Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 190755 November 24, 2010
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
ALFREDO ONG, Respondent.
D E C I S I O N
VELASCO, JR., J.:
This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in
CA-G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the Philippines, which
affirmed the Decision of the Regional Trial Court (RTC), Branch 17 in Tabaco City.
The Facts
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land
Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three (3)
residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP
6 million of the loan would be short-term and would mature on February 28, 1997,
while the balance of PhP 10 million would be payable in seven (7) years. The Notice of
Loan Approval dated February 22, 1996 contained an acceleration clause wherein any
default in payment of amortizations or other charges would accelerate the maturity of
the loan.
1

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On
December 9, 1996, they sold three (3) of their mortgaged parcels of land for PhP
150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale with
Assumption of Mortgage. The relevant portion of the document
2
is quoted as follows:
WHEREAS, we are no longer in a position to settle our obligation with the bank;
NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED FIFTY
THOUSAND PESOS (P150,000.00) Philippine Currency, we hereby these presents
SELL, CEDE, TRANSFER and CONVEY, by way of sale unto ANGELINA GLORIA ONG,
also of legal age, Filipino citizen, married to Alfredo Ong, and also a resident of
Tabaco, Albay, Philippines, their heirs and assigns, the above-mentioned debt with the
said LAND BANK OF THE PHILIPPINES, and by reason hereof they can make the
necessary representation with the bank for the proper restructuring of the loan with
the said bank in their favor;
That as soon as our obligation has been duly settled, the bank is authorized to release
the mortgage in favor of the vendees and for this purpose VENDEES can register this
instrument with the Register of Deeds for the issuance of the titles already in their
names.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day of
December 1996 at Tabaco, Albay, Philippines.
(signed)
EVANGELINE O. SY
Vendor
(signed)
JOHNSON B. SY
Vendor
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about
the sale and assumption of mortgage.
3
Atty. Edna Hingco, the Legazpi City Land Bank
Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was
nothing wrong with the agreement with the Spouses Sy but provided them with
requirements for the assumption of mortgage. They were also told that Alfredo should
pay part of the principal which was computed at PhP 750,000 and to update due or
accrued interests on the promissory notes so that Atty. Hingco could easily approve
the assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000
and personally gave it to Atty. Hingco. A receipt was issued for his payment. He also
submitted the other documents required by Land Bank, such as financial statements
for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the
Spouses Sy would be transferred in his name but this never materialized. No notice of
transfer was sent to him.
4

Alfredo later found out that his application for assumption of mortgage was not
approved by Land Bank. The bank learned from its credit investigation report that the
Ongs had a real estate mortgage in the amount of PhP 18,300,000 with another bank
that was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land
Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo only
learned of the foreclosure when he saw the subject mortgage properties included in a
Notice of Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco, Albay.
Alfredos other counsel, Atty. Madrilejos, subsequently talked to Land Banks lawyer
and was told that the PhP 750,000 he paid would be returned to him.
5

On December 12, 1997, Alfredo initiated an action for recovery of sum of money with
damages against Land Bank in Civil Case No. T-1941, as Alfredos payment was not
returned by Land Bank. Alfredo maintained that Land Banks foreclosure without
informing him of the denial of his assumption of the mortgage was done in bad faith.
He argued that he was lured into believing that his payment of PhP 750,000 would
cause Land Bank to approve his assumption of the loan of the Spouses Sy and the
transfer of the mortgaged properties in his and his wifes name.
6
He also claimed
incurring expenses for attorneys fees of PhP 150,000, filing fee of PhP 15,000, and
PhP 250,000 in moral damages.
7

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager
she had no authority to approve loans and could not assure anybody that their
assumption of mortgage would be approved. She testified that the breakdown of
Alfredos payment was as follows:
PhP 101,409.59 applied to principal
216,246.56 accrued interests receivable
396,571.77 interests
18,766.10 penalties
16,805.98 accounts receivable
Total:
----------------
750,000.00

According to Atty. Hingco, the bank processes an assumption of mortgage as a new
loan, since the new borrower is considered a new client. They used character,
capacity, capital, collateral, and conditions in determining who can qualify to assume
a loan. Alfredos proposal to assume the loan, she explained, was referred to a
separate office, the Lending Center.
8

During cross-examination, Atty. Hingco testified that several months after Alfredo
made the tender of payment, she received word that the Lending Center rejected
Alfredos loan application. She stated that it was the Lending Center and not her that
should have informed Alfredo about the denial of his and his wifes assumption of
mortgage. She added that although she told Alfredo that the agreement between the
spouses Sy and Alfredo was valid between them and that the bank would accept
payments from him, Alfredo did not pay any further amount so the foreclosure of the
loan collaterals ensued. She admitted that Alfredo demanded the return of the PhP
750,000 but said that there was no written demand before the case against the bank
was filed in court. She said that Alfredo had made the payment of PhP 750,000 even
before he applied for the assumption of mortgage and that the bank received the said
amount because the subject account was past due and demandable; and the Deed of
Assumption of Mortgage was not used as the basis for the payment.
9

The Ruling of the Trial Court
The RTC held that the contract approving the assumption of mortgage was not
perfected as a result of the credit investigation conducted on Alfredo. It noted that
Alfredo was not even informed of the disapproval of the assumption of mortgage but
was just told that the accounts of the spouses Sy had matured and gone unpaid. It
ruled that under the principle of equity and justice, the bank should return the
amount Alfredo had paid with interest at 12% per annum computed from the filing of
the complaint. The RTC further held that Alfredo was entitled to attorneys fees and
litigation expenses for being compelled to litigate.
10

