until Patricio returned all the materials he took from her house. This Patricio failed to do until his death. Respondent did not deny that she still owed Patricio P5,650, but claimed that she did not resume paying her monthly installment because of the unlawful acts committed by Patricio, as well as the filing of the ejectment case against her. She denied having any knowledge of the Kasunduan of November 18, 1979. Patricio and his wife died on September 17, 1992 and on October 17, 1994, respectively. Petitioner became their sole successor-ininterest pursuant to a waiver by the other heirs. On March 5, 1997, respondent received a letter from petitioners counsel dated February 24, 1997 demanding that she vacate the premises within five days on the ground that her possession had become unlawful. Respondent ignored the demand. The Punong Barangay failed to settle the dispute amicably. On April 8, 1997, petitioner filed a Complaint for unlawful detainer against respondent with the Municipal Trial Court (MTC) of Guiguinto, Bulacan praying that, after hearing, judgment be rendered ordering respondent to immediately vacate the subject property and surrender it to petitioner; forfeiting the amount of P12,950 in favor of petitioner as rentals; ordering respondent to pay petitioner the amount of P3,000 under the Kasunduan and the amount of P500 per month from January 1980 until she vacates the property, and to pay petitioner attorneys fees and the costs. On December 22, 1998, the MTC rendered a decision in favor of petitioner. It stated that although the Contract to Sell provides for a rescission of the agreement upon failure of the vendee to pay any installment, what the contract actually allows is properly termed a resolution under Art. 1191 of the Civil Code. The MTC held that respondents failure to pay not a few installments caused the resolution or termination of the Contract to Sell. The last payment made by respondent was on January 9, 1980 (Exh. 71). Thereafter, respondents right of possession ipso facto ceased to be a legal right, and became possession by mere tolerance of Patricio and his successors-in-interest. Said tolerance ceased upon demand on respondent to vacate the property. The dispositive portion of the MTC Decision reads: Wherefore, all the foregoing considered, judgment is hereby rendered, ordering the defendant: a. to vacate the property covered by Transfer Certificate of Title No. T-10029 of the Register of Deeds of Bulacan (now TCT No. RT-59929 of the Register of Deeds of Bulacan), and to surrender possession thereof to the plaintiff; b. to pay the plaintiff the amount of P113,500 representing rentals from January 1980 to the present;

MANUEL C. PAGTALUNAN, petitioner, vs. RUFINA DELA CRUZ VDA. DE MANZANO, respondent. DECISION AZCUNA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court of the Court of Appeals (CA) Decision promulgated on October 30, 2000 and its Resolution dated March 23, 2001 denying petitioners motion for reconsideration. The Decision of the CA affirmed the Decision of the Regional Trial Court (RTC) of Malolos, Bulacan, dated June 25, 1999 dismissing the case of unlawful detainer for lack of merit. The facts are as follows: On July 19, 1974, Patricio Pagtalunan (Patricio), petitioners stepfather and predecessor-in-interest, entered into a Contract to Sell with respondent, wife of Patricios former mechanic, Teodoro Manzano, whereby the former agreed to sell, and the latter to buy, a house and lot which formed half of a parcel of land, covered by Transfer Certificate of Title (TCT) No. T-10029 (now TCT No. RT59929 [T-254773]), with an area of 236 square meters. The consideration of P17,800 was agreed to be paid in the following manner: P1,500 as downpayment upon execution of the Contract to Sell, and the balance to be paid in equal monthly installments of P150 on or before the last day of each month until fully paid. It was also stipulated in the contract that respondent could immediately occupy the house and lot; that in case of default in the payment of any of the installments for 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration, and that all payments made and all improvements done on the premises by respondent would be considered as rentals for the use and occupation of the property or payment for damages suffered, and respondent was obliged to peacefully vacate the premises and deliver the possession thereof to the vendor. Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying after December 1979 without any justification or explanation. Moreover, in a "Kasunduan"1 dated November 18, 1979, respondent borrowedP3,000 from Patricio payable in one year either in one lump sum payment or by installments, failing which the balance of the loan would be added to the principal subject of the monthly amortizations on the land. Lastly, petitioner asserted that when respondent ceased paying her installments, her status of buyer was automatically transformed to that of a lessee. Therefore, she continued to possess the property by mere tolerance of Patricio and, subsequently, of petitioner. On the other hand, respondent alleged that she paid her monthly installments religiously, until sometime in 1980 when Patricio changed his mind and offered to refund all her payments provided she would surrender the house. She refused. Patricio then started harassing her and began demolishing the house portion by portion. Respondent admitted that she failed to pay some

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c. to pay the plaintiff such amount of rentals, at P500/month, that may become due after the date of judgment, until she finally vacates the subject property; d. to pay to the plaintiff the amount of P25,000 as attorneys fees. SO ORDERED.2 On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25, 1999, reversed the decision of the MTC and dismissed the case for lack of merit. According to the RTC, the agreement could not be automatically rescinded since there was delivery to the buyer. A judicial determination of rescission must be secured by petitioner as a condition precedent to convert the possession de facto of respondent from lawful to unlawful. The dispositive portion of the RTC Decision states: WHEREFORE, judgment is hereby rendered reversing the decision of the Municipal Trial Court of Guiguinto, Bulacan and the ejectment case instead be dismissed for lack of merit.3 The motion for reconsideration and motion for execution filed by petitioner were denied by the RTC for lack of merit in an Order dated August 10, 1999. Thereafter, petitioner filed a petition for review with the CA. In a Decision promulgated on October 30, 2000, the CA denied the petition and affirmed the Decision of the RTC. The dispositive portion of the Decision reads: WHEREFORE, the petition for review on certiorari is Denied. The assailed Decision of the Regional Trial Court of Malolos, Bulacan dated 25 June 1999 and its Order dated 10 August 1999 are hereby AFFIRMED. SO ORDERED. 4 The CA found that the parties, as well as the MTC and RTC failed to advert to and to apply Republic Act (R.A.) No. 6552, more commonly referred to as the Maceda Law, which is a special law enacted in 1972 to protect buyers of real estate on installment payments against onerous and oppressive conditions. The CA held that the Contract to Sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized respondents right to continue occupying unmolested the property subject of the contract to sell. The CA denied petitioners motion for reconsideration in a Resolution dated March 23, 2001. Hence, this petition for review on certiorari. Petitioner contends that: A. Respondent Dela Cruz must bear the consequences of her deliberate withholding of, and refusal to pay, the monthly payment. The Court of Appeals erred in allowing Dela Cruz who acted in bad faith from benefiting under the Maceda Law.

B. The Court of Appeals erred in resolving the issue on the applicability of the Maceda Law, which issue was not raised in the proceedings a quo. C. Assuming arguendo that the RTC was correct in ruling that the MTC has no jurisdiction over a rescission case, the Court of Appeals erred in not remanding the case to the RTC for trial.5 Petitioner submits that the Maceda Law supports and recognizes the right of vendors of real estate to cancel the sale outside of court, without need for a judicial declaration of rescission, citing Luzon Brokerage Co., Inc., v. Maritime Building Co., Inc. 6 Petitioner contends that respondent also had more than the grace periods provided under the Maceda Law within which to pay. Under Sec. 37 of the said law, a buyer who has paid at least two years of installments has a grace period of one month for every year of installment paid. Based on the amount of P12,950 which respondent had already paid, she is entitled to a grace period of six months within which to pay her unpaid installments after December, 1979. Respondent was given more than six months from January 1980 within which to settle her unpaid installments, but she failed to do so. Petitioners demand to vacate was sent to respondent in February 1997. There is nothing in the Maceda Law, petitioner asserts, which gives the buyer a right to pay arrearages after the grace periods have lapsed, in the event of an invalid demand for rescission. The Maceda Law only provides that actual cancellation shall take place after 30 days from receipt of the notice of cancellation or demand for rescission and upon full payment of the cash surrender value to the buyer. Petitioner contends that his demand letter dated February 24, 1997 should be considered the notice of cancellation since the demand letter informed respondent that she had "long ceased to have any right to possess the premises in question due to [her] failure to pay without justifiable cause." In support of his contention, he citedLayug v. Intermediate Appellate Court8 which held that "the additional formality of a demand on [the sellers] part for rescission by notarial act would appear, in the premises, to be merely circuitous and consequently superfluous." He stated that in Layug, the seller already made a written demand upon the buyer. In addition, petitioner asserts that whatever cash surrender value respondent is entitled to have been applied and must be applied to rentals for her use of the house and lot after December, 1979 or after she stopped payment of her installments. Petitioner argues that assuming Patricio accepted respondents delayed installments in 1981, such act cannot prevent the cancellation of the Contract to Sell. Installments after 1981 were still unpaid and the applicable grace periods under the Maceda Law on the unpaid installments have long lapsed. Respondent cannot be allowed to hide behind the Maceda Law. She acted with bad faith and must bear the consequences of her deliberate withholding of and refusal to make the monthly payments. Petitioner also contends that the applicability of the Maceda Law was never raised in the proceedings below; hence, it should not have been applied by the CA in resolving the case. The Court is not persuaded. The CA correctly ruled that R.A No. 6552, which governs sales of real estate on installment, is applicable in the resolution of this case.

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This case originated as an action for unlawful detainer. Respondent is alleged to be illegally withholding possession of the subject property after the termination of the Contract to Sell between Patricio and respondent. It is, therefore, incumbent upon petitioner to prove that the Contract to Sell had been cancelled in accordance with R.A. No. 6552. The pertinent provision of R.A. No. 6552 reads: Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirtyeight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.9 R.A. No. 6552, otherwise known as the "Realty Installment Buyer Protection Act," recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.10 The Court agrees with petitioner that the cancellation of the Contract to Sell may be done outside the court particularly when the buyer agrees to such cancellation. However, the cancellation of the contract by the seller must be in accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. Actual cancellation of the contract takes place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Based on the records of the case, the Contract to Sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552. First, Patricio, the vendor in the Contract to Sell, died on September 17, 1992 without canceling the Contract to Sell. Second, petitioner also failed to cancel the Contract to Sell in accordance with law.

Petitioner contends that he has complied with the requirements of cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his demand letter dated February 24, 1997 should be considered as the notice of cancellation or demand for rescission by notarial act and that the cash surrender value of the payments on the property has been applied to rentals for the use of the house and lot after respondent stopped payment after January 1980. The Court, however, finds that the letter11 dated February 24, 1997, which was written by petitioners counsel, merely made formal demand upon respondent to vacate the premises in question within five days from receipt thereof since she had "long ceased to have any right to possess the premises x x x due to [her] failure to pay without justifiable cause the installment payments x x x." Clearly, the demand letter is not the same as the notice of cancellation or demand for rescission by a notarial actrequired by R.A No. 6552. Petitioner cannot rely on Layug v. Intermediate Appellate Court12 to support his contention that the demand letter was sufficient compliance. Layug held that "the additional formality of a demand on [the sellers] part for rescission by notarial act would appear, in the premises, to be merely circuitous and consequently superfluous" since the seller therein filed an action for annulment of contract, which is a kindred concept of rescission by notarial act.13 Evidently, the case of unlawful detainer filed by petitioner does not exempt him from complying with the said requirement. In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the payments on the property to the buyer before cancellation of the contract. The provision does not provide a different requirement for contracts to sell which allow possession of the property by the buyer upon execution of the contract like the instant case. Hence, petitioner cannot insist on compliance with the requirement by assuming that the cash surrender value payable to the buyer had been applied to rentals of the property after respondent failed to pay the installments due. There being no valid cancellation of the Contract to Sell, the CA correctly recognized respondents right to continue occupying the property subject of the Contract to Sell and affirmed the dismissal of the unlawful detainer case by the RTC. The Court notes that this case has been pending for more than ten years. Both parties prayed for other reliefs that are just and equitable under the premises. Hence, the rights of the parties over the subject property shall be resolved to finally dispose of that issue in this case. Considering that the Contract to Sell was not cancelled by the vendor, Patricio, during his lifetime or by petitioner in accordance with R.A. No. 6552 when petitioner filed this case of unlawful detainer after 22 years of continuous possession of the property by respondent who has paid the substantial amount of P12,300 out of the purchase price of P17,800, the Court agrees with the CA that it is only right and just to allow respondent to pay her arrears and settle the balance of the purchase price. For respondents delay in the payment of the installments, the Court, in its discretion, and applying Article 220914of the Civil Code, may award interest at the rate of 6% per annum15 on the unpaid balance considering that there is no stipulation in the Contract to Sell for such interest. For purposes of computing the legal interest, the reckoning period should be the filing of the complaint for unlawful detainer on April 8, 1997. Based on respondents evidence16 of payments made, the MTC found that respondent paid a total of P12,300 out of the purchase price of P17,800. Hence, respondent still has a balance of P5,500,

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plus legal interest at the rate of 6% per annum on the unpaid balance starting April 8, 1997. The third issue is disregarded since petitioner assails an inexistent ruling of the RTC on the lack of jurisdiction of the MTC over a rescission case when the instant case he filed is for unlawful detainer. WHEREFORE, the Decision of the Court of Appeals dated October 30, 2000 sustaining the dismissal of the unlawful detainer case by the RTC is AFFIRMED with the following MODIFICATIONS: 1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay petitioner Manuel C. Pagtalunan the balance of the purchase price in the amount of Five Thousand Five Hundred Pesos (P5,500) plus interest at 6% per annum from April 8, 1997 up to the finality of this judgment, and thereafter, at the rate of 12% per annum; 2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a Deed of Absolute Sale of the subject property and deliver the certificate of title in favor of respondent Rufina Dela Cruz Vda. de Manzano; and 3. In case of failure to pay within 60 days from finality of this Decision, respondent Rufina Dela Cruz Vda. de Manzano shall immediately vacate the premises without need of further demand, and the downpayment and installment payments of P12,300 paid by her shall constitute rental for the subject property. No costs. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 169790 April 30, 2008

[Respondents] executed an extrajudicial settlement of the estate of Trinidad Andrada Laserna dated June 21, 1999 adjudicating unto themselves, in pro indiviso shares, Lot 159-B-2, and which paved the transfer of said lot into their names under Transfer Certificate of Title No. T-39194 with an entry date of August 13, 1999.4 Thereafter, respondents, armed with an undated Deed of Absolute Sale which they had signed, forthwith scheduled a meeting with VRM Balleque at the RVM Headquarters in Quezon City to finalize the sale, specifically, to obtain payment of the remaining balance of the purchase price in the amount of P4,999,500.00. However, VRM Balleque did not meet with respondents. Succeeding attempts by respondents to schedule an appointment with VRM Balleque in order to conclude the sale were likewise rebuffed. In an exchange of correspondence between the parties respective counsels, RVM denied respondents demand for payment because: (1) the purported Contract to Sell was merely signed by Sr. Enhenco as witness, and not by VRM Balleque, head of the corporation sole; and (2) as discussed by counsels in their phone conversations, RVM will only be in a financial position to pay the balance of the purchase price in two years time. Thus, respondents filed with the RTC a complaint with alternative causes of action of specific performance or rescission. After trial, the RTC ruled that there was indeed a perfected contract of sale between the parties, and granted respondents prayer for rescission thereof. It disposed of the case, to wit: WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondents] and against the [petitioner]. 1. Dismissing the counterclaim; 2. Ordering the rescission of the Contract to Sell, Exh. "E". 3. Ordering the forfeiture of the downpayment of P555,500 in favor of the [respondents]; 4. Ordering [petitioner] corporation sole, the Superior General of the Religious of the Virgin Mary, to pay [respondents]: a. P50,000.00 as exemplary damages; b. P50,000.00 as attorneys fees. 5. Costs against the [petitioner]. Dissatisfied, both parties filed their respective Notices of Appeal. The CA dismissed the respondents appeal because of their failure to file an Appeal Brief. However, RVMs appeal, where respondents accordingly filed an Appellees Brief, continued. Subsequently, the CA rendered judgment setting aside the RTC Decision, to wit: WHEREFORE, with all the foregoing, the decision of the Regional Trial Court, Branch 15, Roxas City dated March 1, 2001 in [C]ivil [C]ase [N]o. V-7382 for Specific Performance or Rescission with Damages is hereby SET ASIDE and a new one entered GRANTING [respondents] action for specific performance. [Petitioner RVM] [is] hereby ordered to pay [respondents] immediately the balance of the total

CONGREGATION OF THE RELIGIOUS OF THE VIRGIN MARY and/or THE SUPERIOR GENERAL OF THE RELIGIOUS OF THE VIRGIN MARY, represented by The REVEREND MOTHER MA. CLARITA BALLEQUE,petitioner, vs. EMILIO Q. OROLA, JOSEPHINE FATIMA LASERNA OROLA, MYRNA ANGELINE LASERNA OROLA, MANUEL LASERNA OROLA, MARJORIE MELBA LASERNA OROLA & ANTONIO LASERNA OROLA, respondents. DECISION NACHURA, J.: Challenged in this petition for review on certiorari is the Court of Appeals (CA) Decision1 in CA-G.R. CV. No. 71406 which modified the Regional Trial Court (RTC) Decision 2 in Civil Case No. V-7382 ordering the rescission of the contract of sale between the parties in an action for Specific Performance or Rescission with Damages filed by respondents Emilio, Josephine Fatima Laserna, Myrna Angeline Laserna, Manuel Laserna, Marjorie Melba Laserna, & Antonio Laserna, all surnamed Orola, (respondents) against petitioner Congregation of the Religious of the Virgin Mary (RVM).3 The undisputed facts, as found by the CA and adopted by RVM in its petition, follow. Sometime in April 1999, [petitioner] Religious of the Virgin Mary (RVM for brevity), acting through its local unit and specifically through Sr. Fe Enhenco, local Superior of the St. Marys Academy of Capiz and [respondents] met to discuss the sale of the latters property adjacent to St. Marys Academy. Said property is denominated as Lot 159-B-2 and was still registered in the name of [respondents] predecessor-in-interest, Manuel Laserna. In May of 1999, [respondent] Josephine Orola went to Manila to see the Mother Superior General of the RVM, in the person of Very Reverend Mother Ma. Clarita Balleque [VRM Balleque] regarding the sale of the property subject of this instant case. A contract to sell dated June 2, 1999 made out in the names of herein [petitioner] and [respondents] as parties to the agreement was presented in evidence pegging the total consideration of the property atP5,555,000.00 with 10% of the total consideration payable upon the execution of the contract, and which was already signed by all the [respondents] and Sr. Ma. Fe Enhenco, R.V.M. [Sr. Enhenco] as witness. On June 7, 1999, [respondents] Josephine Orola and Antonio Orola acknowledged receipt of RCBC Check No. 0005188 dated June 7, 1999 bearing the amount of P555,500.00 as 10% down payment for Lot 159-B-2 from the RVM Congregation (St. Marys Academy of Cadiz [SMAC]) with the "conforme" signed by Sister Fe Enginco (sic), Mother Superior, SMAC.

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consideration for the subject property in the amount of P4,999,500.00 with interest of 6% per annum computed from June 7, 2000 or one year from the downpayment of the 10% of the total consideration until such time when the whole obligation has been fully satisfied. In the same way, [respondents] herein are ordered to immediately deliver the title of the property and to execute the necessary documents required for the sale as soon as all requirements aforecited have been complied by [RVM]. Parties are further ordered to abide by their reciprocal obligations in good faith. All other claims and counterclaims are hereby dismissed for lack of factual and legal basis. No pronouncement as to cost. In modifying the RTC Decision, the CA, albeit sustaining the trial courts finding on the existence of a perfected contract of sale between the parties, noted that the records and evidence adduced did not preponderate for either party on the manner of effecting payment for the subject property. In short, the CA was unable to determine from the records if the balance of the purchase price was due in two (2) years, as claimed by RVM, or, upon transfer of title to the property in the names of respondents, as they averred. Thus, the CA applied Articles 13835 and 13846of the Civil Code which pronounce rescission as a subsidiary remedy covering only the damages caused. The appellate court then resolved the matter in favor of the greatest reciprocity of interest pursuant to Article 1378 7 of the Civil Code. It found that the 2-year period to purchase the property, which RVM insisted on, had been mooted considering the time elapsed from the commencement of this case. Thus, the CA ordered payment of the balance of the purchase price with 6% interest per annum computed from June 7, 2000 until complete satisfaction thereof. Hence, this recourse. RVM postulates that the order to pay interest is inconsistent with the professed adherence by the CA to the greatest reciprocity of interest between the parties. Since mutual restitution cannot be had when the CA set aside the rescission of the contract of sale and granted the prayer for specific performance, RVM argues that the respondents should pay rentals for the years they continued to occupy, possess, and failed to turn over to RVM the subject property. Effectively, the only issue for our resolution is whether RVM is liable for interest on the balance of the purchase price. At the outset, we must distinguish between an action for rescission as mapped out in Article 1191 of the Civil Code and that provided by Article 1381 of the same Code. The articles read: Art. 1191. The power to rescind obligations is impled in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. Art. 1381. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion state in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. Article 1191, as presently worded, speaks of the remedy of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term "resolution." The remedy of resolution applies only to reciprocal obligations8 such that a partys breach thereof partakes of a tacit resolutory condition which entitles the injured party to rescission. The present article, as in the Old Civil Code, contemplates alternative remedies for the injured party who is granted the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in each case. On the other hand, rescission under Article 1381 of the Civil Code, taken from Article 1291 of the Old Civil Code, is a subsidiary action, and is not based on a partys breach of obligation. The esteemed Mr. Justice J.B.L. Reyes, ingeniously cuts through the distinction in his concurring opinion inUniversal Food Corporation v. CA:9 I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco, should be denied because under Article 1383 of the Civil Code of the Philippines[,] rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation, is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesin or economic prejudice, under Article 1381, et seq. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda."