The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, a decision is rendered, ordering defendant bank
to pay plaintiff, Alfredo Ong the amount of P750,000.00 with interest at 12% per
annum computed from Dec. 12, 1997 and attorneys fees and litigation expenses of
P50,000.00.
Costs against defendant bank.
SO ORDERED.
11

The Ruling of the Appellate Court
On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP
750,000 made by Ong was one of the requirements for the approval of his proposal to
assume the mortgage of the Sy spouses; (2) erroneously ordering Land Bank to return
the amount of PhP 750,000 to Ong on the ground of its failure to effect novation; and
(3) erroneously affirming the award of PhP 50,000 to Ong as attorneys fees and
litigation expenses.
The CA affirmed the RTC Decision.
12
It held that Alfredos recourse is not against the
Sy spouses. According to the appellate court, the payment of PhP 750,000 was for the
approval of his assumption of mortgage and not for payment of arrears incurred by the
Sy spouses. As such, it ruled that it would be incorrect to consider Alfredo a third
person with no interest in the fulfillment of the obligation under Article 1236 of the
Civil Code. Although Land Bank was not bound by the Deed between Alfredo and the
Spouses Sy, the appellate court found that Alfredo and Land Banks active
preparations for Alfredos assumption of mortgage essentially novated the agreement.
On January 5, 2010, the CA denied Land Banks motion for reconsideration for lack of
merit. Hence, Land Bank appealed to us.
The Issues
I
Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code
does not apply and in finding that there is no novation.
II
Whether the Court of Appeals misconstrued the evidence and the law when it
affirmed the trial court decisions ordering Land Bank to pay Ong the amount of
Php750,000.00 with interest at 12% annum.
III
Whether the Court of Appeals committed reversible error when it affirmed the
award of Php50,000.00 to Ong as attorneys fees and expenses of litigation.
The Ruling of this Court
We affirm with modification the appealed decision.
Recourse is against Land Bank
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo
should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236
provides:
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.
Whoever pays for another may demand from the debtor what he has paid, except that
if he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor.1avvphi1
We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236.
Land Bank was not bound to accept Alfredos payment, since as far as the former was
concerned, he did not have an interest in the payment of the loan of the Spouses Sy.
However, in the context of the second part of said paragraph, Alfredo was not making
payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional
payment so that the properties subject of the Deed of Sale with Assumption of
Mortgage would be titled in his name. It is clear from the records that Land Bank
required Alfredo to make payment before his assumption of mortgage would be
approved. He was informed that the certificate of title would be transferred
accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor.
But the trial court stated:
[T]he contract was not perfected or consummated because of the adverse finding in the
credit investigation which led to the disapproval of the proposed assumption. There
was no evidence presented that plaintiff was informed of the disapproval. What he
received was a letter dated May 22, 1997 informing him that the account of spouses
Sy had matured but there [were] no payments. This was sent even before the conduct
of the credit investigation on June 20, 1997 which led to the disapproval of the
proposed assumption of the loans of spouses Sy.
13

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the
obligation of the Spouses Sy, since his interest hinged on Land Banks approval of his
application, which was denied. The circumstances of the instant case show that the
second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his
own interest and not on behalf of the Spouses Sy, recourse is not against the latter.
And as Alfredo was not paying for another, he cannot demand from the debtors, the
Spouses Sy, what he has paid.
Novation of the loan agreement
Land Bank also faults the CA for finding that novation applies to the instant case. It
reasons that a substitution of debtors was made without its consent; thus, it was not
bound to recognize the substitution under the rules on novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance
Corporation
14
provides the following discussion:
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive
when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the
extent it remains compatible with the amendatory agreement. An extinctive novation
results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation would have dual functions
one to extinguish an existing obligation, the other to substitute a new one in its
place requiring a conflux of four essential requisites: (1) a previous valid obligation;
(2) an agreement of all parties concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new obligation. x x x
In order that an obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with each other. The test of
incompatibility is whether or not the two obligations can stand together, each one
having its independent existence. x x x (Emphasis supplied.)
Furthermore, Art. 1293 of the Civil Code states:
Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him rights
mentioned in articles 1236 and 1237.
We do not agree, then, with the CA in holding that there was a novation in the
contract between the parties. Not all the elements of novation were present. Novation
must be expressly consented to. Moreover, the conflicting intention and acts of the
parties underscore the absence of any express disclosure or circumstances with which
to deduce a clear and unequivocal intent by the parties to novate the old agreement.
15

Land Bank is thus correct when it argues that there was no novation in the following:
[W]hether or not Alfredo Ong has an interest in the obligation and payment was made
with the knowledge or consent of Spouses Sy, he may still pay the obligation for the
reason that even before he paid the amount of P750,000.00 on January 31, 1997, the
substitution of debtors was already perfected by and between Spouses Sy and Spouses
Ong as evidenced by a Deed of Sale with Assumption of Mortgage executed by them on
December 9, 1996. And since the substitution of debtors was made without the
consent of Land Bank a requirement which is indispensable in order to effect a
novation of the obligation, it is therefore not bound to recognize the substitution of
debtors. Land Bank did not intervene in the contract between Spouses Sy and
Spouses Ong and did not expressly give its consent to this substitution.
16