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Hence, the reparation of damages for the breach is purely secondary. On the contrary, in the rescission by reason of lesin or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison d etre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesin enumerated in Article 1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191. It is probable that the petitioners confusion arose from the defective technique of the new Code that terms both instances as "rescission" without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesin or damage. But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes and results of either action. In the case at bench, although the CA upheld the RTCs finding of a perfected contract of sale between the parties, the former disagreed with the latter that fraud and bad faith were attendant in the sale transaction. The appellate court, after failing to ascertain the parties actual intention on the terms of payment for the sale, proceeded to apply Articles 1383 and 1384 of the Civil Code declaring rescission as a subsidiary remedy that may be availed of only when the injured party has no other legal means to obtain reparation for the damage caused. In addition, considering the absence of fraud and bad faith, the CA felt compelled to arrive at a resolution most equitable for the parties. The CAs most equitable resolution granted respondents prayer for specific performance of the sale and ordered RVM to pay the remaining balance of the purchase price, plus interest. It set aside and deleted the RTCs order forfeiting the downpayment of P555,500.00 in favor of, and payment of exemplary damages, attorneys fees and costs of suit to, respondents. Nonetheless, RVM is displeased. It strenuously objects to the CAs imposition of interest. RVM latches on to the CAs characterization of its resolution as most equitable which, allegedly, is not embodied in the dispositive portion of the decision ordering the payment of interest. RVM is of the view that since the CA decreed specific performance of the contract without a finding of bad faith by either party, and respondents retained possession of the subject property for the duration of the litigation, the imposition of interest is not keeping with equity without simultaneously requiring respondents to pay rentals for their continued and uninterrupted stay thereon. In all, RVM phrases the issue in metaphysical terms, i.e., the most equitable solution. We completely disagree. The law, as applied to this factual milieu, leaves no room for equivocation. Thus, we are not wont to apply equity in this instance. As uniformly found by the lower courts, we likewise find that there was a perfected contract of sale between the parties. A contract of sale carries the correlative duty of the seller to deliver the property and the obligation of the buyer to pay the agreed price.10 As there was already a binding contract of sale between the parties, RVM had the corresponding obligation to pay the remaining balance of the purchase price upon the issuance of the title in the name of respondents. The supposed 2-year period within which to pay the balance did not affect the nature of the agreement as a perfected contract of sale.11 In fact, we note that

this 2-year period is neither reflected in any of the drafts to the contract,12 nor in the acknowledgment receipt of the downpayment executed by respondents Josephine and Antonio with the conformity of Sr. Enhenco.13 In any event, we agree with the CAs observation that the 2-year period to effect payment has been mooted by the lapse of time. However, the CA mistakenly applied Articles 1383 and 1384 of the Civil Code to this case because respondents cause of action against RVM is predicated on Article 1191 of the same code for breach of the reciprocal obligation. It is evident from the allegations in respondents Complaint14 that the instant case does not fall within the enumerated instances in Article 1381 of the Civil Code. Certainly, the Complaint did not pray for rescission of the contract based on economic prejudice. Moreover, contrary to the CAs finding that the evidence did not preponderate for either party, the records reveal, as embodied in the trial courts exhaustive disquisition, that RVM committed a breach of the obligation when it suddenly refused to execute and sign the agreement and pay the balance of the purchase price.15 Thus, when RVM refused to pay the balance and thereby breached the contract, respondents rightfully availed of the alternative remedies provided in Article 1191. Accordingly, respondents are entitled to damages regardless of whichever relief, rescission or specific performance, would be granted by the lower courts.16 Yet, RVM stubbornly argues that given the CAs factual finding on the absence of fraud or bad faith by either party, its order to pay interest is inequitable. The argument is untenable. The absence of fraud and bad faith by RVM notwithstanding, it is liable to respondents for interest. In ruling out fraud and bad faith, the CA correspondingly ordered the fulfillment of the obligation and deleted the RTCs order of forfeiture of the downpayment along with payment of exemplary damages, attorneys fees and costs of suit. But RVMs contention disregards the common finding by the lower courts of a perfected contract of sale. As previously adverted to, RVM breached this contract of sale by refusing to pay the balance of the purchase price despite the transfer to respondents names of the title to the property. The 2-year period RVM relies on had long passed and expired, yet, it still failed to pay. It did not even attempt to pay respondents the balance of the purchase price after the case was filed, to amicably end this litigation. In fine, despite a clear cut equitable decision by the CA, RVM refused to lay the matter to rest by complying with its obligation and paying the balance of the agreed price for the property. Lastly, to obviate confusion, the clear language of Article 1191 mandates that damages shall be awarded in either case of fulfillment or rescission of the obligation.17 In this regard, Article 2210 of the Civil Code is explicit that "interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract." The ineluctable conclusion is that the CA correctly imposed interest on the remaining balance of the purchase price to cover the damages caused the respondents by RVMs breach. WHEREFORE, premises considered, the petition is DENIED. The order granting specific performance and payment of the balance of the purchase price plus six percent (6%) interest per annum from June 7, 2000 until complete satisfaction is hereby AFFIRMED. Costs against petitioner. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 149322 November 28, 2008

survey to segregate the portion of lot, and all the incidental expenses to facilitate issuance of the individual transfer certificate of titles for the resulting lots shall be for the sole account and expense of the VENDEE; 4] The use of the aforesaid portion of lot sold shall be for the purpose of the right of way of and for the abovesaid property of the VENDEE, whereby the VENDOR, by virtue whereof, shall have the perpetual right and/or privilege to use the same as right of way for his own purposes. Almost a year later, or on September 12, 1996, petitioner informed respondents that he is canceling the deed of sale by way of a Deed of Cancellation4 which he executed on his own.5 When respondents refused to honor the cancellation, petitioner filed a Complaint6 for Cancellation of Contract with the Municipal Circuit Trial Court (MCTC) of Teresa-Baras on April 22, 1997. The complaint alleged that, contrary to what was stated in the Deed of Absolute Sale, respondents constructed an access road 8-m wide (with an area of 280 sq m); that the respondents have not complied with the conditions stated in the Deed of Absolute Sale and the Deed of Undertaking attached thereto; and that respondents have been dumping high piles of gravel, sand and soil along the access road in violation of the condition in the deed of sale that the access road will be used only for the purpose of a right of way. The complaint prayed for the court to declare as canceled the grant of right of way to respondents and to order them to pay moral and exemplary damages and attorney's fees. In their Answer with Counterclaims, respondents averred that they purchased the disputed 280-sq m portion of Lot 2730-A from its previous owner, Rudy Llagas, as early as March 2, 1994. After the sale, they immediately constructed a 7 by 35-m road with a total area of 245 sq m, leaving a 1 by 35-m strip along the western portion as an easement along the irrigation canal. However, to buy peace and avoid any conflict with the petitioner, who was claiming to be the new owner, respondents agreed to payP20,000.00 in consideration of the petitioner's desistance from further pursuing his claim over the 280 sq m area. Petitioner prepared the Deed of Absolute Sale and respondents agreed to sign it without prejudice to the resolution of the civil case (Civil Case No. 777-M), filed by Llagas against the petitioner, on the issue of the ownership of the property.7 Respondents narrated that, after they signed the Deed of Absolute Sale but before they could deliver theP20,000.00, they discovered that it covered only 175 sq m, not 280 sq m. There was an immediate renegotiation between the parties and, for an additional consideration of P40,000.00, petitioner agreed to sell the entire 280 sq m. Relying on the petitioner's assurance that he will prepare a new deed of sale to reflect the new agreement, respondents paid him the additional P40,000.00 as evidenced by an Acknowledgment Receipt. Despite several demands, petitioner failed to present the new deed of sale.8 According to the respondents, petitioner initially allowed them peaceful possession and use of the area even when he started constructing his house adjacent to the access road. However, while petitioner was constructing his house, a serious misunderstanding took place between petitioner and respondents' caretaker, Benjamin Manzano, brought about by the latter's refusal to allow petitioner to tap water and electricity from the respondents' property. Petitioner allegedly retaliated and took possession of the eastern half portion of the 280-sq-m area by constructing a fence along the length of the access road, which reduced it to a narrow passage that could not allow trucks to pass through. On account of this dispute, Manzano, upon respondents' authority, filed a complaint before the Barangay Lupon to compel

JAIME L. YANEZA, petitioner, vs. THE HONORABLE COURT OF APPEALS, MANUEL A. DE JESUS and WILHELMINA M. MANZANO, respondents. DECISION NACHURA, J.: In this petition for certiorari and prohibition under Rule 65, Jaime L. Yaneza, petitioner, assails the Court of Appeals' denial of his Motion for Extension of Time to File Petition for Review on the ground that it was filed after the lapse of the reglementary period for filing the appeal. Petitioner is the owner of a 603-square-meter parcel of land, denominated as Lot 2730-A and situated along Calle Kay Rumagit, Sitio Haligionan, Brgy. San Juan, Baras, Rizal. He purchased the property from a certain Rudy Llagas on June 19, 1990. Respondents, Manuel A. de Jesus and Wilhelmina M. Manzano, are the owners of Lot 2732 which is adjacent to Lot 2730-A. The respondents' lot has no access to the nearest road except through a road which they constructed over a portion of Lot 2730-A. On September 26, 1995, petitioner sent a letter to respondents informing them that he is the owner of Lot 2730-A and that he does not agree with the use of the portion of his lot as an access road because it will affect the configuration of his property. As an option, petitioner offered to sell to the respondents the entire property.1 Apparently, respondents did not agree to the proposition because two days later, petitioner wrote another letter to them, offering instead a perpetual easement of right of way (4 meters wide) and stating that he will prepare the necessary document to facilitate the transaction.2 Instead of a deed of perpetual easement, it appears that petitioner and respondents executed a Deed of Absolute Sale3 on October 20, 1995 over a 175-sq m portion of Lot 2730-A, to be used as an access road 5-meters wide, for a consideration of P20,000.00. The Deed of Absolute Sale contained the following terms and conditions: 1] The portion subject of this sale agreement is as per the sketch plan attached herein as Annex "A" and made as an integral part of this instrument; 2] The total purchase for the aforesaid portion of lot shall be in the sum of TWENTY THOUSAND (P20,000.00) PESOS, Philippine Currency, payable on cash basis upon the signing and execution of this deed, the signature of the VENDOR being his acknowledgment that he already received the said amount satisfactorily; 3] The realty taxes and assessments on the lot subject of this sale agreement, costs of preparation of the document of sale, all other taxes, cost of subdivision

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the petitioner to remove the fence but the petitioner did not attend the conciliation proceedings. Respondents obtained from the barangay a certification to file an action in court, but petitioner preempted them by filing the instant case. Respondents pointed out that the petitioner did not seek the intervention of the Barangay Lupon before he filed the instant case; hence, the petitioner's complaint should be dismissed for failure to state a cause of action.9 In claiming damages, respondents alleged that the construction of the fence caused them difficulties when they started developing their property because the trucks that carried the necessary materials could not pass through the access road. They purportedly incurred additional costs since they had to hire laborers to manually carry the construction materials from the barangay road to the construction site.10 Respondents further asserted that what was agreed upon was a sale and not only an easement of right of way. They denied the existence of the Deed of Undertaking which does not even bear their signatures. And respondents argued that the deed of sale may not be canceled unilaterally by the petitioner since they already acquired full ownership over the property by virtue thereof.11 Finally, respondents stressed that it is the petitioner who is actually enjoying a right of way along the access road in compliance with the condition stated in the Deed of Absolute Sale. It is the petitioner who violated the terms of the contract when he obstructed the access road with the concrete fence he built thereon. For this violation, petitioner should be denied his right of way over the access road. Moreover, petitioner's property abuts the barangay road; hence, there is actually no need for him to be granted a right of way. During trial, petitioner testified for himself and presented his brother, Cesar Yaneza, as witness. Petitioner narrated that Cesar handed to him the P20,000.00 and that he constructed the iron fence during the latter part of 1996 because respondents did not comply with the conditions set out in the Deed of Undertaking. Cesar Yaneza testified that he was the one who delivered the Deed of Absolute Sale to the office of respondent Manuel de Jesus in Manila and that the latter requested that he leave the Deed of Undertaking so that his wife can also sign the same, but he never returned the document despite several demands. For the respondents, respondent Manuel de Jesus, Rudy Llagas and Benjamin Manzano testified. Rudy Llagas admitted that he indeed sold to the respondents the subject property which is on the western side; what he sold to the petitioner was on the eastern side of his property.12 Respondent Manuel de Jesus swore that he and petitioner agreed on a price of P20,000.00 for the 5-m by 35m area and an additionalP40,000.00 to increase the area to 8-m by 35-m, so that the total consideration was P60,000.00. He claimed he had to agree to the additional amount because by then he had already constructed the gate to, and trucks could not enter, their property.13 And finally, Benjamin Manzano attested that when petitioner started constructing his house, petitioner asked him if he could tap water and electricity from respondents' property, but he did not agree. He said that, after a few days from said incident, petitioner constructed the low level iron fence in the middle of the road right of way.14 On September 6, 1999, the MCTC promulgated its decision dismissing the complaint and granting the respondents' counterclaims, thus: In view of the foregoing considerations, this Court hereby resolves to order the following:

1. To dismiss the complaint as well as the plaintiff's claim for damages and attorney's fees; 2. For plaintiff to execute a new deed of absolute sale covering the access road or road right of way of 8 meters wide by 35 meter long, including the meter easement beside the irrigation canal; with a total area of 280 sq. m. from the northwest portion of Lot 2730, now covered by TCT No. 50181 of the Register of Deeds of Rizal, Morong Branch, without prejudice to the outcome of Civil Case No. 777-M filed by Rudy Llagas against plaintiff Jaime Yaneza; 3. To cancel and declare as null and void the plaintiff's right of way over the access road of defendants; 4. For plaintiff to remove at his expense, the steel fence or structure he caused to be constructed at about the middle of defendants' access road or found within the 280 sq.m. area that obstruct, impede or alter the full and peaceful use by defendants of subject realty; 5. To restore defendants to the full, adequate and peaceful possession and use of subject realty; 6. For plaintiff to pay to the defendants the following: a. P1,000,000.00 as actual damages; b. P1,300,000.00 as moral damages; c. P300,000.00 as exemplary damages; d. P300,000.00 as attorney's fees; e. P30,000.00 as reimbursement for incidental litigation expenses; f. 6% interest on the actual damages from the time they were incurred up to the time of finality of the decision; g. 6% interest on the award for moral, exemplary, attorney's fees and litigation expenses from the promulgation of the decision until its finality; h. Costs. SO ORDERED.15 On January 5, 2001, the Regional Trial Court (RTC), Morong, Rizal Branch 78, rendered a Decision16 on petitioner's appeal affirming the MCTC Decision with the modification that the monetary award (item no. 6 of the dispositive portion) in favor of the respondents was deleted. Respondents filed a motion for reconsideration with respect to the deletion of the award of damages, but the same was denied for

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failure to include a Notice of Hearing. Respondents filed a Petition for Relief from Judgment, the status of which was not disclosed by the parties in this petition. Meanwhile, petitioner's counsel received a copy of the RTC Decision on February 6, 2001. On February 9, 2001, he withdrew his appearance for the petitioner. On February 22, 2001, petitioner, through his new counsel, filed an Urgent Motion for Extension of Time to File Petition for Review praying that they be given a period of 15 days from February 24, 2001, or until March 12, 2001, within which to file the petition. On February 28, 2001, the CA issued a Resolution17 denying the Urgent Motion for having been filed one day late and, consequently, dismissed the appeal. On March 27, 2001, petitioner filed a Motion for Reconsideration and a Motion for Leave of Court to Admit Petition for Review, but the CA denied the motions in its Resolution18 dated July 25, 2001. Disgruntled with the CA Resolutions, petitioner filed this Petition for Certiorari and Prohibition, raising the following issues: WHETHER THE PETITION SHOULD BE GIVEN DUE COURSE IN THE LIGHT OF THE CIRCUMSTANCES AFFECTING THE TIMELINESS OF THE FILING THEREOF. WHETHER THE APPEALED DECISION OF THE REGIONAL TRIAL COURT WAS RENDERED AND WRITTEN AS REQUIRED BY THE 1987 PHILIPPINE CONSTITUTION AND THE RULES OF COURT. WHETHER THE PLAINTIFF HAS NO CAUSE OF ACTION. WHETHER THE PETITIONER MAY BE COMPELLED TO EXECUTE A DEED OF CONVEYANCE AGAINST HIS WILL AND IN VIOLATION OF HIS CONSTITUTIONAL RIGHT AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND THE CIVIL LAW AGAINST UNJUST ENRICHMENT.19 The petition has no merit. In the interest of substantial justice, petitioner begs this Court's indulgence for the late filing of his motion for extension of time, which he claims is due to an honest mistake. Certainly, we cannot ascribe grave abuse of discretion upon a court that denies a motion for extension of time filed after the expiration of the reglementary period to file a petition. A motion for extension of time to file a petition should be filed prior to the expiration or lapse of the period set by law, otherwise, there is no longer any period to extend and the judgment or order to be appealed from will have become final and executory.20 Once the judgment becomes final and executory, the appellate court is without jurisdiction to modify or reverse it. We have repeatedly pronounced that perfection of an appeal in the manner and within the period prescribed by law is mandatory and jurisdictional.21 The failure to perfect an appeal is not a mere technicality as it deprives the appellate court of jurisdiction over the appeal.22 Hence, anyone seeking an exemption from the application of the reglementary period for filing an appeal has the burden of proving the existence of an exceptionally meritorious

instance warranting such deviation.23 But none obtains in this case. Even on the merits, we find the petition noticeably infirm. The petitioner's complaint for cancellation of the contract was correctly dismissed by the MCTC. Petitioner's cause of action for cancellation of the contract is based on a breach of contract as provided in Article 1191 24 of the Civil Code and is properly denominated "rescission," or "resolution" under the Old Civil Code. It is grounded on the respondents' alleged noncompliance with the conditions embodied in the Deed of Absolute Sale and the Deed of Undertaking. In particular, petitioner claims that respondents constructed a road three meters wider than what was agreed upon in the deed of sale and failed to comply with their undertaking to facilitate the transfer of the title over the subject area. To state the obvious, the construction of the road beyond the stipulated area does not constitute a breach of contract. Breach of contract implies a failure, without legal excuse, to perform any promise or undertaking that forms part of the contract.25 Although the contract specifically stated the area covered by the sale, it did not contain a promise by the respondents that they will only occupy such area. Albeit apparently wrong, petitioner's cause of action should not have been based on the contract of sale. Neither could the respondent be faulted for not facilitating the transfer of the title over the subject area. Respondents did not sign the Deed of Undertaking, and thus, could not have assumed the obligations contained therein. Moreover, considering that the respondents specifically denied the existence of the document and petitioner failed to authenticate it, the RTC was correct in declaring that it has no probative weight. Besides, rescission of a contract will not be permitted for a slight or casual breach but only for a substantial and fundamental breach as would defeat the very object of the parties in making the agreement.26 It must be a breach of faith that destroys or violates the reciprocity between the parties.27The alleged breach by the respondents was definitely not of such level and magnitude. Most importantly, rescission of a contract presupposes the existence of a valid and subsisting obligation. The breach contemplated in Article 1191 is the obligor's failure to comply with an existing obligation.28 It would be useless to rescind a contract that is no longer in existence. Here, we find that the contract of sale sought to be canceled by the petitioner does not exist anymore; hence, the filing of the petition for cancellation was an exercise in futility. The records show that the parties' original agreement, embodied in the Deed of Absolute Sale, had already been superseded or novated by a new contract, albeit an oral one, covering an increased area of 280 sq m. In his testimony, petitioner admitted that he received from his brother, Cesar Yaneza, theP20,000.00 that respondents paid. This, taken with the respondents' narration of the circumstances surrounding the signing of the deed of sale and the subsequent renegotiation for an increased area, together with the Acknowledgment Receipt showing that an additional P40,000.00 was paid to the petitioner, reasonably leads us to believe that the parties had actually entered into a new agreement which covered the entire 280-sq m area where the access road was laid. The new contract of sale between the parties is valid despite it not being evidenced by any writing. 29 The requirement under the Statute of Frauds does not affect the validity of the contract of sale but is needed merely for its enforceability. In any case, it

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applies only to contracts which are executory, and not to those which have been consummated either totally or partially, 30 as in the new contract of sale herein. The existence of the new contract of sale over the 280-sq m area therefore having been established, it follows that the petitioner may be compelled to execute the corresponding deed of sale reflecting this new agreement. After the existence of the contract has been admitted, the party bound thereby may be compelled to execute the proper document.31 This is clear from Article 1357, viz.: Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article [Article 1358], the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. WHEREFORE, the petition is DISMISSED. The assailed CA Resolutions dated February 28, 2001 and July 25, 2001 are AFFIRMED. SO ORDERED.

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 185440 July 13, 2011

On February 12, 2004 the RTC rendered a decision in the case. It ruled that, although the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its sale to them since its right to do so had already prescribed, applying Article 1389 of the New Civil Code. The NHA and the Lalicons, who intervened, filed their respective appeals to the Court of Appeals (CA). On August 1, 2008 the CA reversed the RTC decision and found the NHA entitled to rescission. The CA declared TCT 277321 in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons the full amount of their amortization, plus interest, and the value of the improvements they constructed on the property. The Issues Presented

VICELET LALICON and VICELEN LALICON, Petitioners, vs. NATIONAL HOUSING AUTHORITY, Respondent. DECISION ABAD, J.: This case is about (a) the right of the National Housing Authority to seek annulment of sales made by housing beneficiaries of lands they bought from it within the prohibited period and (b) the distinction between actions for rescission instituted under Article 1191 of the Civil Code and those instituted under Article 1381 of the same code. The Facts and the Case On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot1 in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). In due time, the Quezon City Registry of Deeds issued Transfer Certificate of Title (TCT) 277321 in the name of the Alfaros. The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its release from mortgage without NHAs prior written consent. Thus: x x x. 5. Except by hereditary succession, the lot herein sold and conveyed, or any part thereof, cannot be alienated, transferred or encumbered within five (5) years from the date of release of herein mortgage without the prior written consent and authority from the VENDOR-MORTGAGEE (NHA). x x x.2 (Emphasis supplied) The mortgage and the restriction on sale were annotated on the Alfaros title on April 14, 1981. About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons). Cecilia, who had the means, had a house built on the property and paid for the amortizations. After full payment of the loan or on March 21, 1991 the NHA released the mortgage. Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters. About four and a half years after the release of the mortgage or on October 4, 1995, Victor registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents title. The register of deeds issued TCT 140646 in Victors name. On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees, resulting in the cancellation of his TCT 140646 and the issuance of TCT N-172342 in Chuas name. A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment of the NHAs 1980 sale of the land to the Alfaros, the latters 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and regulations.

The issues in this case are: 1. Whether or not the CA erred in holding that the Alfaros violated their contract with the NHA; 2. Whether or not the NHAs right to rescind has prescribed; and 3. Whether or not the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission. The Rulings of the Court First. The contract between the NHA and the Alfaros forbade the latter from selling the land within five years from the date of the release of the mortgage in their favor.3 But the Alfaros sold the property to Victor on November 30, 1990 even before the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract. The Lalicons contend, however, that the Alfaros did not violate the five-year restriction against resale since what the contract between the parties barred was a transfer of the property within five years from the release of the mortgage, not a transfer of the same prior to such release. But the Lalicons are trying to be clever. The restriction clause is more of a condition on the sale of the property to the Alfaros rather than a condition on the mortgage constituted on it. Indeed, the prohibition against resale remained even after the land had been released from the mortgage. The five-year restriction against resale, counted from the release of the property from the NHA mortgage, measures out the desired hold that the government felt it needed to ensure that its objective of providing cheap housing for the homeless is not defeated by wily entrepreneurs. The Lalicons claim that the NHA unreasonably ignored their letters that asked for consent to the resale of the subject property. They also claim that their failure to get NHAs prior written consent was not such a substantial breach that warranted rescission. But the NHA had no obligation to grant the Lalicons request for exemption from the five-year restriction as to warrant their proceeding with the sale when such consent was not immediately forthcoming. And the resale without the NHAs consent is a substantial breach. The essence of the governments socialized housing program is to preserve the beneficiarys ownerships for a

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reasonable length of time, here at least within five years from the time he acquired it free from any encumbrance. Second. Invoking the RTC ruling, the Lalicons claim that under Article 1389 of the Civil Code the "action to claim rescission must be commenced within four years" from the time of the commission of the cause for it. But an action for rescission can proceed from either Article 1191 or Article 1381. It has been held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term "resolution." Resolution applies only to reciprocal obligations such that a breach on the part of one party constitutes an implied resolutory condition which entitles the other party to rescission. Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in either case. Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which is a subsidiary action, not based on a partys breach of obligation. 4 The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381. Here, the NHA sought annulment of the Alfaros sale to Victor because they violated the five-year restriction against such sale provided in their contract. Thus, the CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues.1avvphi1 The NHAs right of action accrued on February 18, 1992 when it learned of the Alfaros forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period. Third. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith. Since the five-year prohibition against alienation without the NHAs written consent was annotated on the propertys title, the Lalicons very well knew that the Alfaros sale of the property to their father, Victor, even before the release of the mortgage violated that prohibition. As regards Chua, she and a few others with her took the property by way of mortgage from Victor in 1995, well within the prohibited period. Chua knew, therefore, based on the annotated restriction on the property, that Victor had no right to mortgage the property to her group considering that the Alfaros could not yet sell the same to him without the NHAs consent. Consequently, although Victor later sold the property to Chua after the five-year restriction had lapsed, Chua cannot claim lack of awareness of the illegality of Victors acquisition of the property from the Alfaros. Lastly, since mutual restitution is required in cases involving rescission under Article 1191,5 the NHA must return the full amount of the amortizations it received for the property, plus the value of the improvements introduced on the same, with 6% interest per annum from the time of the finality of this judgment. The Court will no longer dwell on the matter as to who has a better right to receive the amount from the NHA: the Lalicons, who paid the amortizations and occupied the property, or Chua, who bought the subject lot from Victor and obtained for herself a title to the same, as this matter was not raised as one of the issues in this case. Chuas appeal to the Court in a separate case6 having been denied due course and NHA failing to file its own petition for review, the CA decision ordering the restitution in favor of the Lalicons has now become final and binding against them.