Unjust enrichment
Land Bank maintains that the trial court erroneously applied the principle of equity
and justice in ordering it to return the PhP 750,000 paid by Alfredo. Alfredo was
allegedly in bad faith and in estoppel. Land Bank contends that it enjoyed the
presumption of regularity and was in good faith when it accepted Alfredos tender of
PhP 750,000. It reasons that it did not unduly enrich itself at Alfredos expense during
the foreclosure of the mortgaged properties, since it tendered its bid by subtracting
PhP 750,000 from the Spouses Sys outstanding loan obligation. Alfredos recourse
then, according to Land Bank, is to have his payment reimbursed by the Spouses Sy.
We rule that Land Bank is still liable for the return of the PhP 750,000 based on the
principle of unjust enrichment. Land Bank is correct in arguing that it has no
obligation as creditor to recognize Alfredo as a person with interest in the fulfillment of
the obligation. But while Land Bank is not bound to accept the substitution of debtors
in the subject real estate mortgage, it is estopped by its action of accepting Alfredos
payment from arguing that it does not have to recognize Alfredo as the new debtor.
The elements of estoppel are:
First, the actor who usually must have knowledge, notice or suspicion of the true
facts, communicates something to another in a misleading way, either by words,
conduct or silence; second, the other in fact relies, and relies reasonably or justifiably,
upon that communication; third, the other would be harmed materially if the actor is
later permitted to assert any claim inconsistent with his earlier conduct; and fourth,
the actor knows, expects or foresees that the other would act upon the information
given or that a reasonable person in the actors position would expect or foresee such
action.
17

By accepting Alfredos payment and keeping silent on the status of Alfredos
application, Land Bank misled Alfredo to believe that he had for all intents and
purposes stepped into the shoes of the Spouses Sy.
The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the
banks Lending Center that should have notified Alfredo of his assumption of mortgage
disapproval is unavailing. The Lending Centers lack of notice of disapproval, the
Tabaco Branchs silence on the disapproval, and the banks subsequent actions show
a failure of the bank as a whole, first, to notify Alfredo that he is not a recognized
debtor in the eyes of the bank; and second, to apprise him of how and when he could
collect on the payment that the bank no longer had a right to keep.
We turn then on the principle upon which Land Bank must return Alfredos payment.
Unjust enrichment exists "when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience."
18
There is unjust
enrichment under Art. 22 of the Civil Code when (1) a person is unjustly benefited,
and (2) such benefit is derived at the expense of or with damages to another.
19

Additionally, unjust enrichment has been applied to actions called accion in rem
verso. In order that the accion in rem verso may prosper, the following conditions
must concur: (1) that the defendant has been enriched; (2) that the plaintiff has
suffered a loss; (3) that the enrichment of the defendant is without just or legal
ground; and (4) that the plaintiff has no other action based on contract, quasi-
contract, crime, or quasi-delict.
20
The principle of unjust enrichment essentially
contemplates payment when there is no duty to pay, and the person who receives the
payment has no right to receive it.
21

The principle applies to the parties in the instant case, as, Alfredo, having been
deemed disqualified from assuming the loan, had no duty to pay petitioner bank and
the latter had no right to receive it.
Moreover, the Civil Code likewise requires under Art. 19 that "[e]very person must, in
the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith." Land Bank, however, did not
even bother to inform Alfredo that it was no longer approving his assumption of the
Spouses Sys mortgage. Yet it acknowledged his interest in the loan when the branch
head of the bank wrote to tell him that his daughters loan had not been paid.
22
Land
Bank made Alfredo believe that with the payment of PhP 750,000, he would be able to
assume the mortgage of the Spouses Sy. The act of receiving payment without
returning it when demanded is contrary to the adage of giving someone what is due to
him. The outcome of the application would have been different had Land Bank first
conducted the credit investigation before accepting Alfredos payment. He would have
been notified that his assumption of mortgage had been disapproved; and he would
not have taken the futile action of paying PhP 750,000. The procedure Land Bank took
in acting on Alfredos application cannot be said to have been fair and proper.
As to the claim that the trial court erred in applying equity to Alfredos case, we hold
that Alfredo had no other remedy to recover from Land Bank and the lower court
properly exercised its equity jurisdiction in resolving the collection suit. As we have
held in one case:
Equity, as the complement of legal jurisdiction, seeks to reach and complete justice
where courts of law, through the inflexibility of their rules and want of power to adapt
their judgments to the special circumstances of cases, are incompetent to do so.
Equity regards the spirit and not the letter, the intent and not the form, the substance
rather than the circumstance, as it is variously expressed by different courts.
23

Another claim made by Land Bank is the presumption of regularity it enjoys and that
it was in good faith when it accepted Alfredos tender of PhP 750,000.
The defense of good faith fails to convince given Land Banks actions. Alfredo was not
treated as a mere prospective borrower. After he had paid PhP 750,000, he was made
to sign bank documents including a promissory note and real estate mortgage. He was
assured by Atty. Hingco that the titles to the properties covered by the Spouses Sys
real estate mortgage would be transferred in his name, and upon payment of the PhP
750,000, the account would be considered current and renewed in his name.
24

Land Bank posits as a defense that it did not unduly enrich itself at Alfredos expense
during the foreclosure of the mortgaged properties, since it tendered its bid by
subtracting PhP 750,000 from the Spouses Sys outstanding loan obligation. It is
observed that this is the first time Land Bank is revealing this defense. However,
issues, arguments, theories, and causes not raised below may no longer be posed on
appeal.
25
Land Banks contention, thus, cannot be entertained at this point.1avvphi1
Land Bank further questions the lower courts decision on the basis of the
inconsistencies made by Alfredo on the witness stand. It argues that Alfredo was not a
credible witness and his testimony failed to overcome the presumption of regularity in
the performance of regular duties on the part of Land Bank.
This claim, however, touches on factual findings by the trial court, and we defer to
these findings of the trial court as sustained by the appellate court. These are
generally binding on us. While there are exceptions to this rule, Land Bank has not
satisfactorily shown that any of them is applicable to this issue.
26
Hence, the rule that
the trial court is in a unique position to observe the demeanor of witnesses should be
applied and respected
27
in the instant case.
In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it
had already foreclosed on the mortgaged lands.
Interest and attorneys fees
As to the applicable interest rate, we reiterate the guidelines found in Eastern
Shipping Lines, Inc. v. Court of Appeals:
28