WHEREFORE, the Court AFFIRMS the Decision of the Court of Appeals in CA-G.R. CV 82298 dated August 1, 2008. SO ORDERED.

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ARTICLE 1192 Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 167767 August 29, 2006 SPOUSES WILLIAM AND JEANETTE YAO, Petitioners, vs. CARLOMAGNO B. MATELA, Respondent. x ---------------------------------------------------- x G.R. No. 167799 August 29, 2006 CARLOMAGNO B. MATELA, Petitioner, vs. SPOUSES WILLIAM AND JEANETTE YAO, Respondents . DECISION YNARES-SANTIAGO, J.: These consolidated petitions for review assail the Decision 1 of the Court of Appeals dated September 30, 2004, in CA-G.R. CV No. 75264, which modified the Decision2 of the Regional Trial Court of Las Pias City, Branch 275 in Civil Case No. 98-0263, as well as the Resolution3 dated April 15, 2005, denying the motions for reconsideration of both parties. In G.R. No. 167767, spouses William and Jeanette Yao pray that the assailed decision and resolution of the Court of Appeals be reversed and set aside and that the original complaint filed by Carlomagno B. Matela in the lower court be dismissed for lack of merit. In G.R. No. 167799, Matela prays that the judgment of the Court of Appeals be modified by ordering the spouses Yao to pay the amount of P741,482.00 as actual damages instead of P391,582.00, plus interest and attorneys fees. The antecedent facts are as follows: On March 30, 1997, the spouses Yao contracted the services of Matela, a licensed architect, to manage and supervise the construction of a two-unit townhouse at a total cost of P5,090,560.00.4 The construction started in the first week of April 1997 and was completed in April 1998, with additional works costing P300,000.00. Matela alleged that the spouses Yao paid him the amount of P4,649,078.00, thereby leaving a balance of P741,482.00.5 When his demand for payment of P741,482.00 went unheeded, Matela filed a complaint6 for sum of money with the Regional Trial Court of Las Pias City which was docketed as LP-98-0263 and raffled to Branch 275. In their answer, the spouses Yao denied that the project was completed in April 1998. Instead, they alleged that Matela abandoned the project without notice. They claimed that they paid Matela the sum of P4,699,610.93 which should be considered as sufficient payment considering that Matela used sub-standard

materials causing damage to the project which needed a substantial amount of money to repair. On April 1, 2002, the Regional Trial Court of Las Pias City, Branch 275 rendered judgment in favor of Matela, the dispositive portion of which reads: WHEREFORE, judgment is rendered in favor of [Matela] and against the [spouses Yao] ordering the latter to pay the former the sum of P741,428.00 plus legal rate of interest from the filing of the Complaint until fully paid and P50,000.00 as and by way of attorneys fees and to pay the costs. SO ORDERED.7 The trial court anchored its decision on the following findings of facts: Defendant spouses engaged the professional services of the plaintiff on March 30, 1997 to manage and supervise the construction of their two unit townhouses in Makati City at the agreed construction cost of P5,090,560.00. The construction started in the first week of April, 1997 and was completed by the plaintiff in April, 1998. Close scrutiny of the evidence reveals that contrary to the allegation of the defendant spouses the construction of the two unit townhouses x x x were completed by the plaintiff. This is shown by the fact that the Building Official of Makati City, after inspection of the construction thereof, issued, the Evaluation Sheet Occupancy Permit (Exhs. "E" and "E-1"), Certificate of Completion (Exh. "F"), Certificate of Occupancy (Exh. "G") and Progress Flow Sheet of Occupancy Permit (Exh. "G-1"). It appears from these documents that the construction was completed on April 5, 1998 (Exh. "F") and that after inspection the same was found to have been done in accordance with its plans and specifications (Exh. "G"). If there (sic) defects were found all over the two unit townhouses, the Building Official of Makati City would not have issued the said documents, which are presumed to have been executed in due course and good faith.8 The Court of Appeals affirmed the decision of the lower court but modified the amount of actual damages to P391,582.00. The dispositive portion of the decision reads: WHEREFORE, premises considered, the decision of the Regional Trial Court of Las Pias City, Branch 275, in Civil Case No. 980263 is hereby MODIFIED in that the [spouses Yao] are hereby ordered to pay actual damages of Three Hundred Ninety One Thousand Five Hundred Eighty Two Pesos (P 391,582.00). The decision of the Regional Trial Court of Las Pias City, Branch 275, dated 1 April 2002 in Civil Case No. 98-0263 is hereby AFFIRMED in all other aspect. SO ORDERED.9 In affirming the findings of the court a quo, the Court of Appeals declared that: As to the second assigned error, defendants-appellants claimed that plaintiff-appellee failed to finish the project within the agreed one hundred eighty (180) days. They pointed out that one hundred eighty (180) days from April 1997 ended on October 1997, however, the units were turned over only in April 1998.

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The Court does not find any merit in this argument either. Any delay in the delivery is cured by acceptance of the thing after delay incurred. (See: Tayong v. CA, 219 SCRA 480, [1993]). In the present case, defendants-appellants do not deny they took over the townhouse units and have even sold the same. (See: Records, p. 363)10 Hence these consolidated petitions. In G.R. No. 167799, Matela raised the lone issue of: WHETHER OR NOT [MATELA] IS ENTITLED TO THE ADDITIONAL CONSTRUCTION COST.11 In G.R. No. 167767, the issue raised by the spouses Yao is: WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS IN NOT DISMISSING THE COMPLAINT [OF MATELA] AND NOT AWARDING THE COUNTER CLAIM [OF THE SPOUSES YAO] IS IN ACCORDANCE WITH LAW AND JURISPRUDENCE.12 Matela claims that although the spouses Yao did not expressly admit their obligation as regards the additional construction cost of P300,000.00, they impliedly admitted the same as evidenced by the testimony of Jeanette Yao before the court a quo.13 On the other hand, the spouses Yao contend that the complaint for the collection of a sum of money filed by Matela should be dismissed because it was the latter who breached his undertaking by using sub-standard materials and not completing the project. They also allege that the payments they made amounting to P4,699,610.93 should be considered as sufficient payment for the construction of the project. The resolution of the issues raised by the parties require a reexamination of the pieces of evidence presented during the trial of the case. This is an exception to the established rule that in the exercise of our power of review, we only resolve questions of law and not questions of facts. The rule that the Supreme Court does not resolve questions of facts, however, is not absolute. Jurisprudence has recognized several exceptions in which factual issues may be resolved by the Supreme Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.14 In the instant case, we find that the factual findings of the trial court and Court of Appeals are contradicted by the evidence on record. Thus, a review of the facts is in order. As agreed by the parties, Matela will construct the townhouses in accordance with the Specification15 while spouses Yao will pay Matela the agreed construction cost based on progress billings.

The spouses Yao will not pay Matela the agreed price in full unless the latter has fully complied with and has discharged his obligations as specified in the contract. In his book on Obligations and Contracts, the late Court of Appeals Justice Desiderio Jurado made the following discussion on reciprocal obligations: Reciprocal obligations are those which are created or established at the same time, out of the same cause, and which result in mutual relationships of creditor and debtor between the parties. These obligations are conditional in the sense that the fulfillment of an obligation by one party depends upon the fulfillment of the obligation by the other. Thus, in a contract of sale of an automobile for P54,000. The vendor is obliged to deliver the automobile to the vendee, while the vendee is obliged to pay the price of P54,000 to the vendor. It is clear that the vendor will not deliver the automobile to the vendee unless the latter pay the price, while the vendee will not pay the price to the vendor unless the latter will deliver the automobile. Hence, in reciprocal obligations, the general rule is that fulfillment by both parties should be simultaneous or at the same time. The rule then is that in reciprocal obligations, one party incurs in delay from the moment the other party fulfills his obligation, while he himself does not comply or is not ready to comply in a proper manner with what is incumbent upon him. If neither party complies or is ready to comply with what is incumbent upon him, the default of one compensates for the default of the other. In such case, there can be no legal delay. These rules may be illustrated by the following example: A sold his automobile to B for P30,000. They agreed that delivery and payment shall be made on the 15th of November 1980. On that date, A was not ready to deliver the automobile, neither was B ready to pay. In such case, neither party has incurred in delay. If A, however, delivered or was ready to deliver the automobile, but B did not pay or was not ready to pay, then B is said to have incurred in delay.16 Both the trial court and the Court of Appeals found that Matelas "delivery" of the project constitutes a faithful discharge of his duties. We find otherwise. Our evaluation of the records reveal that Matela failed to comply with his obligation to construct the townhouses based on the agreed specifications. As such, he cannot be discharged from his obligations by mere delivery of the same to the spouses Yao. The Specification contained the following provisions: D. CARPENTRY WORKS Lumber This shall be of approved quality, well-seasoned, thoroughly dry, free from large, loose and unsound knots, saps, shakes and other imperfections impairing its durability, strength and appearance. All roof trusses shall be of Apitong, conventional fabrication using wooden plates and machine bolts. Purlins shall be 2x3 (commercial size) apitong or equivalent spaced at 0.60 m. o.c.17 xxxx All wooden partitions indicated in the drawing shall be double faced " thk. ordinary plywood nailed to 2x3 (commercial size) tanguile spaced at 0.60 m. o.c. bothways (wherever available).

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The ceiling shall be of 3/16" thk plywood (class C) with 2x2 ceiling joist spaced at 0.60 m. o.c. Door jambs shall be of standard type from 2/5 K.D. tanguile or equivalent.18 Contrary to the foregoing, the photographs offered by the spouses Yao as exhibits showed unfinished and uneven ceilings, rotten door jambs and door posts, unfinished wooden partitions and unhinged and unfinished doors.19 Paragraph I, Electrical Works of the Specification contained the following undertaking: The Contractor shall furnish all materials, (or otherwise specified) labor and other services and perform all operations necessary for the complete installation of the Electrical System for the Project in accordance with the drawings and specifications. All electrical work shall be done under the direct supervision of a licensed Electrical Engineer. The Electrical Contractor shall secure the required Electrical Wiring Permit and Certificate of Electrical Inspection and pay the corresponding permit fees. All wiring in ceiling and double walls shall be Neltex Schedule 40 uPVC conduits or equivalent. All installation on concrete shall be in rigid conduit pipes.20 Furnishing and installation of conduits, boxes, wire gutters, fittings, cabinets, wireways, manholes and covers, supports and accessories for: a. Lighting system b. Convenience Outlets and other Special Purpose Outlets c. Sub-Feeders/Homeruns from Lighting Panels to Lighting Circuits as indicated on the plans d. Feeders to all Lighting Panels as indicated on plans. e. Main Distribution Panel (MDP) f. Service Entrance from source of Power to MDP g. Necessary Concrete Pedestals h. Telephone System i. Intercom System Again, based on the photographs presented as evidence, we find that there were unfinished electrical conduits, electrical outlets with loose wirings and outlets with exposed wires. 21 The Specification also provided for several kinds of tiles to be installed on the floors22 and on the walls.23However, the exhibits showed decaying and unfinished cabinet floors,24 stairways and bathroom floors with missing tiles,25 uninstalled bathroom fixtures and exposed plumbing fixtures.26 The bath tub was uninstalled that it can be easily pulled out of its concrete receptacle.27 The exhibits also showed unfinished windows,28 unpainted walls,29 rusted metalworks and balusters.30 During the trial of the case before the court a quo on October 26, 2000, Jeanette Yao testified as follows: Atty. De Asa, Sr.:

Now, you have read Exhibit "H" and Exhibit "3", I supposed and you understood its contents, isnt it? Jeanette Yao: Yes sir. Q: Now, on page 2 of Exhibit "3" also Exhibit "H" refers to a paragraph which states to carpentry works, which was bracketed and marked by this representation as Exhibit "3-B". And this refers to the carpentry works. What happened to this condition as contained in the second page of said Exhibit "H" and Exhibit "3" marked as Exhibit "3-B"? A: Sir, this was not followed. Q: What do you mean it was not followed? A: I found out during the construction that the wood has termites and some are not properly installed. Q: Going further to this Exhibit "H" and Exhibit "3". Found page 3 thereon again bracketed as Exhibit "3-C" by this representation and I will quote all wooden partition indicated in the drawing shall be double face inches thick ordindary plywood, made two by three (commercial size) tangile space at 0.60 m.o.c both ways (where ever available). Similarly the ceilings shall be of three by sixteen inches thick plywood (-c) with two by two ceilings joys space 0.60 m.o.c. Likewise, door jams shall be of standard size from two feet K.D. tangile. Again was, Mrs. Witness, was this conditions as contained in the specification followed? A: Not followed sir. Q: Why do you say that it was not followed? A: Because I found out that all the bathrooms were no cabinet. That was supposed to have. And when I opened the ceilings, I found out that there are corrugated, GI corrugated inside still attached in the ceiling and a lot of termite also on the door jams. Atty. De Asa, Sr.: So, further going to Exhibit "3" and Exhibit "H" is specification under paragraph G denominated specialties, finished hard wares and I will quote unless otherwise specified all hard wares shall be of chromium plated finished. The contractor shall also provide and fit in place other hard wares nor herein executed and mentioned but nevertheless necessary to complete the work. For the record, Your Honor, this was bracketed and marked as defendant Exhibit "3-B". Was this followed? A: This was not followed sir. Q: Again why do you say that it was not followed? A: I found out in the Unit B, Master Bed Room, that there were no showers. There were no faucet. And in the kitchen, there were no wire basket or accessory. In the, all the cabinet, there were no chrome plate or aluminum tube for the hanger of the clothes. All of these were not there. Atty. De Asa, Sr.: Now, again on the next page, fourth page, there is here encircled the words nelpex scheduled 40 UPDC conduits or equivalent,

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which again for purposes of record, Your Honor, please this was marked as Exhibit "3-F" for the defendant. Would you kindly explain whether or not this particular encircled words followed us specified. A: They did not followed this, they used the another like the hose orange color not the pipe. Q: Not the pipe, and the, finally, on the last page of this Exhibit, we refer to the modular kitchen by Danielle (door panel only) this was encircled also Your Honor please and marked as Exhibit "3" was this followed by the plaintiff Matela in the construction of the townhouse? A: No sir they used ordinary wood, plywood, not the panel door by Danielle. Q: Now, summing up this Exhibit "3-B" on carpentry, on carpentry works which were not followed "3-C", "3-D", "3-F", and "3-E", if you will translate them into figure or in money, how much would they cost? A: Around Five Hundred Thousand. Q: Five Hundred Thousand, now, you mentioned all of these defects and matters which were not followed thru it specification was contained in Exhibit "H" and Exhibit "E". What other documents if any do you have to prove that indeed these defects existed? A: I took photos, sir. Q: Photographs, if those photographs will be shown to you, will you be able to recognize them? A: Yes, sir. Q: Now, during the pre-trial conference, Mrs. Witness, Atty. Margaret Chua marked in evidence several photographs from Exhibit "5", "5-A", up to "5-QQQ". Would you go over the same and tell this Honorable Court, what relation has those with the photograph according to you, you took to prove that you indeed the specifications as contained in Exhibit "H" and Exhibit "3" as well as the defects in the constructed townhouses were not followed or appears? A: I will show you one by one, this one.

Q: Go over now, each and every picture and explain before this Honorable Court, what specifications were not followed and for what were the defects you found in the constructed townhouses. A: The concrete moldings that they installed the electrical were not repaired. Court Interpreter: Witness is referring to Exhibit "5-A". A: And then, the next there is no doorbell for Unit B. Court Interpreter: Witness is referring to Exhibit "5-B". A: And then, 5-C, and D, there is no electrical switch or outlet, no lights. Atty. De Asa, Sr.: No lights referring to: Court Interpreter: "5-E". A: The ceilings there is no electrical, and the ceilings were open and "5-F", this is the Attic there is no air-con outlet. "5-G", the wall no electrical switch. Also "5-H", no switched, no outlet. Court Interpreter: Same as Exhibit "5-I", "5-K" and "5-J". A: "5-L", there are wires, live wires found in the circuit breaker and leave it open. Atty. De Asa, Sr.: Next. A: "5-M", we installed the cover since it is very dangerous because there are live wires. And letter M, there was. Atty. De Asa, Sr.:

Q: These are the pictures. "5-N". A: Yes. Court: Already marked? Atty. De Asa, Sr.: Yes, Your Honor, as exhibit. Q: Now, aside from these pictures Mrs. Witness I have here other pictures referring to Unit A and Unit B of. Atty. De Asa, Sr.: Im sorry, I will withdraw that, Your Honor. A: Yeah, "5-N", the water flows in the circuit breaker so, it cause like a fire crackers during the rainy days. Q: How about Exhibit "5-O"? A: "5-O", as you can see there are also no outlet. "5-P", no electrical wire, outlet or switch but there is a junction box. Q: "5-Q"? A: There are also junction box, but no wire and no switch covered. Q: "5-R"?

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A: "5-R", as you can see the ceiling there are GI corrugated, they used this in the flooring and the water flows in here from second floor because there are water leaks. The same with this. Court Interpreter: "5-S". Atty. De Asa, Sr.: "5-S". A: The same. Atty. De Asa, Sr.: The same "5-T"? A: They used two inches PVC pipe for the down-spout. It should be three inches as I have seen in the blue print. "5-U", as you can see this is also number two inches pipe. Court Interpreter: Witness is referring to the two inches pipe. A: "5-V", the same with "5-U" and "5-W", the pipe is so small. Atty. De Asa, Sr.:

As alleged by Matela, the spouses Yao made periodic payments to him based on progress billings. This was contained in the Summary of Cash Payments35 and the Summary of WLY Invoices36 that he submitted as part of his formal offer of evidence. However, the spouses Yao refused to pay the balance of the agreed construction cost despite demands. The spouses Yao justified their non-payment by arguing that Matela abandoned the project and that there were defects in its construction. Evidently, both parties in this case breached their respective obligations. The well entrenched doctrine is that the law does not relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with full awareness of what he was doing and entered into and carried out in good faith. Such a contract will not be discarded even if there was a mistake of law or fact. Courts have no jurisdiction to look into the wisdom of the contract entered into by and between the parties or to render a decision different therefrom. They have no power to relieve parties from obligation voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments.37 However, in situations such as the one discussed above, where it cannot be conclusively determined which of the parties first violated the contract, equity calls and justice demands that we apply the solution provided in Article 1192 of the Civil Code: Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. In Camus v. Price, Inc.,38 we held that:

Anyway, these pictures from Exhibit "5", "5-A" up to "5-QQQ" were all the pictures, which you have taken to establish that the specifications were not followed and that there were defects in the townhouses constructed by Matela? A: Yes, sir. Q: Now, was these townhouses completed by plaintiff? A: No. Q: Why do you say no? A: Since I took photo, he did not follow what we have agreed in the specification.31 We cannot rely on the Building Permit,32 Certificate of Completion33 and Certificate of Occupancy34 to prove the projects completion. While it is true that under the Rules of Court, the issuance of the foregoing documents enjoy the presumption of regularity, however, it is only a disputable presumption, which may be overcome by other evidence. The agreed construction cost of the project was P5,090,560.00, however, the amounts reflected in the Building Permit, the Certificate of Completion and the Certificate of Occupancy are far less. In the Building Permit, the total cost was pegged at P2,191,700.00; in the Certificate of Completion, the actual cost of construction was P2,347,706.81; while in the Certificate of Occupancy the cost of the project as built was declared at P2,341,706.00. Considering the discrepancies, the conclusiveness of the said documents fall when arrayed against the pieces of evidence introduced by the spouses Yao. However, we find that the spouses Yao likewise failed to comply with their undertakings.

Even assuming, therefore, that the Lessees obligation to insure the building arose after the completion of the construction of the buildings in September, 1951, as the Lessor also defaulted in the performance of his corresponding duty, it can not really be determined with definiteness who of the parties committed the first infraction of the terms of the contract. Under the circumstances, the conclusion reached by the Court of Appeals, that the parties are actually in pari delicto, must be sustained, and the contract deemed extinguished, with the parties suffering their respective losses. In the instant case, the losses to be incurred by the parties will come, as far as Matela is concerned, in the form of the alleged unpaid balance of the construction cost that he is seeking to collect from the spouses Yao. For the latter, the losses that they will bear is the cost of repairing the defects in the project. We consider the amount of P4,699,610.93 which Matela has already received from the spouses Yao, as sufficient payment for his services and the materials used in the project. WHEREFORE, the Decision dated September 30, 2004 of the Court of Appeals in CA-G.R. CV No. 75264 which affirmed with modification the Decision of the Regional Trial Court of Las Pias City, Branch 275, and its Resolution dated April 15, 2005 denying reconsideration thereof, are REVERSED and SET ASIDE. The contract between spouses William and Jeanette Yao and Carlomagno B. Matela is DEEMED EXTINGUISHED and each of the parties shall bear their own losses. SO ORDERED.

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ARTICLE 1207 SECOND DIVISION [G.R. No. 101723. May 11, 2000] INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO), petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, (Fourth Division) Cebu City, and ENRIQUE SULIT, SOCORRO MAHINAY, ESMERALDO PEGARIDO, TITA BACUSMO, GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO, and ROBERTO ALEGARBES, respondents. DECISION BUENA, J.: This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the National Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of the Decision dated March 10, 1987, thereby holding that the liability of the six respondents in the case below is solidary despite the absence of the word "solidary" in the dispositive portion of the Decision, when their liability should merely be joint. S-jcj The factual antecedents are undisputed: Supr-eme In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the Department of Labor and Employment, Regional Arbitration Branch No. VII in Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial Management Development Corporation (INIMACO), for payment of separation pay and unpaid wages. Sc-jj In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that: "RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering respondents Filipinas Carbon and Mining Corp. Gerardo Sicat, Antonio Gonzales/Industrial Management Development Corp. (INIMACO), Chiu Chin Gin and Lo Kuan Chin, to pay complainants Enrique Sulit, the total award of P82,800.00; ESMERALDO PEGARIDO the full award of P19,565.00; Roberto Nemenzo the total sum of P29,623.60 and DARIO GO the total award of P6,599.71, or the total aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND 31/100 (P138,588.31) to be deposited with this Commission within ten (10) days from receipt of this Decision for appropriate disposition. All other claims are hereby Dismiss (sic) for lack of merit. Jjs-c "SO ORDERED. "Cebu City, Philippines.

"10 March 1987."0[1] No appeal was filed within the reglementary period thus, the above Decision became final and executory. On June 16, 1987, the Labor Arbiter issued a writ of execution but it was returned unsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ of Execution which ordered thus: Ed-pm-is "NOW THEREFORE, by virtue of the powers vested in me by law, you are hereby commanded to proceed to the premises of respondents Antonio Gonzales/Industrial Management Development Corporation (INIMACO) situated at Barangay Lahug, Cebu City, in front of La Curacha Restaurant, and/or to Filipinas Carbon and Mining corporation and Gerardo Sicat at 4th Floor Universal RE-Bldg. 106 Paseo de Roxas, Legaspi Village, Makati Metro Manila and at Philippine National Bank, Escolta, Manila respectively, and collect the aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTYEIGHT PESOS AND THIRTY ONE CENTAVOS (P138,588.31) and thereafter turn over said amount to complainants ENRIQUE SULIT, ESMERALDO PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to this Office for appropriate disposition. Should you fail to collect the said sum in cash, you are hereby authorized to cause the satisfaction of the same on the movable or immovable property(s) of respondents not exempt from execution. You are to return this writ sixty (6) (sic) days from your receipt hereof, together with your corresponding report. "You may collect your legal expenses from the respondents as provided for by law. "SO ORDERED."[2] On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside Decision,"[3] alleging among others that the alias writ of execution altered and changed the tenor of the decision by changing the liability of therein respondents from joint to solidary, by the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial Management Development Corporation and Filipinas Carbon and Mining Corporation, et al." However, in an order dated September 14, 1987, the Labor Arbiter denied the motion. Mis-oedp On October 2, 1987, petitioner appealed[4] the Labor Arbiters Order dated September 14, 1987 to the respondent NLRC. Misedp The respondent NLRC dismissed the appeal in a Decision [5] dated August 31, 1988, the pertinent portions of which read: "In matters affecting labor rights and labor justice, we have always adopted the liberal approach which favors the exercise of labor rights and which is beneficial to labor as a means to give full meaning and import to the constitutional mandate to afford protection to labor. Considering the factual circumstances in this case, there is no doubt in our mind that the respondents herein are called upon to pay, jointly and severally, the claims of the

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complainants as was the latters prayers. Inasmuch as respondents herein never controverted the claims of the complainants below, there is no reason why complainants prayer should not be granted. Further, in line with the powers granted to the Commission under Article 218 (c) of the Labor code, to waive any error, defect or irregularity whether in substance or in form in a proceeding before Us, We hold that the Writ of Execution be given due course in all respects."Ed-p On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept Payment Of P23,198.05 Representing One Sixth Pro Rata Share of Respondent INIMACO As Full and Final Satisfaction of Judgment As to Said Respondent."[6] The private respondents opposed the motion. In an Order[7] dated August 15, 1989, the Labor Arbiter denied the motion ruling thus: "WHEREFORE, responsive to the foregoing respondent INIMACOs Motions are hereby DENIED. The Sheriff of this Office is order (sic) to accept INIMACOs tender payment (sic) of the sum of P23,198.05, as partial satisfaction of the judgment and to proceed with the enforcement of the Alias Writ of Execution of the levied properties, now issued by this Office, for the full and final satisfaction of the monetary award granted in the instant case. "SO ORDERED." Ed-psc Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the respondent NLRC in its Resolution[8] dated September 4, 1991 which held that: "The arguments of respondent on the finality of the dispositive portion of the decision in this case is beside the point. What is important is that the Commission has ruled that the Writ of Execution issued by the Labor Arbiter in this case is proper. It is not really correct to say that said Writ of Execution varied the terms of the judgment. At most, considering the nature of labor proceedings there was, an ambiguity in said dispositive portion which was subsequently clarified by the Labor Arbiter and the Commission in the incidents which were initiated by INIMACO itself. By sheer technicality and unfounded assertions, INIMACO would now reopen the issue which was already resolved against it. It is not in keeping with the established rules of practice and procedure to allow this attempt of INIMACO to delay the final disposition of this case. "WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and the Order appealed from is hereby AFFIRMED. Sce-dp "With double costs against appellant." Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent NLRC committed grave abuse of discretion in affirming the Order of the Labor Arbiter dated August 15, 1989, which declared the liability of petitioner to be solidary.

The only issue in this petition is whether petitioners liability pursuant to the Decision of the Labor Arbiter dated March 10, 1987, is solidary or not. Calrs-pped Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner INIMACOs liability is not solidary but merely joint and that the respondent NLRC acted with grave abuse of discretion in upholding the Labor Arbiters Alias Writ of Execution and subsequent Orders to the effect that petitioners liability is solidary. A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation.[9] In a joint obligation each obligor answers only for a part of the whole liability and to each obligee belongs only a part of the correlative rights. [10] Well-entrenched is the rule that solidary obligation cannot lightly be inferred.[11] There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.[12] In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6) respondents in the case below is solidary, thus their liability should merely be joint. Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment. In Oriental Commercial Co. vs. Abeto and Mabanag [13] this Court held: "It is of no consequence that, under the contract of suretyship executed by the parties, the obligation contracted by the sureties was joint and several in character. The final judgment, which superseded the action for the enforcement of said contract, declared the obligation to be merely joint, and the same cannot be executed otherwise."[14] Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of respondents therein is solidary, the correction -- which is substantial -- can no longer be allowed in this case because the judgment has already become final and executory. Scc-alr It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties.[15] Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. [16] It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose.[17] An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity.[18] None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10, 1987, hence the same became final and executory. It was, therefore, removed from the jurisdiction of

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the Labor Arbiter or the NLRC to further alter or amend it. Thus, the proceedings held for the purpose of amending or altering the dispositive portion of the said decision are null and void for lack of jurisdiction. Also, the Alias Writ of Execution is null and void because it varied the tenor of the judgment in that it sought to enforce the final judgment against "Antonio Gonzales/Industrial Management Development Corp. (INIMACO) and/or Filipinas Carbon and Mining Corp. and Gerardo Sicat," which makes the liability solidary. Ca-lrsc WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4, 1991 of the respondent National Labor Relations is hereby declared NULL and VOID. The liability of the respondents in RAB-VII-0711-84 pursuant to the Decision of the Labor Arbiter dated March 10, 1987 should be, as it is hereby, considered joint and petitioners payment which has been accepted considered as full satisfaction of its liability, without prejudice to the enforcement of the award, against the other five (5) respondents in the said case. Sppedsc SO ORDERED.

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G.R. No. 144134. November 11, 2003]

MARIVELES SHIPYARD CORP., petitioner, vs. HON. COURT OF APPEALS, LUIS REGONDOLA, MANUELIT GATALAN, ORESCA AGAPITO, NOEL ALBADBAD, ROGELIO PINTUAN, DANILO CRISOSTOMO, ROMULO MACALINAO, NESTOR FERER, RICKY CUESTA, ROLLY ANDRADA, LARRY ROGOLA, FRANCISCO LENOGON, AUGUSTO QUINTO, ARFE BERAMO, BONIFACIO TRINIDAD, ALFREDO ASCARRAGA, ERNESTO MAGNO, HONORARIO HORTECIO, NELBERT PINEDA, GLEN ESTIPULAR, FRANCISCO COMPUESTO, ISABELITO CORTEZ, MATURAN ROSAURO, SAMSON CANAS, FEBIEN ISIP, JESUS RIPARIP, ALFREDO SIENES, ADOLAR ALBERT, HONESTO CABANILLAS, AMPING CASTILLO and ELWIN REVILLA, respondents. DECISION QUISUMBING, J.: For review on certiorari is the Resolution,[1] dated December 29, 1999, of the Court of Appeals in CA-G.R. SP No. 55416, which dismissed outright the petition for certiorari of Mariveles Shipyard Corp., due to a defective certificate of nonforum shopping and non-submission of the required documents to accompany said petition. Mariveles Shipyard Corp., had filed a special civil action for certiorari with the Court of Appeals to nullify the resolution[2] of the National Labor Relations Commission (NLRC), dated April 22, 1999, in NLRC NCR Case No. 00-09-005440-96-A, which affirmed the Labor Arbiters decision,[3] dated May 22, 1998, holding petitioner jointly and severally liable with Longest Force Investigation and Security Agency, Inc., for the underpayment of wages and overtime pay due to the private respondents. Likewise challenged in the instant petition is the resolution[4] of the Court of Appeals, dated July 12, 2000, denying petitioners motion for reconsideration. The facts, as culled from records, are as follows: Sometime on October 1993, petitioner Mariveles Shipyard Corporation engaged the services of Longest Force Investigation and Security Agency, Inc. (hereinafter, Longest Force) to render security services at its premises. Pursuant to their agreement, Longest Force deployed its security guards, the private respondents herein, at the petitioners shipyard in Mariveles, Bataan. According to petitioner, it religiously complied with the terms of the security contract with Longest Force, promptly paying its bills and the contract rates of the latter. However, it found the services being rendered by the assigned guards unsatisfactory and inadequate, causing it to terminate its contract with Longest Force on April 1995.[5] Longest Force, in turn, terminated the employment of the security guards it had deployed at petitioners shipyard. On September 2, 1996, private respondents filed a case for illegal dismissal, underpayment of wages pursuant to the PNPSOSIA-PADPAO rates, non-payment of overtime pay, premium pay for holiday and rest day, service incentive leave pay, 13th month pay and attorneys fees, against both Longest Force and petitioner, before the Labor Arbiter. Docketed as NLRC NCR Case No. 00-09-005440-96-A, the case sought the guards reinstatement with full backwages and without loss of seniority rights. For its part, Longest Force filed a cross-claim[6] against the petitioner. Longest Force admitted that it employed private respondents and assigned them as security guards at the premises

of petitioner from October 16, 1993 to April 30, 1995, rendering a 12 hours duty per shift for the said period. It likewise admitted its liability as to the non-payment of the alleged wage differential in the total amount of P2,618,025 but passed on the liability to petitioner alleging that the service fee paid by the latter to it was way below the PNPSOSIA and PADPAO rate, thus, contrary to the mandatory and prohibitive laws because the right to proper compensation and benefits provided under the existing labor laws cannot be waived nor compromised. The petitioner denied any liability on account of the alleged illegal dismissal, stressing that no employer-employee relationship existed between it and the security guards. It further pointed out that it would be the height of injustice to make it liable again for monetary claims which it had already paid. Anent the cross-claim filed by Longest Force against it, petitioner prayed that it be dismissed for lack of merit. Petitioner averred that Longest Force had benefited from the contract, it was now estopped from questioning said agreement on the ground that it had made a bad deal. On May 22, 1998, the Labor Arbiter decided NLRC NCR Case No. 00-09-005440-96-A, to wit: WHEREFORE, conformably with the foregoing, judgment is hereby rendered ordering the respondents as follows: 1. DECLARING respondents Longest Force Investigation & Security Agency, Inc. and Mariveles Shipyard Corporation jointly and severally liable to pay the money claims of complainants representing underpayment of wages and overtime pay in the total amount of P2,700,623.40 based on the PADPAO rates of pay covering the period from October 16, 1993 up to April 29, 1995 broken down as follows: UNDERPAYMENT OF WAGES: PERIOD MONTHLY COVERED PADPAO ACTUAL UNDERPAYMENT RATE SALARY FOR THE Wage (8 hrs. duty) RECEIVED PE RIOD DIFFERENTIAL S Oct. 16Dec. P5,485.00 .00 P970.00 15/93 (2 mos.) Dec. 16/93Mar. 1,630.00 31/94 (3.5 mos.) Apr. 1Dec. 1,280.00 31/94 (9 mos.) Jan. 1Apr. 1,410.00 29/95 (3.97 mos.) 6,630.00 5,705.00 P5,000 P 485

5,000

7,090.00 11,520.00

5,810

7,220.00 5,597.70

5,810

TOTAL UNDERPAYMENTS - -------------P23,792.70 OVERTIME: Oct. 16-Dec. 15/93 P5,485 x 2 (2 mos.) 2 = P 5,485.00

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Dec. 16/93-Mar. 31/94 (3.5 mos.) Apr. 1-Dec. 31/94 (9 mos.) Jan. 1-Apr. 29/95 (3.97 mos.)

6,630 x 3.5 2 7,090 x 9 2 7,220 x 3.97 2

= 11,602.50

= 31,905.00

30. Castillo Amping (the same) 87,116.90 31. Revilla Elwin (the same) 87,116.90 GRAND TOTAL P 2,700,623.90

= 14,331.70 2. DECLARING both respondents liable to pay complainants attorneys fees equivalent to ten (10%) percent of the total award recovered or the sum ofP270,062.34. 3. ORDERING respondent Longest Force Investigation & Security Agency, Inc. to reinstate all the herein complainants to their former or equivalent positions without loss of seniority rights and privileges with full backwages which as computed as of the date of this decision are as follows: Backwages: 10/16 12/15/93 =2 mos. P 5,485.00 x 2 mos. 12/16/93 3/31/94=3.5 mos. P 6,630.00 x 3.5 mos. = 4/1 12/31/94 = 9 mos. P 7,090.00 x 9 mos.

TOTAL OVERTIME- - - - - - - - - P63,324.20 Sub-Total of Underpayments and Overtime P87,116.90 1. Luis Regondula (the same) 2. Manolito Catalan (the same) 87,116.90 3. Oresca Agapito (the same) 87,116.90 4. Noel Alibadbad (the same) 87,116.90 5. Rogelio Pintuan (the same) 87,116.90 6. Danilo Crisostomo (the same) 87,116.90 7. Romulo Macalinao (the same) 87,116.90 8. Nestor Ferrer (the same) 87,116.90 9. Ricky Cuesta (the same) 87,116.90 10. Andrada Ricky (the same) 87,116.90 11. Larry Rogola (the same) 87,116.90 12. Francisco Lenogon (the same) 87,116.90 13. Augosto Quinto (the same) 87,116.90 14. Arfe Beramo (the same) 87,116.90 15. Bonifacio Trinidad (the same) 87,116.90 16. Alfredo Azcarraga (the same) 87,116.90 17. Ernesto Magno (the same) 87,116.90 18. Honario Hortecio (the same) 87,116.90 19. Nelbert Pineda (the same) 87,116.90 20. Glen Estipular (the same) 87,116.90 21. Francisco Compuesto (the same) 87,116.90 22. Isabelito Cortes (the same) 87,116.90 23. Maturan Rosauro (the same) 87,116.90 24. Samson Canas (the same) 87,116.90 25. Febien Isip (the same) 87,116.90 26. Jesus Riparip (the same) 87,116.90 27. Alfredo Sienes (the same) 87,116.90 28. Adolar Albert (the same) 87,116.90 29. Cabanillas Honesto (the same) 87,116.90 P 87,116.90

P 10,970.00

23,205.00

63,810.00

1/1 4/29/95 = 3.97 mos. P 7,220.00 x 3.97 mos. = TOTAL 1. Luis Regondula (same) 2. Manolito Catalan 126,684.40 3. Oresca Agapito 126,684.40 4. Noel Alibadbad 126,684.40 5. Rogelio Pintuan 126,684.40 6. Danilo Crisostomo 126,684.40 7. Romulo Macalinao 126,684.40 8. Nestor Ferrer 126,684.40 9. Ricky Cuesta 126,684.40 10. Andrada Rolly 126,684.40 11. Larry Rogola 126,684.40 12. Francisco Lenogon 126,684.40 13. Augosto Quinto 126,684.40 14. Arfe Beramo 126,684.40 15. Bonifacio Trinidad (same) 0 16. Alfredo Azcarraga 126,684.40 17. Ernesto Magno 126,684.40 18. Honario Hortecio 126,684.40

28,663.40 P 126,684.40[7]

P (same) (same) (same) (same) (same) (same) (same) (same) (same) (same) (same) (same) (same)

126,684.40[8]

126,684.4 (same) (same) (same)

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19. Nelbert Pineda (same) 40 20. Glen Estipular 126,684.40 21. Francisco Compuesto 126,684.40 22. Isabelito Cortes (same) 0 23. Maturan Rosauro 126,684.40 24. Samson Canas 126,684.40 25. Febien Isip 126,684.40 26. Jesus Riparip 126,684.40 27. Alfredo Sienes 126,684.40 28. Adolar Albert (same) 4.40 29. Cabanillas Honesto 126,684.40 30. Castillo Amping 126,684.40 31. Revilla Elwin (same) .40 GRAND TOTAL

126,684. (same) (same)

Hence, this present petition before us. Petitioner submits that THE COURT OF APPEALS GRAVELY ERRED: 1. .IN DISMISSING THE PETITION AND DENYING THE MOTION FOR RECONSIDERATION DESPITE THE FACT THAT PETITIONER SUBSTANTIALLY COMPLIED WITH THE REQUIREMENTS OF SECTION 1, RULE 65, 1997 RULES OF CIVIL PROCEDURE. 2. .IN RULING THAT PETITIONER WAS NOT DENIED DUE PROCESS OF LAW. 3. .IN AFFIRMING THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION THAT LONGEST FORCE AND PETITIONER ARE JOINTLY AND SEVERALLY LIABLE FOR PAYMENT OF WAGES AND OVERTIME PAY DESPITE THE CLEAR SHOWING THAT PETITIONER HAVE ALREADY PAID THE SECURITY SERVICES THAT WAS RENDERED BY PRIVATE RESPONDENTS. 4. WHEN IT FAILED TO RULE THAT ONLY LONGEST FORCE SHOULD BE SOLELY AND ULTIMATELY LIABLE IN THE INSTANT CASE.[13]

126,684.4 (same) (same) (same) (same) (same)

126,68 (same) (same)

126,684 P3,927,216.40
[9]

4. ORDERING said Longest Force Investigation & Security Agency, Inc. to pay attorneys fees equivalent to ten (10%) percent of the total award recovered representing backwages in the amount of P392,721.64.[10] 5. DISMISSING all other claims for lack of legal basis. SO ORDERED.[11] Petitioner appealed the foregoing to the NLRC in NLRC NCR Case No. 00-09-005440-96-A. The labor tribunal, however, affirmed in totothe decision of the Labor Arbiter. Petitioner moved for reconsideration, but this was denied by the NLRC. The petitioner then filed a special civil action for certiorari assailing the NLRC judgment for having been rendered with grave abuse of discretion with the Court of Appeals, docketed as CA-G.R. SP No. 55416. The Court of Appeals, however, denied due course to the petition and dismissed it outright for the following reasons: 1. The verification and certification on non-forum shopping is signed not by duly authorized officer of petitioner corporation, but by counsel (Section 1, Rule 65, 1997 Rules of Civil Procedure). 2. The petition is unaccompanied by copies of relevant and pertinent documents, particularly the motion for reconsideration filed before the NLRC (Section 1, Rule 65, 1997 Rules of Civil Procedure).[12] The petitioner then moved for reconsideration of the order of dismissal. The appellate court denied the motion, pointing out that under prevailing case law subsequent compliance with formal requirements for filing a petition as prescribed by the Rules, does not ipso facto warrant a reconsideration. In any event, it found no grave abuse of discretion on the part of the NLRC to grant the writ of certiorari.

We find the issues for our resolution to be: (1) Was it error for the Court of Appeals to sustain its order of dismissal of petitioners special civil action for certiorari, notwithstanding subsequent compliance with the requirements under the Rules of Court by the petitioner? (2) Did the appellate court err in not holding that petitioner was denied due process of law by the NLRC? and (3) Did the appellate court grievously err in finding petitioner jointly and severally liable with Longest Force for the payment of wage differentials and overtime pay owing to the private respondents? On the first issue, the Court of Appeals in dismissing CAG.R. SP No. 55416 observed that: (1) the verification and certification of non-forum shopping was not signed by any duly authorized officer of petitioner but merely by petitioners counsel; and (2) the petition was not accompanied by a copy of motion for reconsideration filed before the NLRC, thus violating Section 1,[14] Rule 65 of the Rules of Court. Hence, a dismissal was proper under Section 3,[15] Rule 46 of the Rules. In assailing the appellate courts ruling, the petitioner appeals to our sense of compassion and kind consideration. It submits that the certification signed by its counsel and attached to its petition filed with the Court of Appeals is substantial compliance with the requirement. Moreover, petitioner calls our attention to the fact that when it filed its motion for reconsideration before the Court of Appeals, a joint verification and certification of non-forum shopping duly signed by its Personnel Manager[16] and a copy of the Motion for Reconsideration[17] filed before the NLRC were attached therein. Thus, petitioner prays that we take a liberal stance to promote the ends of justice. Petitioners plea for liberality, however, cannot be granted by the Court for reasons herein elucidated. It is settled that the requirement in the Rules that the certification of non-forum shopping should be executed and signed by the plaintiff or the principal means that counsel cannot sign said certification unless clothed with special authority to do so.[18] The reason for this is that the plaintiff or principal knows better than anyone else whether a petition has previously been filed involving the same case or substantially the same issues. Hence, a certification signed by counsel alone is defective and constitutes a valid cause for dismissal of the petition. [19] In the case of natural persons, the Rule requires the parties themselves

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to sign the certificate of non-forum shopping. However, in the case of the corporations, the physical act of signing may be performed, on behalf of the corporate entity, only by specifically authorized individuals for the simple reason that corporations, as artificial persons, cannot personally do the task themselves. [20] In this case, not only was the originally appended certification signed by counsel, but in its motion for reconsideration, still petitioner utterly failed to show that Ms. Rosanna Ignacio, its Personnel Manager who signed the verification and certification of non-forum shopping attached thereto, was duly authorized for this purpose. It cannot be gainsaid that obedience to the requirements of procedural rule is needed if we are to expect fair results therefrom. Utter disregard of the rules cannot justly be rationalized by harking on the policy of liberal construction. [21] Thus, on this point, no error could be validly attributed to respondent Court of Appeals. It did not err in dismissing the petition for non-compliance with the requirements governing the certification of non-forum shopping. Anent the second issue, petitioner avers that there was denial of due process of law when the Labor Arbiter failed to have the case tried on the merits. Petitioner adds that the Arbiter did not observe the mandatory language of the then Sec. 5(b) Rule V (now Section 11, per amendment in Resolution No. 01-02, Series of 2002) of the NLRC New Rules of Procedure which provided that: If the Labor Arbiter finds no necessity of further hearing after the parties have submitted their position papers and supporting documents, he shall issue an Order to that effect and shall inform the parties, stating the reasons therefor. [22] Petitioners contention, in our view, lacks sufficient basis. Well settled is the rule that the essence of due process is simply an opportunity to be heard, or, as applied to administrative proceedings, an opportunity to explain ones side or an opportunity to seek a reconsideration of the action or ruling complained of.[23] Not all cases require a trial-type hearing. The requirement of due process in labor cases before a Labor Arbiter is satisfied when the parties are given the opportunity to submit their position papers to which they are supposed to attach all the supporting documents or documentary evidence that would prove their respective claims, in the event the Labor Arbiter determines that no formal hearing would be conducted or that such hearing was not necessary.[24] In any event, as found by the NLRC, petitioner was given ample opportunity to present its side in several hearings conducted before the Labor Arbiter and in the position papers and other supporting documents that it had submitted. We find that such opportunity more than satisfies the requirement of due process in labor cases. On the third issue, petitioner argues that it should not be held jointly and severally liable with Longest Force for underpayment of wages and overtime pay because it had been religiously and promptly paying the bills for the security services sent by Longest Force and that these are in accordance with the statutory minimum wage. Also, petitioner contends that it should not be held liable for overtime pay as private respondents failed to present proof that overtime work was actually performed. Lastly, petitioner claims that the Court of Appeals failed to render a decision that finally disposed of the case because it did not specifically rule on the immediate recourse of private respondents, that is, the matter of reimbursement between petitioner and Longest Force in accordance with Eagle Security Agency Inc. v. NLRC,[25] and Philippine Fisheries Development Authority v. NLRC.[26] Petitioners liability is joint and several with that of Longest Force, pursuant to Articles 106, 107 and 109 of the Labor Code which provide as follows:

ART. 106. CONTRACTOR OR SUBCONTRACTOR Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. xxx ART. 107. INDIRECT EMPLOYER. The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. ART. 109. SOLIDARY LIABILITY. The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. In this case, when petitioner contracted for security services with Longest Force as the security agency that hired private respondents to work as guards for the shipyard corporation, petitioner became an indirect employer of private respondents pursuant to Article 107 abovecited. Following Article 106, when the agency as contractor failed to pay the guards, the corporation as principal becomes jointly and severally liable for the guards wages. This is mandated by the Labor Code to ensure compliance with its provisions, including payment of statutory minimum wage. The security agency is held liable by virtue of its status as direct employer, while the corporation is deemed the indirect employer of the guards for the purpose of paying their wages in the event of failure of the agency to pay them. This statutory scheme gives the workers the ample protection consonant with labor and social justice provisions of the 1987 Constitution.[27] Petitioner cannot evade its liability by claiming that it had religiously paid the compensation of guards as stipulated under the contract with the security agency. Labor standards are enacted by the legislature to alleviate the plight of workers whose wages barely meet the spiraling costs of their basic needs. Labor laws are considered written in every contract. Stipulations in violation thereof are considered null. Similarly, legislated wage increases are deemed amendments to the contract. Thus, employers cannot hide behind their contracts in order to evade their (or their contractors or subcontractors) liability for noncompliance with the statutory minimum wage.[28] However, we must emphasize that the solidary liability of petitioner with that of Longest Force does not preclude the application of the Civil Code provision on the right of reimbursement from his co-debtor by the one who paid.[29] As held in Del Rosario & Sons Logging Enterprises, Inc. v. NLRC,[30] the joint and several liability imposed on petitioner is without prejudice to a claim for reimbursement by petitioner against the security agency for such amounts as petitioner may have to pay to complainants, the private respondents herein. The security agency may not seek exculpation by claiming that the principals payments to it were inadequate for the guards lawful compensation. As an employer, the security agency is charged with knowledge of labor laws; and the adequacy of the compensation that it demands for contractual services is its principal concern and not any others.[31]

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On the issue of the propriety of the award of overtime pay despite the alleged lack of proof thereof, suffice it to state that such involves a determination and evaluation of facts which cannot be done in a petition for review. Well established is the rule that in an appeal via certiorari, only questions of law may be reviewed.[32] One final point. Upon review of the award of backwages and attorneys fees, we discovered certain errors that happened in the addition of the amount of individual backwages that resulted in the erroneous total amount of backwages and attorneys fees. These errors ought to be properly rectified now. Thus, the correct sum of individual backwages should be P126,648.40 instead of P126,684.40, while the correct sum of total backwages awarded and attorneys fees should be P3,926,100.40 and P392,610.04, instead of P3,927,216.40 and P392,721.64, respectively. WHEREFORE, the Resolution of the Court of Appeals in CA-G.R. SP No. 55416 is AFFIRMED with MODIFICATION. Petitioner and Longest Force are held liable jointly and severally for underpayment of wages and overtime pay of the security guards, without prejudice to petitioners right of reimbursement from Longest Force Investigation and Security Agency, Inc. The amounts payable to complaining security guards, herein private respondents, by way of total backwages and attorneys fees are hereby set at P3,926,100.40 and P392,610.04, respectively. Costs against petitioner. SO ORDERED.