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
No evidence was presented by Alfredo that he had sent a written demand to Land
Bank before he filed the collection suit. Only the verbal agreement between the lawyers
of the parties on the return of the payment was mentioned.
29
Consequently, the
obligation of Land Bank to return the payment made by Alfredo upon the formers
denial of the latters application for assumption of mortgage must be reckoned from
the date of judicial demand on December 12, 1997, as correctly determined by the
trial court and affirmed by the appellate court.
The next question is the propriety of the imposition of interest and the proper
imposable rate of applicable interest. The RTC granted the rate of 12% per annum
which was affirmed by the CA. From the above-quoted guidelines, however, the proper
imposable interest rate is 6% per annum pursuant to Art. 2209 of the Civil Code.
Sunga-Chan v. Court of Appeals is illuminating in this regard:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum
under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving
the loan or forbearance of money. And for transactions involving payment of
indemnities in the concept of damages arising from default in the performance of
obligations in general and/or for money judgment not involving a loan or forbearance
of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code
prescribing a yearly 6% interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of time,
from requiring the borrower or debtor to repay the loan or debt then due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if
proper, and the applicable rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits,
as well as to judgments involving such loan or forbearance of money, goods, or credit,
while the 6% per annum under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the concept of damage arising from
the breach or a delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint was filed until the
[adjudged] amount is fully paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the condition
"that the courts are vested with discretion, depending on the equities of each case, on
the award of interest."
30
(Emphasis supplied.)
Based on our ruling above, forbearance of money refers to the contractual obligation of
the lender or creditor to desist for a fixed period from requiring the borrower or debtor
to repay the loan or debt then due and for which 12% per annum is imposed as
interest in the absence of a stipulated rate. In the instant case, Alfredos conditional
payment to Land Bank does not constitute forbearance of money, since there was no
agreement or obligation for Alfredo to pay Land Bank the amount of PhP 750,000, and
the obligation of Land Bank to return what Alfredo has conditionally paid is still in
dispute and has not yet been determined. Thus, it cannot be said that Land Banks
alleged obligation has become a forbearance of money.
On the award of attorneys fees, attorneys fees and expenses of litigation were
awarded because Alfredo was compelled to litigate due to the unjust refusal of Land
Bank to refund the amount he paid. There are instances when it is just and equitable
to award attorneys fees and expenses of litigation.
31
Art. 2208 of the Civil Code
pertinently states:
In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
x x x x
(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest.
Given that Alfredo was indeed compelled to litigate against Land Bank and incur
expenses to protect his interest, we find that the award falls under the exception above
and is, thus, proper given the circumstances.
On a final note. The instant case would not have been litigated had Land Bank been
more circumspect in dealing with Alfredo. The bank chose to accept payment from
Alfredo even before a credit investigation was underway, a procedure worsened by the
failure to even inform him of his credit standings impact on his assumption of
mortgage. It was, therefore, negligent to a certain degree in handling the transaction
with Alfredo. It should be remembered that the business of a bank is affected with
public interest and it should observe a higher standard of diligence when dealing with
the public.
32

WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445 is
AFFIRMED with MODIFICATION in that the amount of PhP 750,000 will earn interest
at 6% per annum reckoned from December 12, 1997, and the total aggregate
monetary awards will in turn earn 12% per annum from the finality of this Decision
until fully paid.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
DIOSDADO M. PERALTA
*

Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions
in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
*
Additional member per Special Order No. 913 dated November 2, 2010.
1
Rollo, p. 44.
2
Records, pp. 63-64.
3
Rollo, p. 45.
4
Id. at 45-46.
5
Id. at 46.
6
Id.
7
Id. at 92.
8
Records, pp. 162-163.
9
Id. at 160.
10
Id. at 168.
11
CA rollo, p. 87. Penned by Judge Virginia G. Almonte.
12
Rollo, p. 53. The CA Decision was penned by Associate Justice Jose C. Reyes,
Jr. and concurred in by Presiding Justice Conrado M. Vasquez, Jr. and
Associate Justice Apolinario D. Bruselas, Jr.
13
CA rollo, p. 87.
14
G.R. No. 164300, November 29, 2006, 508 SCRA 556, 560-561; citing
Fabrigas v. San Francisco del Monte, Inc., G.R. No. 152346, November 25,
2005, 476 SCRA 247, 258-259.
15
Philippine Savings Bank v. Spouses Maalac, G.R. No. 145441, April 26,
2005, 457 SCRA 203, 218.
16
Rollo, p. 23.
17
Philippine Bank of Communications v. Court of Appeals, G.R. No. 109803,
April 20, 1998, 289 SCRA 185, 186.
18
Car Cool Philippines v. Ushio Realty and Development Corporation, G.R. No.
138088, January 23, 2006, 479 SCRA 404, 412.
19
H.L. Carlos Corporation, Inc. v. Marina Properties Corporation, G.R. No.
147614, January 29, 2004, 421 SCRA 428, 437; citing MC Engineering, Inc. v.
Court of Appeals, G.R. No. 104047, April 3, 2002, 380 SCRA 116, 138.
20
1 Tolentino, Civil Code of the Philippines Commentaries and Jurisprudence
77 (1990).
21
Gil Miguel T. Puyat v. Ron Zabarte, G.R. No. 141536. February 26, 2001, 352
SCRA 738, 750.
22
CA rollo, p. 86.
23
LCK Industries Inc. v. Planters Development Bank, G.R. No. 170606,
November 23, 2007, 538 SCRA 634, 652; citing Tamio v. Ticson, G.R. No.
154895, November 18, 2004, 443 SCRA 44, 55.
24
CA rollo, p.86.
25
Agra v. Philippine National Bank, G.R. No. 133317, June 29, 1999, 514 SCRA
509, 528.
26
See Royal Cargo Corporation v. DFS Sports Unlimited Inc., G.R. No. 158621,
December 10, 2008, 573 SCRA 414, 421-422.
27
See Tugade v. Court of Appeals, G.R. No. 120874, July 31, 2003, 407 SCRA
497, 508.
28
G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95-97.
29
Records, p. 255.
30
G.R. No. 164401, June 25, 2008, 555 SCRA 275, 287-288 [citations omitted].
31
Trade & Investment Development Corporation v. Roblett Industrial
Construction Corp., G.R. No. 139290, November 11, 2005, 474 SCRA 510, 540-
541.
32
Philippine Bank of Communications v. Court of Appeals, supra note 17.
G.R. No. L-28569
[ G.R. No. L-28569, February 27, 1970 ]
J. M. TUASON & CO., INC., PLAINTIFF-APPELLANT, VS. LIGAYA JAVIER,
DEFENDANT-APPELLEE.