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G.R. No. 147791

September 8, 2006

that they are entitled to a reasonable amount of attorney's fees and litigation expenses. CDCP filed its Answer6 which was later amended to include a third-party complaint against Philippine Phoenix Surety and Insurance, Inc. (Phoenix).7 On February 9, 1993, the trial court rendered a decision finding CDCP and BLTB and their employees liable for damages, the dispositive portion of which, states: WHEREFORE, judgment is rendered:

CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES, petitioner, vs. REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY & INSURANCE INC., BATANGAS LAGUNA TAYABAS BUS CO., and WILFREDO DATINGUINOO, respondents. DECISION YNARES-SANTIAGO, J.:

In the Complaint This petition for review assails the March 29, 2001 Decision 1 of the Court of Appeals in CA-G.R. CV No. 46896, which affirmed with modification the February 9, 1993 Decision2 of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137, finding Batangas Laguna Tayabas Bus Co. (BLTB) and Construction Development Corporation of the Philippines (CDCP) liable for damages. The antecedent facts are as follows: On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City. However, they never reached their destination because their bus was rammed from behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed forward their seats and pinned their knees to the seats in front of them. They regained consciousness only when rescuers created a hole in the bus and extricated their legs from under the seats. They were brought to the Makati Medical Center where the doctors diagnosed their injuries to be as follows: Medical Certificate of Rebecca Estrella Fracture, left tibia mid 3rd Lacerated wound, chin Contusions with abrasions, left lower leg Fracture, 6th and 7th ribs, right3 Medical Certificate of Rachel Fletcher Extensive lacerated wounds, right leg posterior aspect popliteal area and antero-lateral aspect mid lower leg with severance of muscles. Partial amputation BK left leg with severance of gastrosoleus and antero-lateral compartment of lower leg. Fracture, open comminuted, both tibial4 Thereafter, respondents filed a Complaint5 for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila, Branch 13. They alleged (1) that Payunan, Jr. and Datinguinoo, who were the drivers of CDCP and BLTB buses, respectively, were negligent and did not obey traffic laws; (2) that BLTB and CDCP did not exercise the diligence of a good father of a family in the selection and supervision of their employees; (3) that BLTB allowed its bus to operate knowing that it lacked proper maintenance thus exposing its passengers to grave danger; (4) that they suffered actual damages amounting to P250,000.00 for Estrella and P300,000.00 for Fletcher; (5) that they suffered physical discomfort, serious anxiety, fright and mental anguish, besmirched reputation and wounded feelings, moral shock, and lifelong social humiliation; (6) that defendants failed to act with justice, give respondents their due, observe honesty and good faith which entitles them to claim for exemplary damage; and (7) 1. In favor of the plaintiffs and against the defendants BLTB, Wilfredo Datinguinoo, Construction and Development Corporation of the Philippines (now PNCC) and Espiridion Payunan, Jr., ordering said defendants, jointly and severally to pay the plaintiffs the sum of P79,254.43 as actual damages and to pay the sum of P10,000.00 as attorney's fees or a total of P89,254.43; 2. In addition, defendant Construction and Development Corporation of the Philippines and defendant Espiridion Payunan, Jr., shall pay the plaintiffs the amount of Fifty Thousand (P50,000.00) Pesos to plaintiff Rachel Fletcher and Twenty Five Thousand (P25,000.00) Pesos to plaintiff Rebecca Estrella; 3. On the counterclaim of BLTB Co. and Wilfredo Datinguinoo Dismissing the counterclaim; 4. On the crossclaim against Construction and Development Corporation of the Philippines (now PNCC) and Espiridion Payunan, Jr. Dismissing the crossclaim; 5. On the counterclaim of Construction and Development Corporation of the Philippines (now PNCC) Dismissing the counterclaim; 6. On the crossclaim against BLTB Dismissing the crossclaim; 7. On the Third Party Complaint by Construction and Development Corporation of the Philippines against Philippine Phoenix Surety and Insurance, Incorporated Dismissing the Third Party Complaint. SO ORDERED.8 The trial court held that BLTB, as a common carrier, was bound to observe extraordinary diligence in the vigilance over the safety of its passengers. It must carry the passengers safely as far as human care and foresight provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Thus, where a passenger dies or is injured, the carrier is presumed to have been at fault or has acted negligently. BLTB's inability to carry respondents to their destination gave rise to an action for

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breach of contract of carriage while its failure to rebut the presumption of negligence made it liable to respondents for the breach.9 Regarding CDCP, the trial court found that the tractor-truck it owned bumped the BLTB bus from behind. Evidence showed that CDCP's driver was reckless and driving very fast at the time of the incident. The gross negligence of its driver raised the presumption that CDCP was negligent either in the selection or in the supervision of its employees which it failed to rebut thus making it and its driver liable to respondents. 10 Unsatisfied with the award of damages and attorney's fees by the trial court, respondents moved that the decision be reconsidered but was denied. Respondents elevated the case11 to the Court of Appeals which affirmed the decision of the trial court but modified the amount of damages, the dispositive portion of which provides: WHEREFORE, the assailed decision dated October 7, 1993 of the Regional Trial Court, Branch 13, Manila is hereby AFFIRMED with the following MODIFICATION: 1. The interest of six (6) percent per annum on the actual damages of P79,354.43 should commence to run from the time the judicial demand was made or from the filing of the complaint on February 4, 1980; 2. Thirty (30) percent of the total amount recovered is hereby awarded as attorney's fees; 3. Defendants-appellants Construction and Development Corporation of the Philippines (now PNCC) and Espiridion Payunan, Jr. are ordered to pay plaintiffappellants Rebecca Estrella and Rachel Fletcher the amount of Twenty Thousand (P20,000.00) each as exemplary damages and P80,000.00 by way of moral damages to Rachel Fletcher. SO ORDERED.12 The Court of Appeals held that the actual or compensatory damage sought by respondents for the injuries they sustained in the form of hospital bills were already liquidated and were ascertained. Accordingly, the 6% interest per annum should commence to run from the time the judicial demand was made or from the filing of the complaint and not from the date of judgment. The Court of Appeals also awarded attorney's fees equivalent to 30% of the total amount recovered based on the retainer agreement of the parties. The appellate court also held that respondents are entitled to exemplary and moral damages. Finally, it affirmed the ruling of the trial court that the claim of CDCP against Phoenix had already prescribed. Hence, this petition raising the following issues: I WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENTS BLTB AND/OR ITS DRIVER WILFREDO DATINGUINOO SOLELY LIABLE FOR THE DAMAGES SUSTAINED BY HEREIN RESPONDENTS FLETCHER AND ESTRELLA. II

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN AWARDING EXCESSIVE OR UNFOUNDED DAMAGES, ATTORNEY'S FEES AND LEGAL INTEREST TO RESPONDENTS FLETCHER AND ESTRELLA. III WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENT PHOENIX LIABLE UNDER ITS INSURANCE POLICY ON THE GROUND OF PRESCRIPTION. The issues for resolution are as follows: (1) whether BLTB and its driver Wilfredo Datinguinoo are solely liable for the damages sustained by respondents; (2) whether the damages, attorney's fees and legal interest awarded by the CA are excessive and unfounded; (3) whether CDCP can recover under its insurance policy from Phoenix. Petitioner contends that since it was made solidarily liable with BLTB for actual damages and attorney's fees in paragraph 1 of the trial court's decision, then it should no longer be held liable to pay the amounts stated in paragraph 2 of the same decision. Petitioner claims that the liability for actual damages and attorney's fees is based on culpa contractual, thus, only BLTB should be held liable. As regards paragraph 2 of the trial court's decision, petitioner claims that it is ambiguous and arbitrary because the dispositive portion did not state the basis and nature of such award. Respondents, on the other hand, argue that petitioner is also at fault, hence, it was properly joined as a party. There may be an action arising out of one incident where questions of fact are common to all. Thus, the cause of action based on culpa aquiliana in the civil suit they filed against it was valid. The petition lacks merit. The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of the Civil Code.13 In this regard, Article 2180 provides that the obligation imposed by Article 2176 is demandable for the acts or omissions of those persons for whom one is responsible. Consequently, an action based on quasi-delict may be instituted against the employer for an employee's act or omission. The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the defense of due diligence in the selection and supervision of the employee.14 In the instant case, the trial court found that petitioner failed to prove that it exercised the diligence of a good father of a family in the selection and supervision of Payunan, Jr. The trial court and the Court of Appeals found petitioner solidarily liable with BLTB for the actual damages suffered by respondents because of the injuries they sustained. It was established that Payunan, Jr. was driving recklessly because of the skid marks as shown in the sketch of the police investigator. It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the owner of the other vehicle which collided with a common carrier is solidarily liable to the injured passenger of the same. We held, thus: The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff was riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an accident. In Anuran v. Buo, Batangas

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Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver of the vehicle were jointly and severally held liable to the injured passenger or the latter's heirs. The basis of this allocation of liability was explained inViluan v. Court of Appeals, thus: Nor should it make any difference that the liability of petitioner [bus owner] springs from contract while that of respondents [owner and driver of other vehicle] arises from quasi-delict.As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of the bus on which he was riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for damages. x x x xxxx As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out their claim against the carrier and the driver exclusively on one theory, much less on that of breach of contract alone.After all, it was permitted for them to allege alternative causes of action and join as many parties as may be liable on such causes of action so long as private respondent and her co-plaintiffs do not recover twice for the same injury. What is clear from the cases is the intent of the plaintiff there to recover from both the carrier and the driver, thus justifying the holding that the carrier and the driver were jointly and severally liable because their separate and distinct acts concurred to produce the same injury.16(Emphasis supplied) In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several" obligation, the relationship between the active and the passive subjects is so close that each of them must comply with or demand the fulfillment of the whole obligation. In Lafarge Cement v. Continental Cement Corporation,17 we reiterated that joint tort feasors are jointly and severally liable for the tort which they commit. Citing Worcester v. Ocampo,18 we held that: x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if they had performed the wrongful act themselves. x xx Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of the others. x x x

Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and severally liable for the whole amount. x x x A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally operates to discharge all. x x x Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable. The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true even though they are charged jointly and severally.19 Petitioner's claim that paragraph 2 of the dispositive portion of the trial court's decision is ambiguous and arbitrary and also entitles respondents to recover twice is without basis. In the body of the trial court's decision, it was clearly stated that petitioner and its driver Payunan, Jr., are jointly and solidarily liable for moral damages in the amount of P50,000.00 to respondent Fletcher and P25,000.00 to respondent Estrella.20 Moreover, there could be no double recovery because the award in paragraph 2 is for moral damages while the award in paragraph 1 is for actual damages and attorney's fees. Petitioner next claims that the damages, attorney's fees, and legal interest awarded by the Court of Appeals are excessive. Moral damages may be recovered in quasi-delicts causing physical injuries.21 The award of moral damages in favor of Fletcher and Estrella in the amount of P80,000.00 must be reduced since prevailing jurisprudence fixed the same at P50,000.00.22 While moral damages are not intended to enrich the plaintiff at the expense of the defendant, the award should nonetheless be commensurate to the suffering inflicted. 23 The Court of Appeals correctly awarded respondents exemplary damages in the amount of P20,000.00 each. Exemplary damages may be awarded in addition to moral and compensatory damages.24 Article 2231 of the Civil Code also states that in quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence.25 In this case, petitioner's driver was driving recklessly at the time its truck rammed the BLTB bus. Petitioner, who has direct and primary liability for the negligent conduct of its subordinates, was also found negligent in the selection and supervision of its employees. In Del Rosario v. Court of Appeals,26 we held, thus: ART. 2229 of the Civil Code also provides that such damages may be imposed, by way of example or correction for the public good. While exemplary damages cannot be recovered as a matter of right, they need not be proved, although plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. Exemplary Damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. Regarding attorney's fees, we held in Traders Royal Bank Employees Union-Independent v. National Labor Relations Commission,27 that:

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There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its ordinary concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter. The basis of this compensation is the fact of his employment by and his agreement with the client. In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be paid by the losing party in a litigation. The basis of this is any of the cases provided by law where such award can be made, such as those authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as additional compensation or as part thereof.28 (Emphasis supplied) In the instant case, the Court of Appeals correctly awarded attorney's fees and other expenses of litigation as they may be recovered as actual or compensatory damages when exemplary damages are awarded; when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's valid, just and demandable claim; and in any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.29 Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held inEastern Shipping Lines, Inc. v. Court of Appeals,30 that when an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept of actual and compensatory damages,31 subject to the following rules, to wit 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made,the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim

period being deemed to be by then an equivalent to a forbearance of credit.32 (Emphasis supplied) Accordingly, the legal interest of 6% shall begin to run on February 9, 1993 when the trial court rendered judgment and not on February 4, 1980 when the complaint was filed. This is because at the time of the filing of the complaint, the amount of the damages to which plaintiffs may be entitled remains unliquidated and unknown, until it is definitely ascertained, assessed and determined by the court and only upon presentation of proof thereon.33From the time the judgment becomes final and executory, the interest rate shall be 12% until its satisfaction. Anent the last issue of whether petitioner can recover under its insurance policy from Phoenix, we affirm the findings of both the trial court and the Court of Appeals, thus: As regards the liability of Phoenix, the court a quo correctly ruled that defendant-appellant CDCP's claim against Phoenix already prescribed pursuant to Section 384 of P.D. 612, as amended, which provides: Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe. (As amended by PD 1814, BP 874.)34 The law is clear and leaves no room for interpretation. A written notice of claim must be filed within six months from the date of the accident. Since petitioner never made any claim within six months from the date of the accident, its claim has already prescribed. WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46896 dated March 29, 2001, which modified the Decision of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137, is AFFIRMED with the MODIFICATIONS that petitioner is held jointly and severally liable to pay (1) actual damages in the amount of P79,354.43; (2) moral damages in the amount of P50,000.00 each for Rachel Fletcher and Rebecca Estrella; (3) exemplary damages in the amount of P20,000.00 each for Rebecca Estrella and Rachel Fletcher; and (4) thirty percent (30%) of the total amount recovered as attorney's fees. The total amount adjudged shall earn interest at the rate of 6% per annum from the date of judgment of the trial court until finality of this judgment. From the time this Decision becomes final and executory and the judgment amount remains unsatisfied, the same shall earn interest at the rate of 12% per annum until its satisfaction. SO ORDERED.

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G.R. No. 150402

November 28, 2006

EPARWA SECURITY AND JANITORIAL SERVICES, INC., Petitioner, vs. LICEO DE CAGAYAN UNIVERSITY, Respondent. DECISION CARPIO, J.: The Case This is a petition for certiorari of the Decision dated 20 April 2001 and the Resolution dated 21 September 2001 of the Court of Appeals ("appellate court") in CA-G.R. SP No. 59120, Liceo de Cagayan University v. The Hon. National Labor Relations Commission, Fifth Division, Eparwa Security and Janitorial Services, Inc., et al. The appellate court reinstated the 18 August 1999 decision3 of the Labor Arbiter and remanded the case to the Regional Arbitration Board, Branch No. 10 of Cagayan de Oro City to compute what is due to Liceo de Cagayan University (LDCU) from Eparwa Security and Janitorial Services, Inc. ("Eparwa"). The Facts On 1 December 1997, Eparwa and LDCU, through their representatives, entered into a Contract for Security Services. The pertinent portion of the contract provides that: 5. For and in consideration of this security, protective and safety services, [LDCU] agrees to pay [Eparwa] FIVE THOUSAND PESOS ONLY (P5,000.00), Philippine Currency per guard a month payable within fifteen (15) days after [Eparwa] presents its service invoice. [Eparwa] shall furnish [LDCU] a monthly copy of SSS contribution of guards and monthly payroll of each guard assigned at [LDCUs] premises on a monthly basis[.] 4 Eparwa allocated the contracted amount of P5,000 per security guard per month in the following manner: Basic Pay (P104.50 x 391.5/12) Night Diff. Pay 13th mo. Pay 5 day incentive leave Uniform allowance P3,409.31 113.64 284.10 43.54 50.00
1 2

Relations Commissions (NLRC) Regional Arbitration Branch No. 10 in Cagayan de Oro City. Docketed as NLRC-RABX Case No. 10-01-00102-99, the complaint was filed against both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13th month pay, rest day, service incentive leave, night shift differential, overtime pay, and payment for attorneys fees. LDCU made a cross-claim and prayed that Eparwa should reimburse LDCU for any payment to the security guards. The Ruling of the Labor Arbiter In its decision dated 18 August 1999, the Labor Arbiter found that the security guards are entitled to wage differentials and premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of the Labor Code. The dispositive portion of the Labor Arbiters decision reads: WHEREFORE, judgment is rendered[:] 1. Ordering respondents [LDCU] and [Eparwa] solidarily liable to pay [the security guards] for underpayment, holiday and rest day, as follows: Name 1. Casiero, 2. Villarino, 3. Lumbab, Jovencio Leonardo Adriano Amount P 46,819.95 46,819.95 46,819.95

4. Caballero, Gregorio, Jr. 46,819.95 5. Cajilla, Delfin, Jr. 37,918.95 20,321.10

6. Paduanga, Arnold 7. Dungog,

Achimedes 46,819.95 46,819.95 46,819.95 46,819.95 30,741.30

8. Magallanes, Eduardo 9. Dungog, 10. Dungog, 11. Bahian, Luigi Telford Wilfredo

P 463,540.95

Employers SSS, Medicare, ECC contribution 224.80 Agency share VAT 420.53 454.59 2. Denying the claim of unpaid 13th month pay, service incentive leave and night shift premium pay for lack of merit; 3. Ordering respondent [Eparwa] to reimburse respondent [LDCU] for whatever amount the latter may be required to pay [the security guards]; 4. Ordering respondent [Eparwa] to pay respondent [LDCU] P20,000.00 and P5,000.00 each of the [security guards], moral and exemplary damages; 5. Ordering [Eparwa] to pay 10% of attorneys fee[s][;]

CONTRACT RATE

P5,000.50

(rounded off to P5,000.00)5

On 21 December 1998, 11 security guards ("security guards") whom Eparwa assigned to LDCU from 1 December 1997 to 30 November 1998 filed a complaint before the National Labor

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6. The rest of the claims are denied for lack of merit. So Ordered.6 LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiters decision on the security guards entitlement to salary differential but challenged the propriety of the amount of the award. LDCU alleged that security guards not similarly situated were granted uniform monetary awards and that the decision did not include the basis of the computation of the amount of the award. Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its liability for the security guards claims and the awarded cross-claim amounts. The Ruling of the NLRC The Fifth Division of the NLRC resolved Eparwa and LDCUs separate appeals in its Resolution7 dated 19 January 2000. The NLRC found that the security guards are entitled to wage differentials and premium for holiday and rest day work. Although the NLRC held Eparwa and LDCU solidarily liable for the wage differentials and premium for holiday and rest day work, the NLRC did not require Eparwa to reimburse LDCU for its payments to the security guards. The NLRC also ordered the recomputation of the monetary awards according to the dates actually worked by each security guard. The dispositive portion of the NLRC Resolution reads thus: WHEREFORE, the appealed decision is AFFIRMED, subject to the modification that the portions thereof directing respondent EPARWA Security Agency and Janitorial Services, Inc. to reimburse respondent Liceo de Cagayan University for whatever amount the latter may have paid complainants and to pay respondent Liceo de Cagayan University the sum [sic] [of] P20,000.00 and P5,000.00, representing moral and exemplary damages, respectively, of each complainants [sic], are deleted for lack of legal basis. Further the monetary awards for wage differential and premiums for holiday and rest day works shall be recomputed by the Regional Arbitration Branch of origin at the execution stage of the proceedings. Co[n]formably, the award of Attorneys fee[s] is equivalent to ten (10%) percent of the aggregate monetary award as finally adjusted. SO ORDERED.8 Eparwa and LDCU again filed separate motions for partial reconsideration of the 19 January 2000 NLRC Resolution. LDCU questioned the NLRCs deletion of LDCUs entitlement to reimbursement by Eparwa. Eparwa, on the other hand, prayed that LDCU be made to reimburse Eparwa for whatever amount it may pay to the security guards. In its Resolution dated 14 March 2000, the NLRC declared that although Eparwa and LDCU are solidarily liable to the security guards for the monetary award, LDCU alone is ultimately liable. The NLRC resolved the issue thus: WHEREFORE, the assailed resolution, dated 19 January 2000, is MODIFIED in that respondent Liceo de Cagayan University (LICEO) is ordered to reimburse respondent Eparwa Security and Janitorial Services, Inc. (EPARWA) for whatever amount the latter may have paid to complainants arising from this case. SO ORDERED.9

LDCU filed a petition for certiorari10 before the appellate court assailing the NLRCs decision. LDCU took issue with the NLRCs order that LDCU should reimburse Eparwa. LDCU stated that this would free Eparwa from any liability for payment of the security guards money claims. The Ruling of the Appellate Court In its Decision promulgated on 20 April 2001, the appellate court granted LDCUs petition and reinstated the Labor Arbiters decision. The appellate court also allowed LDCU to claim reimbursement from Eparwa. The appellate courts decision reads thus: WHEREFORE, foregoing considered, the petition is hereby GRANTED. The decision dated August 18, 1999 of Labor Arbiter Celenito N. Daing is REINSTATED. The case is hereby REMANDED to the Regional Arbitration Board, Branch No. 10 of Cagayan de Oro City to compute what is due to LDCU from EPARWA. SO ORDERED.11 Eparwa filed a motion for reconsideration of the appellate courts decision. Eparwa stressed that jurisprudence is consistent in ruling that the ultimate liability for the payment of the monetary award rests with LDCU alone. The appellate court denied Eparwas motion for reconsideration for lack of merit. Hence, this petition. The Issue The petition raises this sole legal issue: Is LDCU alone ultimately liable to the security guards for the wage differentials and premium for holiday and rest day pay? The Ruling of the Court The petition has merit. Eparwa and LDCUs Solidary Liability and LDCUs Ultimate Liability Articles 106, 107 and 109 of the Labor Code read: Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between laboronly contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of

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this Code, to prevent any violation or circumvention of any provision of this Code. There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of the employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. Article 107. Indirect employer. The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. Article 109. Solidary liability. The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. This Courts ruling in Eagle Security Agency, Inc. v. NLRC12 squarely applies to the present case. In Eagle, we ruled that: This joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance of the provisions therein including the statutory minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractors employees for purposes of paying the employees their wages should the contractor be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the workers performance of any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution [See Article II Sec. 18 and Article XIII Sec. 3]. In the case at bar, it is beyond dispute that the security guards are the employees of EAGLE [See Article VII Sec. 2 of the Contract for Security Services; G.R. No. 81447, Rollo, p. 34]. That they were assigned to guard the premises of PTSI pursuant to the latters contract with EAGLE and that neither of these two entities paid their wage and allowance increases under the subject wage orders are also admitted [See Labor Arbiters Decision, p. 2; G.R. No. 81447, Rollo, p. 75]. Thus, the application of the aforecited provisions of the Labor Code on joint and several liability of the principal and contractor is appropriate [See Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, G.R. No. 64204, May 31, 1985, 136 SCRA 669]. The solidary liability of PTSI and EAGLE, however, does not preclude the right of reimbursement from his co-debtor by the one who paid [See Article 1217, Civil Code]. It is with respect to this right of reimbursement that petitioners can find support in the aforecited contractual stipulation and Wage Order provision. The Wage Orders are explicit that payment of the increases are "to be borne" by the principal or client.1wphi1 "To be borne", however, does not mean that the principal, PTSI in this case, would directly pay the security guards the wage and allowance increases because there is no privity of contract between them. The security guards contractual relationship is with their immediate employer, EAGLE. As an employer, EAGLE is tasked, among others, with the payment of their wages [See

Article VII Sec. 3 of the Contract for Security Services, supra and Bautista v. Inciong, G.R. No. 52824, March 16, 1988, 158 SCRA 665]. On the other hand, there existed a contractual agreement between PTSI and EAGLE wherein the former availed of the security services provided by the latter. In return, the security agency collects from its client payment for its security services. This payment covers the wages for the security guards and also expenses for their supervision and training, the guards bonds, firearms with ammunitions, uniforms and other equipments, accessories, tools, materials and supplies necessary for the maintenance of a security force. Premises considered, the security guards immediate recourse for the payment of the increases is with their direct employer, EAGLE. However, in order for the security agency to comply with the new wage and allowance rates it has to pay the security guards, the Wage Orders made specific provision to amend existing contracts for security services by allowing the adjustment of the consideration paid by the principal to the security agency concerned. What the Wage Orders require, therefore, is the amendment of the contract as to the consideration to cover the service contractors payment of the increases mandated. In the end, therefore, ultimate liability for the payment of the increases rests with the principal. In view of the foregoing, the security guards should claim the amount of the increases from EAGLE. Under the Labor Code, in case the agency fails to pay them the amounts claimed, PTSI should be held solidarily liable with EAGLE [Articles 106,107 and 109]. Should EAGLE pay, it can claim an adjustment from PTSI for an increase in consideration to cover the increases payable to the security guards. However, in the instant case, the contract for security services had already expired without being amended consonant with the Wage Orders. It is also apparent from a reading of a record that EAGLE does not now demand from PTSI any adjustment in the contract price and its main concern is freeing itself from liability. Given these peculiar circumstances, if PTSI pays the security guards, it cannot claim reimbursement from EAGLE. But in case it is EAGLE that pays them, the latter can claim reimbursement from PTSI in lieu of an adjustment, considering that the contract, [sic] had expired and had not been renewed.13 (Emphasis added) We repeatedly upheld our ruling in Eagle regarding reimbursement in the subsequent cases of Spartan Security & Detective Agency, Inc. v. NLRC,14 Development Bank of the Philippines v. NLRC,15 Alpha Investigation and Security Agency, Inc. v. NLRC,16 Helpmate, Inc. v. NLRC, et al.,17 and Lapanday Agricultural Development Corporation v. Court of Appeals. 18 For the security guards, the actual source of the payment of their wage differentials and premium for holiday and rest day work does not matter as long as they are paid. This is the import of Eparwa and LDCUs solidary liability. Creditors, such as the security guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as between themselves, two solidary debtors are liable for only half of the payment. LDCUs ultimate liability comes into play because of the expiration of the Contract for Security Services. There is no privity of contract between the security guards and LDCU, but LDCUs liability to the security guards remains because of Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking LDCU for an adjustment in the contract price because of the expiration of the contract, but Eparwas liability to the security guards remains because of their employeremployee relationship. In lieu of an adjustment in the contract

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price, Eparwa may claim reimbursement from LDCU for any payment it may make to the security guards. However, LDCU cannot claim any reimbursement from Eparwa for any payment it may make to the security guards. WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 20 April 2001 and the Resolution dated 21 September 2001 of the Court of Appeals. We REINSTATE the Resolutions dated 19 January 2000 and 14 March 2000 of the National Labor Relations Commission. SO ORDERED.

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G.R. No. 162420

April 22, 2008

a) wage differentials b) overtime pay differentials (4 hours a day) c) rest day pay d) holiday pay e) holiday premium pay

JAGUAR SECURITY and INVESTIGATION AGENCY, petitioner, vs. RODOLFO A. SALES, JAIME L. MORON, MELVIN R. TAMAYO, JESUS B. SILVA, JR., DIONISIO C. CARANYAGAN, DANETH FETALVERO and DELTA MILLING INDUSTRIES, INC., respondents. DECISION AUSTRIA-MARTINEZ, J.: Assailed in the present Petition for Review on Certiorari is the Court of Appeals (CA) Decision1 dated October 21, 2002 and Resolution2 dated February 13, 2004, dismissing the petition filed by Jaguar Security and Investigation Agency (petitioner) and affirming the National Labor Relations Commission (NLRC) Resolutions dated September 19, 2000 and November 9, 2001. The facts of the case, as narrated by the CA, are undisputed: Petitioner Jaguar Security and Investigation Agency ("Jaguar") is a private corporation engaged in the business of providing security services to its clients, one of whom is Delta Milling Industries, Inc. ("Delta"). Private respondents Rodolfo Sales, Melvin Tamayo, Dionisio Caranyagan, Jesus Silva, Jr., Jaime Moron and Daneth Fetalvero were hired as security guards by Jaguar. They were assigned at the premises of Delta in Libis, Quezon City. Caranyagan and Tamayo were terminated by Jaguar on May 26, 1998 and August 21, 1998, respectively. Allegedly their dismissals were arbitrary and illegal. Sales, Moron, Fetalvero and Silva remained with Jaguar. All the guard-employees, claim for monetary benefits such as underpayment, overtime pay, rest day and holiday premium pay, underpaid 13th month pay, night shift differential, five days service and incentive leave pay. In addition to these money claims, Caranyagan and Tamayo argue that they were entitled to separation pay and back wages, for the time they were illegally dismissed until finality of the decision. Furthermore, all respondents claim for moral and exemplary damages. On September 18, 1998, respondent security guards instituted the instant labor case before the labor arbiter. xxxx On May 25, 1999, the labor arbiter rendered a decision in favor of private respondents Sales, et al., the dispositive portion of which provides: "WHEREFORE, judgment is hereby rendered dismissing the charges of illegal dismissal on the part of the complainants MELVIN R. TAMAYO and DIONISIO C. CARANYAGAN for lack of merit but ordering respondents JAGUAR SECURITY AND INVESTIGATION AGENCY and DELTA MILLING INDUSTRIES, INC., to jointly and severally pay all the six complainants, namely: RODOLFO A. SALES, MELVIN R. TAMAYO, JAIME MORON and DANETH FETALVERO the following money claims for their services rendered from April 24, 1995 to April 24, 1998:

f) 13th month pay differentials g) five days service incentive leave pay per year subject to the exception earlier cited. The Research and Information Unit of this Commission is hereby directed to compute and quantify the above awards and submit a report thereon within 15 days from receipt of this decision. For purposes of any appeal, the appeal bond is tentatively set at P100,000.00. All other claims are DISMISSED for lack of merit. SO ORDERED." On July 1, 1999, petitioner Jaguar filed a partial appeal questioning the failure of public respondent NLRC to resolve its cross-claim against Delta as the party ultimately liable for payment of the monetary award to the security guards. In its Resolution dated September 19, 2000, the NLRC dismissed the appeal, holding that it was not the proper forum to raise the issue. It went on to say that Jaguar, being the direct employer of the security guards, is the one principally liable to the employees. Thus, it directed petitioner to file a separate civil action for recovery of the amount before the regular court having jurisdiction over the subject matter, for the purpose of proving the liability of Delta. Jaguar sought reconsideration of the dismissal, but the Commission denied the same in its Resolution dated November 9, 2001.3 Petitioner filed a petition for certiorari with the CA, which, in the herein assailed Decision dated October 21, 2002 4and Resolution dated February 13, 2004,5 dismissed the petition for lack of merit. In the present petition, the following error is set forth as a ground for the modification of the assailed Decision and Resolution: WITH ALL DUE RESPECT, THE COURT OF APPEALS ERRED IN NOT RESOLVING PETITIONER'S CROSS-CLAIM AGAINST PRIVATE RESPONDENT DELTA MILLING INDUSTRIES, INC.6 Petitioner insists that its cross-claim should have been ruled upon in the labor case as the filing of a cross-claim is allowed under Section 3 of the NLRC Rules of Procedure which provides for the suppletory application of the Rules of Court. Petitioner argues that the claim arose out of the transaction or occurrence that is the subject matter of the original action. Petitioner further argues that

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as principal, Delta Milling Industries, Inc. (Delta Milling) is liable for the awarded wage increases, pursuant to Wage Order Nos. NCR-04, NCR-05 and NCR-06; and in line with the ruling in Eagle Security Agency, Inc. v. National Labor Relations Commission,7 petitioner should be reimbursed of any payments to be made. There is no question as regards the respective liabilities of petitioner and Delta Milling. Under Articles 106, 107 and 109 of the Labor Code, the joint and several liability of the contractor and the principal is mandated to assure compliance of the provisions therein including the statutory minimum wage. The contractor, petitioner in this case, is made liable by virtue of his status as direct employer. On the other hand, Delta Milling, as principal, is made the indirect employer of the contractor's employees for purposes of paying the employees their wages should the contractor be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the workers' performance of any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution.8 However, in the event that petitioner pays his obligation to the guard employees pursuant to the Decision of the Labor Arbiter, as affirmed by the NLRC and CA, petitioner has the right of reimbursement from Delta Milling under Article 1217 of the Civil Code, which provides: Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his codebtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. xxxx The question that now arises is whether petitioner may claim reimbursement from Delta Milling through a cross-claim filed with the labor court. This question has already been decisively resolved in Lapanday Agricultural Development Corporation v. Court of Appeals,9 to wit: We resolve first the issue of jurisdiction. We agree with the respondent that the RTC has jurisdiction over the subject matter of the present case. It is well-settled in law and jurisprudence that where no employeremployee relationship exists between the parties and no issue is involved which may be resolved by reference to the Labor Code, other labor statutes or any collective bargaining agreement, it is the Regional Trial Court that has jurisdiction. In its complaint, private respondent is not seeking any relief under the Labor Code but seeks payment of a sum of money and damages on account of petitioner's alleged breach of its obligation under their Guard Service Contract. The action is within the realm of civil law hence jurisdiction over the case belongs to the regular courts. While the resolution of the issue involves the application of labor laws, reference to the labor code was only for the determination of the solidary liability of the petitioner to the respondent where no employer-employee relation exists. Article 217 of the Labor Code as amended vests

upon the labor arbiters exclusive original jurisdiction only over the following: 1. Unfair labor practices; 2. Termination disputes; 3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment; 4. Claims for actual, moral exemplary and other forms of damages arising from employer-employee relations; 5. Cases arising from any violation of Article 264 of this Code, including questions involving legality of strikes and lockouts; and 6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. In all these cases, an employer-employee relationship is an indispensable jurisdictional requisite; and there is none in this case.10 (Emphasis supplied) The jurisdiction of labor courts extends only to cases where an employer-employee relationship exists. In the present case, there exists no employer-employee relationship between petitioner and Delta Milling. In its crossclaim, petitioner is not seeking any relief under the Labor Code but merely reimbursement of the monetary benefits claims awarded and to be paid to the guard employees. There is no labor dispute involved in the cross-claim against Delta Milling. Rather, the cross-claim involves a civil dispute between petitioner and Delta Milling. Petitioner's cross-claim is within the realm of civil law, and jurisdiction over it belongs to the regular courts. Moreover, the liability of Delta Milling to reimburse petitioner will only arise if and when petitioner actually pays its employees the adjudged liabilities.11 Payment, which means not only the delivery of money but also the performance, in any other manner, of the obligation, is the operative fact which will entitle either of the solidary debtors to seek reimbursement for the share which corresponds to each of the debtors.12 In this case, it appears that petitioner has yet to pay the guard employees. As stated in Lapanday: However, it is not disputed that the private respondent has not actually paid the security guards the wage increases granted under the Wage Orders in question. Neither is it alleged that there is an extant claim for such wage adjustments from the security guards concerned, whose services have already been terminated by the contractor. Accordingly, private respondent has no cause of action against petitioner to recover the wage increases. Needless to stress, the increases in wages are intended for the benefit of the laborers and the contractor may not assert a claim against the principal for salary wage adjustments that it has not actually paid.

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Otherwise, as correctly put by the respondent, the contractor would be unduly enriching itself by recovering wage increases, for its own benefit.13 Consequently, the CA did not commit any error in dismissing the petition and in affirming the NLRC Resolutions dated September 19, 2000 and November 9, 2001. WHEREFORE, the petition is DENIED. Double costs against petitioner. SO ORDERED.

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HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as Heirs of Deceased SPOUSES RAYMUNDO I. CRYSTAL and DESAMPARADOS C. CRYSTAL, petitioners, vs. BANK OF THE PHILIPPINE ISLANDS, respondent. DECISION TINGA, J.: Before us is a Petition for Review1 of the Decision2 and Resolution3 of the Court of Appeals dated 24 October 2005 and 31 March 2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the Regional Trial Court, Branch 5, of Cebu City.4 The facts, as culled from the records, follow. On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPI-Butuan a Continuing Suretyship5 where they bound themselves as surety of CCCC in the aggregate principal sum of not exceedingP300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory note6 for the amount of P300,000.00, also in favor of BPI-Butuan. Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City). The renewal was evidenced by a promissory note7 dated 13 August 1979, signed by the spouses in their personal capacities and as managing partners of CCCC. The promissory note states that the spouses are jointly and severally liable with CCCC. It appears that before the original loan could be granted, BPI-Cebu City required CCCC to put up a security. However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate mortgage8 over their own real property on 22 September 1977. 9 On 3 October 1977, they executed another real estate mortgage over the same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.10 CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining order against BPI.11 However, following BPIs compliance with the necessary requisites of extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was consummated on 28 February 1988, with the proceeds amounting to P240,000.00 applied to the loan from BPI-Butuan which had then reached P707,393.90.12 Meanwhile, on 7 July 1981, Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and Corporate Affairs, offered to buy the lot subject of the two (2) real estate mortgages and to pay directly the spouses indebtedness in exchange for the release of the mortgages. BPI rejected IBAAs offer to pay.13 BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan. The trial court ruled in favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses mortgaged property. 14

On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A Restraining Order and/ or Writ of Preliminary Injunction.15 The spouses claimed that the foreclosure of the real estate mortgages is illegal because BPI should have exhausted CCCCs properties first, stressing that they are mere guarantors of the renewed loans. They also prayed that they be awarded moral and exemplary damages, attorneys fees, litigation expenses and cost of suit. Subsequently, the spouses filed an amended complaint,16 additionally alleging that CCCC had opened and maintained a foreign currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati), and that said FCSA was used as security for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan was allegedly paid, and thereafter the spouses demanded the return of the FCSA passbook. BPI rejected the demand; thus, the spouses were unable to withdraw from the said account to pay for their other obligations to BPI. The trial court dismissed the spouses complaint and ordered them to pay moral and exemplary damages and attorneys fees to BPI.17 It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily liable for the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors, the spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the trial court found that CCCC originally had FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was transferred to BPIMakati as FCDU SA 76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035 was thus closed, but Desamparados Crystal failed to surrender the passbook because it was lost. The transferred FCSA in BPI-Makati was the one used as security for CCCCs P450,000.00 loan from BPI-Makati. CCCC was no longer allowed to withdraw from FCDU SA No. 197 because it was already closed. The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed.18 The spouses moved for the reconsideration of the decision, but the Court of Appeals also denied their motion for reconsideration.19 Hence, the present petition. Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu City loan of P120,000.00 was due to BPIs illegal refusal to accept payment for the loan unless the P300,000.00 loan from BPIButuan would also be paid. Consequently, in view of BPIs unjust refusal to accept payment of the BPI-Cebu City loan, the loan obligation of the spouses was extinguished, petitioners contend. The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged lot from them and to directly pay BPI out of the proceeds thereof to settle the loan.20 BPIs refusal to agree to such payment scheme cannot extinguish the spouses loan obligation. In the first place, IBAA is not privy to the loan agreement or the promissory note between the spouses and BPI. Contracts, after all, take effect only between the parties, their successors in interest, heirs and assigns.21 Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. We see no stipulation in the promissory note which states that a third person may fulfill the spouses obligation. Thus, it is clear that the spouses alone bear responsibility for the same. In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the promissory note, the spouses defined the parameters of their obligation as follows:

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On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE HUNDRED TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject to periodic installments on the principal as follows: P30,000.00 quarterly amortization starting September 28, 1979. x x x 22 A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. 23 A liability is solidary "only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires."24 Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary,25 such as in this case. By stating "I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS," the spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand payment from them, but they failed to comply with their obligation, prompting BPIs valid resort to the foreclosure of the chattel mortgage and the real estate mortgages. More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal loan, partakes the nature of a suretyship and therefore is an additional security for the loan. Thus we held in one case that if solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to be one of suretyship.26 And while a contract of a surety is in essence secondary only to a valid principal obligation, the suretys liability to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other words, the surety is directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another even if he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.27 Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they suffered moral damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and the allegedly unjust and illegal foreclosure of the real estate mortgages on their property.28Conversely, they argue that the Court of Appeals erred in awarding moral damages to BPI, which is a corporation, as well as exemplary damages, attorneys fees and expenses of litigation.29 We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused.30 Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the factual basis for which is satisfactorily established by the aggrieved party. 31 There being no wrongful or unjust act on the part of BPI in demanding payment from them and in seeking the foreclosure of the chattel and real estate mortgages, there is no lawful basis for award of damages in favor of the spouses. Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.32 The Court of Appeals found BPI as "being famous and having gained its familiarity and respect not only in the Philippines but also in the whole world because of its good will and good reputation must protect and defend the same against any

unwarranted suit such as the case at bench."33 In holding that BPI is entitled to moral damages, the Court of Appeals relied on the case of People v. Manero,34 wherein the Court ruled that "[i]t is only when a juridical person has a good reputation that is debased, resulting in social humiliation, that moral damages may be awarded."35 We do not agree with the Court of Appeals. A statement similar to that made by the Court in Manero can be found in the case of Mambulao Lumber Co. v. PNB, et al.,36 thus: x x x Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have good reputation which, if besmirched may also be a ground for the award of moral damages. x x x (Emphasis supplied) Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,37 and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM),38 the Court held that the statements in Manero and Mambulao were mere obiter dicta, implying that the award of moral damages to corporations is not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendants acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.39 The spouses complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral damages. Although the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a ground for an award of moral damages. The rationale for the rule is that the law could not have meant to impose a penalty on the right to litigate. Otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff.40 BPI may have been inconvenienced by the suit, but we do not see how it could have possibly suffered besmirched reputation on account of the single suit alone. Hence, the award of moral damages should be deleted. The awards of exemplary damages and attorneys fees, however, are proper. Exemplary damages, on the other hand, are imposed by way of example or correction for the public good, when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner, while attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest. 41 The spouses instituted their complaint against BPI notwithstanding the fact that they were the ones who failed to pay their obligations. Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI is entitled to the awards of exemplary damages and attorneys fees. WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 October 2005 and 31 March 2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the award of moral damages to Bank of the Philippine Islands is DELETED. Costs against the petitioners. SO ORDERED.