D E C I S I O N
CONCEPCION, C.J.:
This appeal, taken by plaintiff J. M. Tuason & Co., Inc., from a decision of the Court of
First Instance of Rizal, has been certified to Us by the Court of Appeals, only questions
of law being raised therein.
The record shows that, on September 7, 1954, a contract was entered into between the
plaintiff, on the one hand, and defendant-appellee, Ligaya Javier, on the other,
whereby plaintiff agreed to sell, transfer and convey to the defendant a parcel of land
known as Lot No. 28, Block No. 356, PSD 30328, of the Sta. Mesa Heights
Subdivision, for the total sum of P3,691.20, with interest thereon at the rate of ten
(10) per centum a year, payable as follows: P396.12 upon the execution of the
contract and P43.92 every month thereafter, for a period of ten (10) years. The sixth
paragraph of said contract provided that:
"x x x In case the party of the SECOND PART fails to satisfy any monthly installments,
or any other payments herein agreed upon, he is granted a month of grace within
which to make the retarded payment, together with the one corresponding to the said
month of grace; it is understood, however, that should the month of grace herein
granted to the party of the SECOND PART expire without the payments corresponding
to both months having been satisfied, an interest of 10% per annum will be charged
on the amount he should have paid; it is understood further, that should a period of
90 days elapse, to begin from the expiration of the month of grace herein mentioned,
and the party of the SECOND PART has not paid all the amounts he should have paid
with the corresponding interest up to that date, the party of the FIRST PART has the
right to declare this contract cancelled and of no effect, and as consequence thereof,
the party of the FIRST PART may dispose of the parcel or parcels of land covered by
this contract in favor of other persons, as if this contract had never been entered into.
In case of such cancellation of this contract, all the amounts paid in accordance with
this agreement together with all the improvements made on the premises, shall be
considered as rents paid for the use and occupation of the above mentioned premises,
and as payment for the damages suffered by failure of the party of the SECOND PART
to fulfill his part of the agreement; and the party of the SECOND PART hereby re-
nounces all his right to demand or reclaim the return of the same and obliges himself
to peacefully vacate the premises and deliver the same to the party of the FIRST
PART."
Upon the execution of the contract and the payment of the first installment of
P396.12, the defendant was placed in possession of the land. Thereafter and until
January 5, 1962, she paid the stipulated monthly installments which, including the
initial payment of P396.12, aggregated P4,134.08. Subsequently, however, she
defaulted in the payment of said installments, in view of which, on May 22, 1964,
plaintiff informed her by letter that their contract had been rescinded. Defendant
having thereafter failed or refused to vacate said land, on July 9, 1964, plaintiff
commenced the present action against her, in the Court of First Instance of Rizal.
After alleging substantially the foregoing fact, plaintiff prayed in its complaint that the
aforementioned contract be declared validly rescinded and that the defendant and all
persons claiming under her be ordered to deliver to the plaintiff the lot in question,
with all the improvements thereon, and to pay a monthly rental of P40.00, from
January 5, 1962, until the property shall have been surrendered to the plaintiff, as
well as all costs. Admitting that she had defaulted in the payment of the stipulated
monthly installments, from January 5, 1962, defendant alleged in her answer that this
fact "was due to unforeseen circumstances"; that she is "willing to pay all arrears in
installments under the contract" and had "in fact offered the same to the plaintiff";
and that said contract "can not be rescinded upon the unilateral act of the plaintiff."
At a pre-trial conference held before said court, the following facts were - in the
language of the decision appealed from - agreed upon between the parties:
"x x x that since January 5, 1962, up to the present, the defendant has failed to pay
the monthly installments called for in the contract to sell; that in view of the failure of
the defendant to pay her installment payments since January 5, 1962, the plaintiff
rescinded the contract pursuant to the provision thereof; that after the filing of the
complaint, defendant in an attempt to arrive at a compromise agreement with the
plaintiff, offered to pay all the installment payments in arrears, the interest thereon
from the time of default of payment, reasonable attorney's fees, and the costs of suit;
that said offer was repeated by the defendant in writing on December 1, 1964, and
also during the pre-trial conference of this case, but said offer was turned down by the
plaintiff."
The case having been submitted for decision upon the foregoing stipulation, said
court, applying Art. 1592 of our Civil Code, rendered its aforementioned decision, the
dispositive part of which reads:
"WHEREFORE, judgment is hereby rendered, declaring that the contract to sell has
not yet been rescinded, and ordering the defendant to pay to the plaintiff within sixty
(60) days from receipt hereof all the installment payments in arrears together with
interest thereon at 10% per annum from January 5, 1962, the date of default,
attorney's fees in the sum of P1,000.00, and the costs of suit. Upon payment of same,
the plaintiff is ordered to execute in favor of the defendant the necessary deed to
transfer to the defendant the title to the parcel of land in question, free from all liens
and encumbrances except those provided for in the contract, all expenses which may
be incurred in said transfer of title to be paid by the defendant."
Hence, this appeal by plaintiff, based mainly upon the alleged erroneous application to
the case at bar of said Art. 1592, pursuant to which:
"In the sale of immovable property, even though it may have been stipulated that upon
the 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."
Plaintiff maintains that this provision governs contracts of sale, not contracts to sell,
such as the one entered into by the parties in this case. Regardless, however, of the
propriety of applying said Art. 1592 thereto, We find that plaintiff herein has not been
denied substantial justice, for, according to Art. 1234 of said Code:
"If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee."
In this connection, it should be noted that, apart from the initial installment of
P396.12, paid upon the execution of the contract, on September 7, 1954, the
defendant religiously satisfied the monthly installments accruing thereafter, for a
period of almost eight (8) years, or up to January 5, 1962; that, although the principal
obligation under the contract was P3,691.20, the total payments made by the
defendant up to January 5, 1962, including stipulated interest, aggregated P4,134.08;
that the defendant has offered to pay all of the installments overdue including the
stipulated interest, apart from reasonable attorney's fees and the costs; and that,
accordingly, the trial court sentenced the defendant to pay all such installments,
interest, fees and costs. Thus, plaintiff will thereby recover everything due thereto,
pursuant to its contract with the defendant, including such damages as the former
may have suffered in consequence of the latter's default. Under these circumstances,
We feel that, in the interest of justice and equity, the decision appealed from may be
upheld upon the authority of Art. 1234 of the Civil Code.
[1]

WHEREFORE, said decision is hereby affirmed, without special pronouncement as to
costs in this instance.
IT IS SO ORDERED.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, and
Villamor, JJ., concur.





[1]
Sevilla v. Court of Appeals, L-22012, April 28, 1969.


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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-26578 January 28, 1974
LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAA and COURT OF APPEALS (FIFTH DIVISION) * respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.

TEEHANKEE, J.:1wph1.t
The Court, in affirming the decision under review of the Court of Appeals, which holds
that the respondent buyer of two small residential lots on installment contracts on a
ten-year basis who has faithfully paid for eight continuous years on the principal
alone already more than the value of one lot, besides the larger stipulated interests on
both lots, is entitled to the conveyance of one fully paid lot of his choice, rules that the
judgment is fair and just and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels of land in Sampaloc,
Manila and for execution of the corresponding deed of conveyance after payment of the



balance still due on their purchase price. Private respondent as plaintiff had entered
into two written contracts with petitioner Legarda Hermanos as defendant subdivision
owner, whereby the latter agreed to sell to him Lots Nos. 7 and 8 of block No. 5N of the
subdivision with an area of 150 square meters each, for the sum of P1,500.00 per lot,
payable over the span of ten years divided into 120 equal monthly installments of
P19.83 with 10% interest per annum, to commence on May 26, 1948, date of
execution of the contracts. Subsequently, Legarda Hermanos partitioned the
subdivision among the brothers and sisters, and the two lots were among those
allotted to co-petitioner Jose Legarda who was then included as co-defendant in the
action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of
the stipulated 120) monthly installments totalling P3,582.06 up to the month of
February, 1956, which as per petitioners' own statement of account, Exhibit "1", was
applied to respondent's account (without distinguishing the two lots), as follows:
To interests P1,889.78
To principal 1,682.28
Total P3,582.06
1

It is equally undisputed that after February, 1956 up to the filing of respondent's
complaint in the Manila court of first instance in 1961, respondent did not make
further payments. The account thus shows that he owed petitioners the sum of
P1,317.72 on account of the balance of the purchase price (principal) of the two lots
(in the total sum of P3,000.00), although he had paid more than the stipulated
purchase price of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action,
respondent wrote petitioners stating that his desire to build a house on the lots was
prevented by their failure to introduce improvements on the subdivision as "there is
still no road to these lots," and requesting information of the amount owing to update
his account as "I intend to continue paying the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to
complete total payment of the 120 installments by May, 1958 as stipulated in the
contracts to sell, "pursuant to the provisions of both contracts all the amounts paid in
accordance with the agreement together with the improvements on the premises have
been considered as rents paid and as payment for damages suffered by your failure,"
2

and "Said cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining petitioners'
cancellation of the contracts and dismissing respondent's complaint, respondent
appellate court on appeal rendered its judgment of July 27, 1966 reversing the lower
court's judgment and ordering petitioners "to deliver to the plaintiff possession of one
of the two lots, at the choice of defendants, and to execute the corresponding deed of
conveyance to the plaintiff for the said lot,"
3
ruling as follows:
During the hearing, plaintiff testified that he suspended payments
because the lots were not actually delivered to him, or could not be, due
to the fact that they were completely under water; and also because the
defendants-owners failed to make improvements on the premises, such
as roads, filling of the submerged areas, etc., despite repeated promises
of their representative, the said Mr. Cenon. As regards the supposed
cancellation of the contracts, plaintiff averred that no demand has been
made upon him regarding the unpaid installments, and for this reason
he could not be declared in default so as to entitle the defendants to
cancel the said contracts.
The issue, therefore, is: Under the above facts, may defendants be
compelled, or not, to allow plaintiff to complete payment of the purchase
price of the two lots in dispute and thereafter to execute the final deeds
of conveyance thereof in his favor?
xxx xxx xxx
Whether or not plaintiffs explanation for his failure to pay the remaining
installments is true, considering the circumstances obtaining in this
case, we elect to apply the broad principles of equity and justice. In the
case at bar, we find that the plaintiff has paid the total sum of P3,582.06
including interests, which is even more than the value of the two lots.
And even if the sum applied to the principal alone were to be considered,
which was of the total of P1,682.28, the same was already more than the
value of one lot, which is P1,500.00. The only balance due on both lots
was P1,317.72, which was even less than the value of one lot. We will
consider as fully paid by the plaintiff at least one of the two lots, at the
choice of the defendants. This is more in line with good conscience than a
total denial to the plaintiff of a little token of what he has paid the
defendant Legarda Hermanos.
4