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ARTICLE 1226 G.R. No. 157480 May 6, 2005

PRYCE CORPORATION (formerly PRYCE PROPERTIES CORPORATION), petitioners, vs. PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondent. DECISION PANGANIBAN, J.: In legal contemplation, the termination of a contract is not equivalent to its rescission. When an agreement is terminated, it is deemed valid at inception. Prior to termination, the contract binds the parties, who are thus obliged to observe its provisions. However, when it is rescinded, it is deemed inexistent, and the parties are returned to their status quo ante. Hence, there is mutual restitution of benefits received. The consequences of termination may be anticipated and provided for by the contract. As long as the terms of the contract are not contrary to law, morals, good customs, public order or public policy, they shall be respected by courts. The judiciary is not authorized to make or modify contracts; neither may it rescue parties from disadvantageous stipulations. Courts, however, are empowered to reduce iniquitous or unconscionable liquidated damages, indemnities and penalties agreed upon by the parties. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 22, 2002 Decision 2 of the Court of Appeals (CA) in CA-GR CV No. 51629 and its March 4, 2003 Resolution3 denying petitioners Motion for Reconsideration. The assailed Decision disposed thus: "WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: (1) In Civil Case No. 9368266, the appealed decision[,] is AFFIRMED with MODIFICATION[,] ordering [Respondent] Philippine Amusement and Gaming Corporation to pay [Petitioner] Pryce Properties Corporation the total amount ofP687,289.50 as actual damages representing the accrued rentals for the quarter September to November 1993 with interest and penalty at the rate of two percent (2%) per month from date of filing of the complaint until the amount shall have been fully paid, and the sum of P50,000.00 as attorneys fees; (2) In Civil Case No. 93-68337, the appealed decision is REVERSED and SET ASIDE and a new judgment is rendered ordering [Petitioner] Pryce Properties Corporation to reimburse [Respondent] Philippine Amusement and Gaming Corporation the amount of P687,289.50 representing the advanced rental deposits, which amount may be compensated by [Petitioner] Pryce Properties Corporation with its award in Civil Case No. 93-68266 in the equal amount of P687,289.50."4 The Facts According to the CA, the facts are as follows: "Sometime in the first half of 1992, representatives from Pryce Properties Corporation (PPC for brevity) made representations with the Philippine Amusement and Gaming Corporation (PAGCOR) on the possibility of setting up a casino in Pryce Plaza Hotel in Cagayan de Oro City. [A] series of negotiations followed. PAGCOR

representatives went to Cagayan de Oro City to determine the pulse of the people whether the presence of a casino would be welcomed by the residents. Some local government officials showed keen interest in the casino operation and expressed the view that possible problems were surmountable. Their negotiations culminated with PPCs counter-letter proposal dated October 14, 1992. "On November 11, 1992, the parties executed a Contract of Lease x x x involving the ballroom of the Hotel for a period of three (3) years starting December 1, 1992 and until November 30, 1995. On November 13, 1992, they executed an addendum to the contract x x x which included a lease of an additional 1000 square meters of the hotel grounds as living quarters and playground of the casino personnel. PAGCOR advertised the start of their casino operations on December 18, 1992. "Way back in 1990, the Sangguniang Panlungsod of Cagayan de Oro City passed Resolution No. 2295 x x x dated November 19, 1990 declaring as a matter of policy to prohibit and/or not to allow the establishment of a gambling casino in Cagayan de Oro City. Resolution No. 2673 x x x dated October 19, 1992 (or a month before the contract of lease was executed) was subsequently passed reiterating with vigor and vehemence the policy of the City under Resolution No. 2295, series of 1990, banning casinos in Cagayan de Oro City. On December 7, 1992, the Sangguniang Panlungsod of Cagayan de Oro City enacted Ordinance No. 3353 x x x prohibiting the issuance of business permits and canceling existing business permits to any establishment for using, or allowing to be used, its premises or any portion thereof for the operation of a casino. "In the afternoon of December 18, 1992 and just hours before the actual formal opening of casino operations, a public rally in front of the hotel was staged by some local officials, residents and religious leaders. Barricades were placed [which] prevented some casino personnel and hotel guests from entering and exiting from the Hotel. PAGCOR was constrained to suspend casino operations because of the rally. An agreement between PPC and PAGCOR, on one hand, and representatives of the rallyists, on the other, eventually ended the rally on the 20th of December, 1992. "On January 4, 1993, Ordinance No. 3375-93 x x x was passed by the Sangguniang Panlungsod of Cagayan de Oro City, prohibiting the operation of casinos and providing for penalty for violation thereof. On January 7, 1993, PPC filed a Petition for Prohibition with Preliminary Injunction x x x against then public respondent Cagayan de Oro City and/or Mayor Pablo P. Magtajas x x x before the Court of Appeals, docketed as CA G.R. SP No. 29851 praying inter alia, for the declaration of unconstitutionality of Ordinance No. 3353. PAGCOR intervened in said petition and further assailed Ordinance No. 4475-93 as being violative of the non-impairment of contracts and equal protection clauses. On March 31, 1993, the Court of Appeals promulgated its decision x x x, the dispositive portion of which reads: IN VIEW OF ALL THE FOREGOING, Ordinance No. 3353 and Ordinance No. 337593 are hereby DECLARED UNCONSTITUTIONAL and VOID and the respondents and all other persons acting under

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their authority and in their behalf are PERMANENTLY ENJOINED from enforcing those ordinances. SO ORDERED. "Aggrieved by the decision, then public respondents Cagayan de Oro City, et al. elevated the case to the Supreme Court in G.R. No. 111097, where, in an En Banc Decision dated July 20, 1994 x x x, the Supreme Court denied the petition and affirmed the decision of the Court of Appeals. "In the meantime, PAGCOR resumed casino operations on July 15, 1993, against which, however, another public rally was held. Casino operations continued for some time, but were later on indefinitely suspended due to the incessant demonstrations. Per verbal advice x x x from the Office of the President of the Philippines, PAGCOR decided to stop its casino operations in Cagayan de Oro City. PAGCOR stopped its casino operations in the hotel prior to September, 1993. In two Statements of Account dated September 1, 1993 x x x, PPC apprised PAGCOR of its outstanding account for the quarter September 1 to November 30, 1993. PPC sent PAGCOR another Letter dated September 3, 1993 x x x as a follow-up to the parties earlier conference. PPC sent PAGCOR another Letter dated September 15, 1993 x x x stating its Board of Directors decision to collect the full rentals in case of pre-termination of the lease. "PAGCOR sent PPC a letter dated September 20, 1993 x x x [stating] that it was not amenable to the payment of the full rentals citing as reasons unforeseen legal and other circumstances which prevented it from complying with its obligations. PAGCOR further stated that it had no other alternative but to pre-terminate the lease agreement due to the relentless and vehement opposition to their casino operations. In a letter dated October 12, 1993 x x x, PAGCOR asked PPC to refund the total of P1,437,582.25 representing the reimbursable rental deposits and expenses for the permanent improvement of the Hotels parking lot. In a letter dated November 5, 1993 x x x, PAGCOR formally demanded from PPC the payment of its claim for reimbursement. "On November 15, 1993 x x x, PPC filed a case for sum of money in the Regional Trial Court of Manila docketed as Civil Case No. 93-68266. On November 19, 1993, PAGCOR also filed a case for sum of money in the Regional Trial Court of Manila docketed as Civil Case No. 93-68337. "In a letter dated November 25, 1993, PPC informed PAGCOR that it was terminating the contract of lease due to PAGCORs continuing breach of the contract and further stated that it was exercising its rights under the contract of lease pursuant to Article 20 (a) and (c) thereof. "On February 2, 1994, PPC filed a supplemental complaint x x x in Civil Case No. 93-68266, which the trial court admitted in an Order dated February 11, 1994. In an Order dated April 27, 1994, Civil Case No. 93-68377 was ordered consolidated with Civil Case No. 93-68266. These cases were jointly tried by the court a quo. On August 17, 1995, the court a quo promulgated its decision. Both parties appealed."5

In its appeal, PPC faulted the trial court for the following reasons: 1) failure of the court to award actual and moral damages; 2) the 50 percent reduction of the amount PPC was claiming; and 3) the courts ruling that the 2 percent penalty was to be imposed from the date of the promulgation of the Decision, not from the date stipulated in the Contract. On the other hand, PAGCOR criticized the trial court for the latters failure to rule that the Contract of Lease had already been terminated as early as September 21, 1993, or at the latest, on October 14, 1993, when PPC received PAGCORs letter dated October 12, 1993. The gaming corporation added that the trial court erred in 1) failing to consider that PPC was entitled to avail itself of the provisions of Article XX only when PPC was the party terminating the Contract; 2) not finding that there were valid, justifiable and good reasons for terminating the Contract; and 3) dismissing the Complaint of PAGCOR in Civil Case No. 93-68337 for lack of merit, and not finding PPC liable for the reimbursement of PAGCORS cash deposits and of the value of improvements. Ruling of the Court of Appeals First, on the appeal of PAGCOR, the CA ruled that the PAGCORS pretermination of the Contract of Lease was unjustified. The appellate court explained that public demonstrations and rallies could not be considered as fortuitous events that would exempt the gaming corporation from complying with the latters contractual obligations. Therefore, the Contract continued to be effective until PPC elected to terminate it on November 25, 1993. Regarding the contentions of PPC, the CA held that under Article 1659 of the Civil Code, PPC had the right to ask for (1) rescission of the Contract and indemnification for damages; or (2) only indemnification plus the continuation of the Contract. These two remedies were alternative, not cumulative, ruled the CA. As PAGCOR had admitted its failure to pay the rentals for September to November 1993, PPC correctly exercised the option to terminate the lease agreement. Previously, the Contract remained effective, and PPC could collect the accrued rentals. However, from the time it terminated the Contract on November 25, 1993, PPC could no longer demand payment of the remaining rentals as part of actual damages, the CA added. Denying the claim for moral damages, the CA pointed out the failure of PPC to show that PAGCOR had acted in gross or evident bad faith in failing to pay the rentals from September to November 1993. Such failure was shown especially by the fact that PPC still had in hand three (3) months advance rental deposits of PAGCOR. The former could have simply applied this deposit to the unpaid rentals, as provided in the Contract. Neither did PPC adequately show that its reputation had been besmirched or the hotels goodwill eroded by the establishment of the casino and the public protests. Finally, as to the claimed reimbursement for parking lot improvement, the CA held that PAGCOR had not presented official receipts to prove the latters alleged expenses. The appellate court, however, upheld the trial courts award to PPC of P50,000 attorneys fees. Hence this Petition.6

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Issues In their Memorandum, petitioner raised the following issues: "MAIN ISSUE: "Did the Honorable Court of Appeals commit x x x grave and reversible error by holding that Pryce was not entitled to future rentals or lease payments for the unexpired period of the Contract of Lease between Pryce and PAGCOR? "Sub-Issues: "1. Were the provisions of Sections 20(a) and 20(c) of the Contract of Lease relative to the right of PRYCE to terminate the Contract for cause and to moreover collect rentals from PAGCOR corresponding to the remaining term of the lease valid and binding? "2. Did not Article 1659 of the Civil Code supersede Sections 20(a) and 20(c) of the Contract, PRYCE having rescinded the Contract of Lease? "3. Do the case of Rios, et al. vs. Jacinto Palma Enterprises, et al. and the other cases cited by PAGCOR support its position that PRYCE was not entitled to future rentals? "4. Would the collection by PRYCE of future rentals not give rise to unjust enrichment? "5. Could we not have harmonized Article 1659 of the Civil Code and Article 20 of the Contract of Lease? "6. Is it not a basic rule that the law, i.e. Article 1659, is deemed written in contracts, particularly in the PRYCEPAGCOR Contract of Lease?"7 The Courts Ruling The Petition is partly meritorious. Main Issue: Collection of Remaining Rentals PPC anchors its right to collect future rentals upon the provisions of the Contract. Likewise, it argues thattermination, as defined under the Contract, is different from the remedy of rescission prescribed under Article 1659 of the Civil Code. On the other hand, PAGCOR contends, as the CA ruled, that Article 1659 of the Civil Code governs; hence, PPC is allegedly no longer entitled to future rentals, because it chose to rescind the Contract. Contract Provisions Clear and Binding Article 1159 of the Civil Code provides that "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."8 In deference to the rights of the parties, the law9allows them to enter into stipulations, clauses, terms and conditions they may deem convenient; that is, as long as these are not contrary to law, morals, good customs, public order or public policy. Likewise, it is settled that if the terms of the contract clearly express the

intention of the contracting parties, the literal meaning of the stipulations would be controlling.10 In this case, Article XX of the parties Contract of Lease provides in part as follows: "XX. BREACH OR DEFAULT "a) The LESSEE agrees that all the terms, conditions and/or covenants herein contained shall be deemed essential conditions of this contract, and in the event of default or breach of any of such terms, conditions and/or covenants, or should the LESSEE become bankrupt, or insolvent, or compounds with his creditors,the LESSOR shall have the right to terminate and cancel this contract by giving them fifteen (15 days) prior notice delivered at the leased premises or posted on the main door thereof. Upon such termination or cancellation, the LESSOR may forthwith lock the premises and exclude the LESSEE therefrom, forcefully or otherwise, without incurring any civil or criminal liability. During the fifteen (15) days notice, the LESSEE may prevent the termination of lease by curing the events or causes of termination or cancellation of the lease. "b) x x x x x x x x x "c) Moreover, the LESSEE shall be fully liable to the LESSOR for the rentals corresponding to the remaining term of the lease as well as for any and all damages, actual or consequential resulting from such default and termination of this contract. "d) x x x x x x x x x." (Italics supplied) The above provisions leave no doubt that the parties have covenanted 1) to give PPC the right to terminate and cancel the Contract in the event of a default or breach by the lessee; and 2) to make PAGCOR fully liable for rentals for the remaining term of the lease, despite the exercise of such right to terminate. Plainly, the parties have voluntarily bound themselves to require strict compliance with the provisions of the Contract by stipulating that a default or breach, among others, shall give the lessee the termination option, coupled with the lessors liability for rentals for the remaining term of the lease. For sure, these stipulations are valid and are not contrary to law, morals, good customs, public order or public policy. Neither is there anything objectionable about the inclusion in the Contract of mandatory provisions concerning the rights and obligations of the parties.11 Being the primary law between the parties, it governs the adjudication of their rights and obligations. A court has no alternative but to enforce the contractual stipulations in the manner they have been agreed upon and written. 12 It is well to recall that courts, be they trial or appellate, have no power to make or modify contracts.13 Neither can they save parties from disadvantageous provisions. Termination or Rescission? Well-taken is petitioners insistence that it had the right to ask for "termination plus the full payment of future rentals" under the provisions of the Contract, rather than just rescission under Article 1659 of the Civil Code. This Court is not unmindful of the fact that termination and rescission are terms that have been used loosely and interchangeably in the past. But distinctions ought to be made, especially in this controversy, in which the terms mean differently and lead to equally different consequences.

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The term "rescission" is found in 1) Article 1191 14 of the Civil Code, the general provision on rescission of reciprocal obligations; 2) Article 1659,15 which authorizes rescission as an alternative remedy, insofar as the rights and obligations of the lessor and the lessee in contracts of lease are concerned; and 3) Article 138016 with regard to the rescission of contracts. In his Concurring Opinion in Universal Food Corporation v. CA,17 Justice J. B. L. Reyes differentiated rescission under Article 1191 from that under Article 1381 et seq. as follows: "x x x. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations to the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: Non servanti fidem, non est fides servanda. Hence, the reparation of damages for the breach is purely secondary. "On the contrary, in rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison detre as well as the measure of the right to rescind. x x x."18 Relevantly, it has been pointed out that resolution was originally used in Article 1124 of the old Civil Code, and that the term became the basis for rescission under Article 1191 (and, conformably, also Article 1659).19 Now, as to the distinction between termination (or cancellation) and rescission (more properly, resolution),Huibonhoa v. CA20 held that, where the action prayed for the payment of rental arrearages, the aggrieved party actually sought the partial enforcement of a lease contract. Thus, the remedy was not rescission, but termination or cancellation, of the contract. The Court explained: "x x x. By the allegations of the complaint, the Gojoccos aim was to cancel or terminate the contract because they sought its partial enforcement in praying for rental arrearages. There is a distinction in law between cancellation of a contract and its rescission. To rescind is to declare a contract void in its inception and to put an end to it as though it never were. It is not merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore the parties to relative positions which they would have occupied had no contract ever been made. "x x x. The termination or cancellation of a contract would necessarily entail enforcement of its terms prior to the declaration of its cancellation in the same way that before a lessee is ejected under a lease contract, he has to fulfill his obligations thereunder that had accrued prior to his ejectment. However, termination of a contract need not undergo judicial intervention. x x x."21 (Italics supplied) Rescission has likewise been defined as the "unmaking of a contract, or its undoing from the beginning, and not merely its

termination." Rescission may be effected by both parties by mutual agreement; or unilaterally by one of them declaring a rescission of contract without the consent of the other, if a legally sufficient ground exists or if a decree of rescission is applied for before the courts.22 On the other hand, termination refers to an "end in time or existence; a close, cessation or conclusion." With respect to a lease or contract, it means an ending, usually before the end of the anticipated term of such lease or contract, that may be effected by mutual agreement or by one party exercising one of its remedies as a consequence of the default of the other. 23 Thus, mutual restitution is required in a rescission (or resolution), in order to bring back the parties to their original situation prior to the inception of the contract.24 Applying this principle to this case, it means that PPC would re-acquire possession of the leased premises, and PAGCOR would get back the rentals it paid the former for the use of the hotel space. In contrast, the parties in a case of termination are not restored to their original situation; neither is the contract treated as if it never existed. Prior to its termination, the parties are obliged to comply with their contractual obligations. Only after the contract has been cancelled will they be released from their obligations. In this case, the actions and pleadings of petitioner show that it never intended to rescind the Lease Contract from the beginning. This fact was evident when it first sought to collect the accrued rentals from September to November 1993 because, as previously stated, it actually demanded the enforcement of the Lease Contract prior to termination. Any intent to rescind was not shown, even when it abrogated the Contract on November 25, 1993, because such abrogation was not the rescission provided for under Article 1659. Future Rentals As to the remaining sub-issue of future rentals, Rios v. Jacinto25 is inapplicable, because the remedy resorted to by the lessors in that case was rescission, not termination. The rights and obligations of the parties in Rios were governed by Article 1659 of the Civil Code; hence, the Court held that the damages to which the lessor was entitled could not have extended to the lessees liability for future rentals. Upon the other hand, future rentals cannot be claimed as compensation for the use or enjoyment of anothers property after the termination of a contract. We stress that by abrogating the Contract in the present case, PPC released PAGCOR from the latters future obligations, which included the payment of rentals. To grant that right to the former is to unjustly enrich it at the latters expense. However, it appears that Section XX (c) was intended to be a penalty clause. That fact is manifest from a reading of the mandatory provision under subparagraph (a) in conjunction with subparagraph (c) of the Contract. A penal clause is "an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled."26 Quite common in lease contracts, this clause functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from a breach.27 There is nothing immoral or illegal in such indemnity/penalty clause, absent any showing that it was forced upon or fraudulently foisted on the obligor.28

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In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the indemnity for damages and the payment of interests in case of noncompliance; that is, if there is no stipulation to the contrary, 29in which case proof of actual damages is not necessary for the penalty to be demanded. 30 There are exceptions to the aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1) when there is a stipulation to the contrary, 2) when the obligor is sued for refusal to pay the agreed penalty, and 3) when the obligor is guilty of fraud. In these cases, the purpose of the penalty is obviously to punish the obligor for the breach. Hence, the obligee can recover from the former not only the penalty, but also other damages resulting from the nonfulfillment of the principal obligation. 31 In the present case, the first exception applies because Article XX (c) provides that, aside from the payment of the rentals corresponding to the remaining term of the lease, the lessee shall also be liable "for any and all damages, actual or consequential, resulting from such default and termination of this contract." Having entered into the Contract voluntarily and with full knowledge of its provisions, PAGCOR must be held bound to its obligations. It cannot evade further liability for liquidated damages. Reduction of Penalty In certain cases, a stipulated penalty may nevertheless be equitably reduced by the courts.32 This power is explicitly sanctioned by Articles 1229 and 2227 of the Civil Code, which we quote: "Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable." "Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable." The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of the courts. To be considered in fixing the amount of penalty are factors such as -- but not limited to -- the type, extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its consequences; the supervening realities; the standing and relationship of the parties; and the like.33 In this case, PAGCORs breach was occasioned by events that, although not fortuitous in law, were in fact real and pressing. From the CAs factual findings, which are not contested by either party, we find that PAGCOR conducted a series of negotiations and consultations before entering into the Contract. It did so not only with the PPC, but also with local government officials, who assured it that the problems were surmountable. Likewise, PAGCOR took pains to contest the ordinances34 before the courts, which consequently declared them unconstitutional. On top of these developments, the gaming corporation was advised by the Office of the President to stop the games in Cagayan de Oro City, prompting the former to cease operations prior to September 1993. Also worth mentioning is the CAs finding that PAGCORs casino operations had to be suspended for days on end since their start in December 1992; and indefinitely from July 15, 1993, upon the advice of the Office of President, until the formal cessation of operations in September 1993. Needless to say, these

interruptions and stoppages meant that PAGCOR suffered a tremendous loss of expected revenues, not to mention the fact that it had fully operated under the Contract only for a limited time. While petitioners right to a stipulated penalty is affirmed, we consider the claim for future rentals to the tune ofP7,037,835.40 to be highly iniquitous. The amount should be equitably reduced. Under the circumstances, the advanced rental deposits in the sum of P687,289.50 should be sufficient penalty for respondents breach. WHEREFORE, the Petition is GRANTED in part. The assailed Decision and Resolution are hereby MODIFIED to include the payment of penalty. Accordingly, respondent is ordered to pay petitioner the additional amount ofP687,289.50 as penalty, which may be set off or applied against the formers advanced rental deposits. Meanwhile, the CAs award to petitioner of actual damages representing the accrued rentals for September to November 1993 -- with interest and penalty at the rate of two percent (2%) per month, from the date of filing of the Complaint until the amount shall have been fully paid -- as well as the P50,000 award for attorneys fees, isAFFIRMED. No costs. SO ORDERED.

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G.R. No. 162729

December 17, 2008

by a Special Power of Attorney marked Exhibits A to A2. Confronted with a document styled as "Promissory Note" dated June 24, 1994 (Exhibit "B"), he identified the signatures of Soledad Pea Suatengco (also known as Sylvia Pea Suatengco) (Exhs. B-1, B-5, B-10 and B13), Antonio Suatengco (Exhs. B-2, B-6, B-11 and B14), Atty. Domingo Ganuelas (Exhs. B-3, B-7, B-9 and B-15) and his own signatures (Exhs. B-4, B-8, B-12 and B-16). That their signatures were signed in his presence on June 24, 1994 at the Siguion Reyna, Montecillo and Ongsiako Law Offices. Atty. Domingo Ganuelas was there at the time to assist and advise defendants before executing the Promissory Note. He explained that defendants own and manage Goldfields Business Development Corporation. Of theP1,336,313.00 paid by plaintiff to Philphos on May 31, 1994, which defendants jointly and severally assumed to pay plaintiff under the Promissory Note (Exh. B), only P15,000.00 had been paid by them thereby leaving an outstanding balance of P1,321,313.00 plus 12% interest per annum computed from May 31, 1994 and attorneys fees equivalent to 20% of defendants total outstanding balance inclusive of interest, which he believes to be reasonable based on experience considering that the case will be prosecuted outside Metro Manila and the long distance would entail quite an amount of travel for retained counsel. To corroborate the testimony of Atty. Edmundo O. Reyes, Jr. and to prove the obligation due as well as the damages prayed for, plaintiff Congresswoman CARMENCITA O. REYES representative of the lone district of Marinduque testified that she has been a member of Congress since 1978 until it was abolished in 1986 but after which re-elected in 1987, 1992 and 1995. She identified her signature on Exhibit A Special Power of Attorney (Exhs. A-1 and A-2) as well as her signature on the verification portion of her complaint (page 8, Record) and affirmed that she had caused the preparation of the same and that the contents thereof are true and correct. That on May 31, 1994, she paid Philphos the amount of P1,336,313.00 representing defendants obligation with Philphos. In return for the sum she had advanced, defendants agreed to issue the Promissory Note (Exh. B) for the total amount of indebtedness but out of the said amount of P1,336,313.00 only P15,000.00 had been paid by them. As a result, her feeling was hurt and wounded. She felt degraded because after helping them to get out of their indebtedness without asking for any interest, it would seem that they lost interest in paying their obligations. She was even more deeply hurt when she found out that the sheriff of this court who went to their place to take some actions regarding this case, was even threatened exposing her constituent to such danger. Said amount is substantial enough to help her constituents because as much as possible she would not deny them everytime they come to her since it would really be a matter of life and death for them.4 As can be gleaned from the above narration, the RTC declared the petitioners in default for failure to file their Answer to the complaint. Thereafter, trial ex parte was delegated to the Clerk of Court to receive respondents evidence. Testimonial and documentary evidence were all admitted.