Hence, the present petition for review, wherein petitioners insist on their right of
cancellation under the "plainly valid written agreements which constitute the law
between the parties" as against "the broad principles of equity and justice" applied by
the appellate court. Respondent on the other hand while adhering to the validity of the
doctrine of the Caridad Estates cases
5
which recognizes the right of a vendor of land
under a contract to sell to cancel the contract upon default, with forfeiture of the
installments paid as rentals, disputes its applicability herein contending that here
petitioners-sellers were equally in default as the lots were "completely under water"
and "there is neither evidence nor a finding that the petitioners in fact cancelled the
contracts previous to receipt of respondent's letter."
6

The Court finds that the appellate court's judgment finding that of the total sum of
P3,582.06 (including interests of P1,889.78) already paid by respondent (which was
more than the value of two lots), the sum applied by petitioners to the principal alone
in the amount of P1,682.28 was already more than the value of one lot of P1,500.00
and hence one of the two lots as chosen by respondent would be considered as fully
paid, is fair and just and in accordance with law and equity.
As already stated, the monthly payments for eight years made by respondent were
applied to his account without specifying or distinguishing between the two lots
subject of the two agreements under petitioners' own statement of account, Exhibit
"1".
7
Even considering respondent as having defaulted after February 1956, when he
suspended payments after the 95th installment, he had as of the already paid by way
of principal (P1,682.28) more than the full value of one lot (P1,500.00). The judgment
recognizing this fact and ordering the conveyance to him of one lot of his choice while
also recognizing petitioners' right to retain the interests of P1,889.78 paid by him for
eight years on both lots, besides the cancellation of the contract for one lot which thus
reverts to petitioners, cannot be deemed to deny substantial justice to petitioners nor
to defeat their rights under the letter and spirit of the contracts in question.
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier
8
is fully
applicable to the present case, with the respondent at bar being granted lesser
benefits, since no rescission of contract was therein permitted. There, where the
therein buyer-appellee identically situated as herein respondent buyer had likewise
defaulted in completing the payments after having religiously paid the stipulated
monthly installments for almost eight years and notwithstanding that the seller-
appellant had duly notified the buyer of the rescission of the contract to sell, the Court
upheld the lower court's judgment denying judicial confirmation of the rescission and
instead granting the buyer an additional grace period of sixty days from notice of
judgment to pay all the installment payments in arrears together with the stipulated
10% interest per annum from the date of default, apart from reasonable attorney's fees
and costs, which payments, the Court observed, would have the plaintiff-seller
"recover everything due thereto, pursuant to its contract with the defendant, including
such damages as the former may have suffered in consequence of the latter's default."
In affirming, the Court held that "Regardless, however, of the propriety of applying
said Art. 1592 thereto, We find that plaintiff herein has not been denied substantial
justice, for, according to Art. 1234 of said Code: 'If the obligation has been
substantially performed in good faith, the obligor may recover as though there had
been a strict and complete fulfillment, less damages suffered by the obligee,'" and "that
in the interest of justice and equity, the decision appealed from may be upheld upon
the authority of Article 1234 of the Civil Code."
9

ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed.
Without pronouncement as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur.1wph1.t

Footnotes
* Composed of Julio Villamor, Jesus Y. Perez and Ramon O. Nolasco, JJ.
1 Petitioners' brief, p.3.
2 Decision, Court of Appeals, Rollo at p. 36.
3 Idem. at p. 40.
4 Idem, at pp. 36-40, emphasis supplied.
5 Caridad Estates vs. Santero, 71 Phil. 114; Miranda vs. Caridad
Estates, L-2077, Oct. 3, 1950.
6 Respondent's brief, pp. 16-17.
7 Supra, see fn. 1.
8 31 SCRA 829 (Feb. 27, 1970), per Concepcion, C.J., cit. Sevilla vs. CA,
27 SCRA 1170 (Apr. 28, 1969).
9 Idem, at pp. 832-833, emphasis supplied.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30597 June 30, 1987
GUILLERMO AZCONA and FE JALANDONI AZCONA, petitioners,
vs.
JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre (Sp. Proc.
6921 of the Court of First Instance of Negros Occidental), and the HONORABLE
COURT OF APPEALS, respondents.