SOLEDAD LEONOR PEA SUATENGCO and ANTONIO ESTEBAN SUATENGCO, complainants, vs. CARMENCITA O. REYES, respondent. DECISION LEONARDO-DE CASTRO, J.: This resolves the petition for review on certiorari seeking the modification of the Decision1 dated October 29, 2003 and the Resolution2 dated March 10, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 53185. The assailed decision affirmed with modification the Decision3 of the Regional Trial Court (RTC) of Marinduque, Branch 30 in Civil Case No. 95-4 in an action for collection of a sum of money with damages commenced by herein respondent, Carmencita O. Reyes against herein petitioners, spouses Soledad Leonor Pea Suatengco (also known as Sylvia Pea Suatengco) and Antonio Esteban Suatengco. The essential facts of the case, as recounted by the trial court, are as follows: This is an action for Sum of Money with Damages filed by Carmencita O. Reyes against defendants [petitioners] Spouses Soledad Leonor Pea and Antonio Esteban Suatengco, wherein plaintiff (respondent) claimed that sometime in the first quarter of 1994, defendant Sylvia (Soledad) approached her for the purpose of borrowing a sum of money in order to pay her obligation to Philippine Phosphate Fertilizer Corporation (Philphos for brevity). On May 31, 1994, plaintiff paid Philphos the amount of P1,336,313.00 and by reason thereof defendants Spouses Sylvia (Soledad) and Antonio executed on June 24, 1994 a Promissory Note binding themselves jointly and severally to pay plaintiff the said amount in 31 monthly installments beginning June 30, 1994. Of the amount, however, only one (1) payment in the amount ofP15,000.00 on July 27, 1994 have been made by defendants. That pursuant to a specific clause in the Promissory Note, defendants have unequivocally waived the necessity of demand to be made upon them to pay as well as a Notice of Dishonor and presentation with acceleration clause. As of March 31, 1995 defendants owe plaintiff P1,321,313.00 exclusive of interest, other charges which is already due and demandable but remains unpaid, hence this collection suit with prayer for moral damages and attorneys fees. A perusal of the record showed that notwithstanding the leniency graciously observed by this court in giving defendants several extensions of time to file their answer with responsive pleading, they failed to do the same thus, upon motion of plaintiffs counsel, defendants were declared as in default on October 27, 1995 and the ex-parte reception of plaintiffs evidence was delegated to the Clerk of Court. At the ex-parte hearing, ATTY. EDMUNDO O. REYES, JR., a lawyer by profession connected with the Siguion Reyna, Montecillo and Ongsiako Law Offices, testified that he is the attorney-in-fact of his mother Congresswoman Carmencita O. Reyes, herein plaintiff, to enter into and execute, among other acts, any agreement with the defendant Soledad Leonor Pea Suatengco to collect the amount of around P1.4 MILLION and to hold the same in trust for her as shown

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On November 29, 1995, the lower court rendered its decision, the dispositive portion of which reads as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants ordering defendants: a) To pay plaintiff actual damages in the amount of P1,321,313.00 plus interest at 12% per annum from May 31, 1994 representing the total outstanding balance of defendants indebtedness to plaintiff by virtue of the Promissory Note dated June 24, 1994. b) To pay plaintiff moral damages in the amount of P1,000,000.00; c) To pay plaintiff attorneys fees in the amount of 20% of the sum collected; and d) To pay costs of suit. SO ORDERED.5 In their appeal to the CA, petitioners did not question the amount of the judgment debt for which they were held liable but limited the issue to the award of attorneys fees. On October 29, 2003, the CA promulgated a decision affirming with modification the trial courts decision. It upheld the award of attorneys fees equivalent to 20% of the balance of petitioners obligation and modified the decision of the trial court by lowering the award of moral damages from One Million Pesos (P1,000,000.00) to Two Hundred Thousand Pesos (P200,000.00). Dispositively, the decision reads: WHEREFORE, the assailed decision of Branch 30, of the Regional Trial Court of Marinduque in Civil Case No. 95-4 is hereby AFFIRMED with MODIFICATION. The defendant-appellants are ordered to pay plaintiffappellee moral damages in the amount of P200,000.00. 6 Petitioners moved for the reconsideration of the CAs decision, but the same was denied by the CA in its Resolution dated March 10, 2004. Aggrieved, petitioners elevated the case to this Court via a petition for review on certiorari under Rule 45 of the Rules of Court, submitting thusly 1. The Court of Appeals acted with grave abuse of discretion and committed a mistake of law in awarding 20% attorneys fees contrary to the 5% as stipulated in the promissory note, Exhibit "B." 2. The Court of Appeals acted with grave abuse of discretion and committed a mistake of law in not reducing the award of the 12% penalty interest. Clearly from the foregoing formulation of the issues in the present petition, petitioners do not dispute the amount of their indebtedness. They only seek a modification of the decision of the CA insofar as it upheld the RTCs award of attorneys fees equivalent to 20% of their total indebtedness/obligation and the 12% per annum interest of the said obligation. In support of their contention that the award of attorneys fees was illegal or erroneous, petitioners point to the unqualified rate of 5% stipulated in the promissory note as the "stipulated amount" which was way lower than the 20% as awarded by the

RTC. Petitioners cited the case of Chua v. Court of Appeals7 where the Court ruled that is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does not contain. The testimony of Atty. Edmundo O. Reyes that the attorneys fees should be 20% of the outstanding balance cannot prevail over the 5% stipulated in the promissory note. Citing the case of Baas v. Asia Pacific Finance Corporation,8 petitioners maintained that oral evidence cannot prevail over the written agreement of the parties. On the other hand, respondent contend that petitioners have already waived their rights to question the award for attorneys fees because in their Appellants Brief filed before the CA, they stated that the stipulated attorneys fees was 20% (not 5%) of the total balance of the outstanding indebtedness. Respondent adds that despite such stipulation, said attorneys fees are subject to judicial control. According to respondent it was not surprising for the CA to focus on the issue of reasonableness of the said attorneys fees because petitioners line of argument was focused on the same. The petition is partly meritorious. The fifth paragraph of the Promissory Note executed by petitioners in favor of respondent undeniably carried a stipulation for attorneys fees and interest in case of the latters default in the payment of any installment due. It specifically provided that: Failure on the part of Sylvia and/or Antonio Suatengco to pay any installment due will render the entire unpaid balance immediately, due and demandable and Cong. Reyes becomes entitled not only for the unpaid balance but also for 12% interest per annum of the outstanding balance of P1,336,313.00 from May 31, 1994 until fully paid plus attorneys fees equivalent to 5% of the total outstanding indebtedness. Strictly speaking, the attorneys fees herein litigated are in the nature of liquidated damages and not the attorneys fees recoverable as between attorney and client enunciated and regulated by the Rules of Court.9 Liquidated damages are those agreed upon by the parties to a contract to be paid in case of breach thereof.10 The stipulation on attorneys fees contained in the said Promissory Note constitutes what is known as a penal clause. A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. It functions to strengthen the coercive force of obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.11 It is well-settled that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon the obligor. The attorneys fees so provided are awarded in favor of the litigant, not his counsel.12 In this case, there is a contractual stipulation in the Promissory Note that in case of petitioners default on the terms and conditions of the said Promissory Note by failing to pay any installment due, then this will render the entire balance of the obligation immediately due and payable. The total obligation of petitioners amounted toP1,321,313.00 (P1,336,313.00 less P15,000.00) plus the 12% interest per annum of the said balance, as well as attorneys fees equivalent to 5% of the total outstanding indebtedness. The Promissory Note was signed by both parties voluntarily, thus the stipulation therein has the force

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of law between the parties and should be complied with by them in good faith. The RTC and CA, in awarding attorneys fees equivalent to 20% of petitioners total obligation, disregarded the stipulation expressly agreed upon in the Promissory Note and instead increased the award of attorneys fees by giving weight and value to the testimony of prosecution witness Atty. Reyes. In agreeing to the reasonableness of the attorneys fees, the CA erroneously took into account the time spent, the extent of the services rendered, as well as the professional standing of the lawyer. Oral evidence certainly cannot prevail over the written agreements of the parties. The courts need only to rely on the faces of the written contracts to determine their true intention on the principle that when the parties have reduced their agreements in writing, it is presumed that they have made the writings the only repositories and memorials of their true agreement.13 Moreover, it is undeniable from the evidence submitted by respondent herself to the trial court that the agreement of the parties with respect to attorneys fees is only 5% of the total obligation and the trial court granted the 20% rate based on the testimony of respondents counsel who opined that the same is the reasonable amount of attorneys fees, despite the unequivocal agreement of the parties. Even granting that petitioners may have erroneously stated that the stipulated attorneys fees is 20% in their appellants brief before the CA, they have nonetheless squarely raised the matter of the lower rate of attorneys fees agreed upon by the parties in the promissory note before that court in their motion for reconsideration. In our mind, there was essentially no change in petitioners theory of the case before the CA since in their appellants brief and their motion for reconsideration, their main contention remains the same: that the attorneys fees awarded by the trial court and affirmed by the CA were unwarranted and contrary to law. Neither can we give credence to respondents assertion that the 5% attorneys fees agreed upon in the promissory note were intended only to be the minimum rate as the promissory note never mentioned a minimum. In sum, we find it improper for both the RTC and the CA to increase the award of attorneys fees despite the express stipulation contained in the said Promissory Note which we deem to be proper under these circumstances, since it is not intended to be compensation for respondents counsel but was rather in the nature of a penalty or liquidated damages. On the matter of interest, we affirm the amount of interest awarded by the two courts below, there being a written stipulation as to its rate. In Eastern Shipping Lines, Inc. v. Court of Appeals,14 we laid down the following guidelines on the imposition of legal interest: xxx xxx xxx II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due is that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum xxx 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. The stipulated interest in this case is 12% per annum. As of July 1994, the total indebtedness of petitioners amounted to P1,321,313.00. From then on, the P1,321,313.00 should have earned the stipulated interest of 12% per annum plus attorneys fees equivalent to 5% of the total outstanding indebtedness. However, once the judgment becomes final and executory and the amount adjudged is still not satisfied, legal interest at the rate of 12% applies until full payment. The rate of 12% per annum is proper because the interim period from the finality of judgment, awarding a monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of credit. The actual base for the computation of this 12% interest is the amount due upon finality of this decision.15 WHEREFORE, the Decision dated October 29, 2003 of the Court of Appeals is hereby MODIFIED in that the amount of attorneys fees is reduced to five percent (5%) of the total balance of the outstanding indebtedness but the said Decision is AFFIRMED in all other respects. No costs. SO ORDERED.

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G.R. No. 172384

September 12, 2007

ERMINDA F. FLORENTINO, Petitioner, vs. SUPERVALUE, INC., Respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioner Erminda F. Florentino, seeking to reverse and set aside the Decision,1 dated 10 October 2003 and the Resolution,2 dated 19 April 2006 of the Court of Appeals in CA-G.R. CV No. 73853. The appellate court, in its assailed Decision and Resolution, modified the Decision dated 30 April 2001 of the Regional Trial Court (RTC) of Makati, Branch 57, in Civil Case No. 00-1015, finding the respondent Supervalue, Inc., liable for the sum ofP192,000.00, representing the security deposits made by the petitioner upon the commencement of their Contract of Lease. The dispositive portion of the assailed appellate courts Decision thus reads: WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The April 30, 2001 Decision of the Regional Trial Court of Makati, Branch 57 is therefore MODIFIED to wit: (a) the portion ordering the [herein respondent] to pay the amount of P192,000.00 representing the security deposits and P50,000.00 as attorneys fees in favor of the [herein petitioner] as well as giving [respondent] the option to reimburse [petitioner] of the value of the improvements introduced by the [petitioner] on the leased [premises] should [respondent] choose to appropriate itself or require the [petitioner] to remove the improvements, is hereby REVERSED and SET ASIDE; and (b) the portion ordering the return to [petitioner] the properties seized by [respondent] after the former settled her obligation with the latter is however MAINTAINED.3 The factual and procedural antecedents of the instant petition are as follows: Petitioner is doing business under the business name "Empanada Royale," a sole proprietorship engaged in the retail of empanada with outlets in different malls and business establishments within Metro Manila.4 Respondent, on the other hand, is a domestic corporation engaged in the business of leasing stalls and commercial store spaces located inside SM Malls found all throughout the country. 5 On 8 March 1999, petitioner and respondent executed three Contracts of Lease containing similar terms and conditions over the cart-type stalls at SM North Edsa and SM Southmall and a store space at SM Megamall. The term of each contract is for a period of four months and may be renewed upon agreement of the parties.6 Upon the expiration of the original Contracts of Lease, the parties agreed to renew the same by extending their terms until 31 March 2000.7 Before the expiration of said Contracts of Lease, or on 4 February 2000, petitioner received two letters from the respondent, both dated 14 January 2000, transmitted through facsimile transmissions.8

In the first letter, petitioner was charged with violating Section 8 of the Contracts of Lease by not opening on 16 December 1999 and 26 December 1999.9 Respondent also charged petitioner with selling a new variety of empanada called "mini-embutido" and of increasing the price of her merchandise from P20.00 to P22.00, without the prior approval of the respondent.10 Respondent observed that petitioner was frequently closing earlier than the usual mall hours, either because of non-delivery or delay in the delivery of stocks to her outlets, again in violation of the terms of the contract. A stern warning was thus given to petitioner to refrain from committing similar infractions in the future in order to avoid the termination of the lease contract.11 In the second letter, respondent informed the petitioner that it will no longer renew the Contracts of Lease for the three outlets, upon their expiration on 31 March 2000.12 In a letter-reply dated 11 February 2000, petitioner explained that the "mini-embutido" is not a new variety of empanada but had similar fillings, taste and ingredients as those of pork empanada; only, its size was reduced in order to make it more affordable to the buyers.13 Such explanation notwithstanding, respondent still refused to renew its Contracts of Lease with the petitioner. To the contrary, respondent took possession of the store space in SM Megamall and confiscated the equipment and personal belongings of the petitioner found therein after the expiration of the lease contract. 14 In a letter dated 8 May 2000, petitioner demanded that the respondent release the equipment and personal belongings it seized from the SM Megamall store space and return the security deposits, in the sum ofP192,000.00, turned over by the petitioner upon signing of the Contracts of Lease. On 15 June 2000, petitioner sent respondent another letter reiterating her previous demands, but the latter failed or refused to comply therewith. 15 On 17 August 2000, an action for Specific Performance, Sum of Money and Damages was filed by the petitioner against the respondent before the RTC of Makati, Branch 57.16 In her Complaint docketed as Civil Case No. 00-1015, petitioner alleged that the respondent made verbal representations that the Contracts of Lease will be renewed from time to time and, through the said representations, the petitioner was induced to introduce improvements upon the store space at SM Megamall in the sum of P200,000.00, only to find out a year later that the respondent will no longer renew her lease contracts for all three outlets.17 In addition, petitioner alleged that the respondent, without justifiable cause and without previous demand, refused to return the security deposits in the amount of P192,000.00.18 Further, petitioner claimed that the respondent seized her equipment and personal belongings found inside the store space in SM Megamall after the lease contract for the said outlet expired and despite repeated written demands from the petitioner, respondent continuously refused to return the seized items. 19 Petitioner thus prayed for the award of actual damages in the sum of P472,000.00, representing the sum of security deposits, cost of improvements and the value of the personal properties seized. Petitioner also asked for the award of P300,000.00 as moral damages; P50,000.00 as exemplary damages; and P80,000.00 as attorneys fees and expenses of litigation.20

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For its part, respondent countered that petitioner committed several violations of the terms of their Contracts of Lease by not opening from 16 December 1999 to 26 December 1999, and by introducing a new variety of empanada without the prior consent of the respondent, as mandated by the provision of Section 2 of the Contract of Lease. Respondent also alleged that petitioner infringed the lease contract by frequently closing earlier than the agreed closing hours. Respondent finally averred that petitioner is liable for the amount P106,474.09, representing the penalty for selling a new variety of empanada, electricity and water bills, and rental adjustment, among other charges incidental to the lease agreements. Respondent claimed that the seizure of petitioners personal belongings and equipment was in the exercise of its retaining lien, considering that the petitioner failed to settle the said obligations up to the time the complaint was filed. 21 Considering that petitioner already committed several breaches of contract, the respondent thus opted not to renew its Contracts of Lease with her anymore. The security deposits were made in order to ensure faithful compliance with the terms of their lease agreements; and since petitioner committed several infractions thereof, respondent was justified in forfeiting the security deposits in the latters favor. On 30 April 2001, the RTC rendered a Judgment 22 in favor of the petitioner and found that the physical takeover by the respondent of the leased premises and the seizure of petitioners equipment and personal belongings without prior notice were illegal. The decretal part of the RTC Judgment reads: WHEREFORE, premises duly considered, judgment is hereby rendered ordering the [herein respondent] to pay [herein petitioner] the amount of P192,000.00 representing the security deposits made by the [petitioner] andP50,000.00 as and for attorneys fees. The [respondent] is likewise ordered to return to the [petitioner] the various properties seized by the former after settling her account with the [respondent]. Lastly, the [respondent] may choose either to reimburse the [petitioner] one half (1/2) of the value of the improvements introduced by the plaintiff at SM Megamall should [respondent] choose to appropriate the improvements to itself or require the [petitioner] to remove the improvements, even though the principal thing may suffer damage thereby. [Petitioner] shall not, however, cause anymore impairment upon the said leased premises than is necessary. The other damages claimed by the plaintiff are denied for lack of merit. Aggrieved, the respondent appealed the adverse RTC Judgment to the Court of Appeals. In a Decision23 dated 10 October 2003, the Court of Appeals modified the RTC Judgment and found that the respondent was justified in forfeiting the security deposits and was not liable to reimburse the petitioner for the value of the improvements introduced in the leased premises and to pay for attorneys fees. In modifying the findings of the lower court, the appellate court declared that in view of the breaches of contract committed by the petitioner, the respondent is justified in forfeiting the security deposits. Moreover, since the petitioner did not obtain the consent of the respondent before she introduced improvements on the SM Megamall store space, the respondent has therefore no obligation to reimburse the petitioner for the amount expended in connection with the said improvements.24 The Court of Appeals, however, maintained the order of the trial court for respondent to return to petitioner her properties after she has settled her obligations to the

respondent. The appellate court denied petitioners Motion for Reconsideration in a Resolution25 dated 19 April 2006. Hence, this instant Petition for Review on Certiorari26 filed by the petitioner assailing the Court of Appeals Decision. For the resolution of this Court are the following issues: I. Whether or not the respondent is liable to return the security deposits to the petitions. II. Whether or not the respondent is liable to reimburse the petitioner for the sum of the improvements she introduced in the leased premises. III. Whether or not the respondent is liable for attorneys fees.27 The appellate court, in finding that the respondent is authorized to forfeit the security deposits, relied on the provisions of Sections 5 and 18 of the Contract of Lease, to wit: Section 5. DEPOSIT. The LESSEE shall make a cash deposit in the sum of SIXTY THOUSAND PESOS (P60,000.00) equivalent to three (3) months rent as security for the full and faithful performance to each and every term, provision, covenant and condition of this lease and not as a pre-payment of rent. If at any time during the term of this lease the rent is increased[,] the LESSEE on demand shall make an additional deposit equal to the increase in rent. The LESSOR shall not be required to keep the deposit separate from its general funds and the deposit shall not be entitled to interest. The deposit shall remain intact during the entire term and shall not be applied as payment for any monetary obligations of the LESSEE under this contract. If the LESSEE shall faithfully perform every provision of this lease[,] the deposit shall be refunded to the LESSEE upon the expiration of this Lease and upon satisfaction of all monetary obligation to the LESSOR. xxxx Section 18. TERMINATION. Any breach, non-performance or non-observance of the terms and conditions herein provided shall constitute default which shall be sufficient ground to terminate this lease, its extension or renewal. In which event, the LESSOR shall demand that LESSEE immediately vacate the premises, and LESSOR shall forfeit in its favor the deposit tendered without prejudice to any such other appropriate action as may be legally authorized.28 Since it was already established by the trial court that the petitioner was guilty of committing several breaches of contract, the Court of Appeals decreed that she cannot therefore rightfully demand the return of the security deposits for the same are deemed forfeited by reason of evident contractual violations. It is undisputed that the above-quoted provision found in all Contracts of Lease is in the nature of a penal clause to ensure petitioners faithful compliance with the terms and conditions of the said contracts. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.29The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach.30 Article 1226 of the Civil Code states:

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Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. As a general rule, courts are not at liberty to ignore the freedoms of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contracts in two instances: (1) if the principal obligation has been partly or irregularly complied with; and (2) even if there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which clearly provides: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.31 In ascertaining whether the penalty is unconscionable or not, this court set out the following standard in Ligutan v. Court of Appeals,32 to wit: The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factor as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. xxx. In the instant case, the forfeiture of the entire amount of the security deposits in the sum of P192,000.00 was excessive and unconscionable considering that the gravity of the breaches committed by the petitioner is not of such degree that the respondent was unduly prejudiced thereby. It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total amount of security deposits. It is in the exercise of its sound discretion that this court tempered the penalty for the breaches committed by the petitioner to 50% of the amount of the security deposits. The forfeiture of the entire sum of P192,000.00 is clearly a usurious and iniquitous penalty for the transgressions committed by the petitioner. The respondent is therefore under the obligation to return the 50% of P192,000.00 to the petitioner. Turning now to the liability of the respondent to reimburse the petitioner for one-half of the expenses incurred for the improvements on the leased store space at SM Megamall, the following provision in the Contracts of Lease will enlighten us in resolving this issue: Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS, ETC. The LESSEE shall not make any alterations, additions, or improvements without the prior written consent of LESSOR; and all alterations, additions or improvements made on the leased premises, except movable or fixtures put in at LESSEEs expense and which are removable, without defacing the buildings or damaging its floorings, shall become LESSORs property without compensation/reimbursement but the LESSOR reserves the right

to require the removal of the said alterations, additions or improvements upon expiration of the lease. The foregoing provision in the Contract of Lease mandates that before the petitioner can introduce any improvement on the leased premises, she should first obtain respondents consent. In the case at bar, it was not shown that petitioner previously secured the consent of the respondent before she made the improvements on the leased space in SM Megamall. It was not even alleged by the petitioner that she obtained such consent or she at least attempted to secure the same. On the other hand, the petitioner asserted that respondent allegedly misrepresented to her that it would renew the terms of the contracts from time to time after their expirations, and that the petitioner was so induced thereby that she expended the sum of P200,000.00 for the improvement of the store space leased. This argument was squarely addressed by this court in Fernandez v. Court of Appeals,33 thus: The Court ruled that the stipulation of the parties in their lease contract "to be renewable" at the option of both parties stresses that the faculty to renew was given not to the lessee alone nor to the lessor by himself but to the two simultaneously; hence, both must agree to renew if a new contract is to come about. Petitioners contention that respondents had verbally agreed to extend the lease indefinitely is inadmissible to qualify the terms of the written contract under the parole evidence rule, and unenforceable under the statute of frauds.34 Moreover, it is consonant with human experience that lessees, before occupying the leased premises, especially store spaces located inside malls and big commercial establishments, would renovate the place and introduce improvements thereon according to the needs and nature of their business and in harmony with their trademark designs as part of their marketing ploy to attract customers. Certainly, no inducement or misrepresentation from the lessor is necessary for this purpose, for it is not only a matter of necessity that a lessee should re-design its place of business but a business strategy as well. In ruling that the respondent is liable to reimburse petitioner one half of the amount of improvements made on the leased store space should it choose to appropriate the same, the RTC relied on the provision of Article 1678 of the Civil Code which provides: Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee onehalf of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. While it is true that under the above-quoted provision of the Civil Code, the lessor is under the obligation to pay the lessee one-half of the value of the improvements made should the lessor choose to appropriate the improvements, Article 1678 however should be read together with Article 448 and Article 546 of the same statute, which provide: Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter

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cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. xxxx

WHEREFORE, premises considered, the instant Petition is PARTLY GRANTED. The Court of Appeals Decision dated 10 October 2003 in CA-G.R. CV No. 73853 is hereby AFFIRMED with the MODIFICATION that the respondent may forfeit only 50% of the total amount of the security deposits in the sum of P192,000.00, and must return the remaining 50% to the petitioner. No costs. SO ORDERED.

Art. 546. Necessary expenses shall be refunded to every possessor; but only possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. Thus, to be entitled to reimbursement for improvements introduced on the property, the petitioner must be considered a builder in good faith. Further, Articles 448 and 546 of the Civil Code, which allow full reimbursement of useful improvements and retention of the premises until reimbursement is made, apply only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. A builder in good faith is one who is unaware of any flaw in his title to the land at the time he builds on it.35 In this case, the petitioner cannot claim that she was not aware of any flaw in her title or was under the belief that she is the owner of the subject premises for it is a settled fact that she is merely a lessee thereof.1wphi1 In Geminiano v. Court of Appeals,36 this Court was emphatic in declaring that lessees are not possessors or builders in good faith, thus: Being mere lessees, the private respondents knew that their occupation of the premises would continue only for the life of the lease. Plainly, they cannot be considered as possessors nor builders in good faith. In a plethora of cases, this Court has held that Article 448 of the Civil Code, in relation to Article 546 of the same Code, which allows full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where one's only interest is that of a lessee under a rental contract; otherwise, it would always be in the power of the tenant to "improve" his landlord out of his property. Since petitioners interest in the store space is merely that of the lessee under the lease contract, she cannot therefore be considered a builder in good faith. Consequently, respondent may appropriate the improvements introduced on the leased premises without any obligation to reimburse the petitioner for the sum expended. Anent the claim for attorneys fees, we resolve to likewise deny the award of the same. Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to protect its interest by reason of unjustified act of the other.37 In the instant petition, it was not shown that the respondent unjustifiably refused to grant the demands of the petitioner so as to compel the latter to initiate legal action to enforce her right. As we have found herein, there is basis for respondents refusal to return to petitioner the security deposits and to reimburse the costs of the improvements in the leased premises. The award of attorneys fees is therefore not proper in the instant case.

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