CRUZ, J.:
This involves the interpretation of a contract of lease which was found by the trial
court to have been violated by both the plaintiff and the defendant. On appeal, its
decision was modified by the respondent court in favor of the plaintiff, for which
reason the defendant has now come to us in a petition for certiorari.
By the said contract, 1 Guillermo Azcona (hereinafter called the petitioner) leased 80
hectares of his 150-hectare pro indiviso share in Hacienda Sta. Fe in Escalante, Negros
Occidental, to Cirilo Jamandre (represented here by the administrator of his intestate
estate, and hereinafter called the private respondent). The agreed yearly rental was
P7,200.00. The lease was for three agricultural years beginning 1960, extendible at
the lessee's option to two more agricultural years, up to 1965.
The first annual rental was due on or before March 30, 1960, but because the
petitioner did not deliver possession of the leased property to the respondent, he
"waived" payment, as he put it, of that rental.
2
The respondent actually entered the
premises only on October 26, 1960, after payment by him to the petitioner of the sum
of P7,000.00, which was acknowledged in the receipt later offered as Exhibit "B".
On April 6, 1961, the petitioner, through his lawyer, notified the respondent that the
contract of lease was deemed cancelled, terminated, and of no further effect,"
pursuant to its paragraph 8, for violation of the conditions specified in the said
agreement.
3
Earlier, in fact, the respondent had been ousted from the possession of
60 hectares of the leased premises and left with only 20 hectares of the original area.
4

The reaction of the respondent to these developments was to file a complaint for
damages against the petitioner, who retaliated with a counterclaim. As previously
stated, both the complaint and the counterclaim were dismissed by the trial court * on
the finding that the parties were in pari delicto.
5

The specific reasons invoked by the petitioner for canceling the lease contract were the
respondent's failure: 1) to attach thereto the parcelary plan Identifying the exact area
subject of the agreement, as stipulated in the contract; 2; to secure the approval by
the Philippine National Bank of the said contract; and 3) to pay the rentals.
6

The parcelary plan was provided for in the contract as follows:
That the LESSOR by these presents do hereby agree to lease in favor of
the LESSEE a portion of the said lots above-described with an extension
of EIGHTY (80) hectares, more or less, which portion is to be Identified by
the parcelary plan duly marked and to be initialed by both LESSOR and
LESSEE, and which parcelary plan is known as Annex "A" of this
contract and considered as an integral part hereof.
7

According to the petitioners, the parcelary plan was never agreed upon or annexed to
the contract, which thereby became null and void under Article 1318 of the Civil Code
for lack of a subject matter. Moreover, the failure of the parties to approve and annex
the said parcelary plan had the effect of a breach of the contract that justified its
cancellation under its paragraph 8.
8

In one breath, the petitioner is arguing that there was no contract because there was
no object and at the same time that there was a contract except that it was violated.
The correct view, as we see it, is that there was an agreed subject-matter, to wit, the
80 hectares of the petitioner's share in the Sta. Fe hacienda, although it was not
expressly defined because the parcelary plan was not annexed and never approved by
the parties. Despite this lack, however, there was an ascertainable object because the
leased premises were sufficiently Identified and delineated as the petitioner admitted
in his amended answer and in his direct testimony.
9

Thus, in his amended answer, he asserted that "the plaintiff . . .must delimit his work
to the area previously designated and delivered." Asked during the trial how many
hectares the private respondent actually occupied, the petitioner declared: "About 80
hectares. The whole 80 hectares." 10 The petitioner cannot now contradict these
written and oral admissions." 11
Moreover, it appears that the failure to attach the parcelary plan to the contract is
imputable to the petitioner himself because it was he who was supposed to cause the
preparation of the said plan. As he testified on direct examination, "Our agreement
was to sign our agreement, then I will have the parcelary plan prepared so that it will
be a part of our contract." 12 That this was never done is not the respondent's fault as
he had no control of the survey of the petitioner's land.
Apparently, the Court of Appeals ** found, the parties impliedly decided to forego the
annexing of the parcelary plan because they had already agreed on the area and limits
of the leased premises. 13 The Identification of the 80 hectares being leased rendered
the parcelary plan unnecessary, and its absence did not nullify the agreement.
Coming next to the alleged default in the payment of the stipulated rentals, we observe
first that when in Exhibit "B" the petitioner declared that "I hereby waive payment for
the rentals corresponding to the crop year 1960-61 and which was due on March 30,
1960, " there was really nothing to waive because, as he himself put it in the same
document, possession of the leased property "was not actually delivered" to the
respondent. 14
The petitioner claims that such possession was not delivered because the approval by
the PNB of the lease contract had not "materialized" due to the respondent's neglect.
Such approval, he submitted, was to have been obtained by the respondents, which
seems logical to us, for it was the respondent who was negotiating the loan from the
PNB. As the respondent court saw it, however, "paragraph 6 (of the contract) does not
state upon whom fell the obligation to secure the approval" so that it was not clear
that "the fault, if any, was due solely to one or the other." 15
At any rate, that issue and the omission of the parcelary plan became immaterial
when the parties agreed on the lease for the succeeding agricultural year 1961-62, the
respondent paying and the petitioner receiving therefrom the sum of P7,000.00, as
acknowledged in Exhibit "B," which is reproduced in full as follows:
B
a
c
o
l
o
d

C
i
t
y

O
c
t
o
b
e
r

2
6
,

1
9
6
0

R E C E I P T
RECEIVED from Mr. Cirilo Jamandre at the City of Bacolod, Philippines,
this 26th day of October, 1960, Philippine National Bank Check No.
180646-A (Manager's Check Binalbagan Branch) for the amount of
SEVEN THOUSAND PESOS (P7,000.00), Philippine Currency as payment
for the rental corresponding to crop year 1961-62, by virtue of the
contract of lease I have executed in his favor dated November 23, 1959,
and ratified under Notary Public Mr. Enrique F. Marino as Doc. No. 119,
Page No. 25, Book No. XII, Series of 1959. It is hereby understood, that
this payment corresponds to the rentals due on or before January 30,
1961, as per contract. It is further understood that I hereby waive
payment for the rentals corresponding to crop year 1960-61 and which
was due on March 30, 1960, as possession of the property lease in favor
of Mr. Cirilo Jamandre was not actually delivered to him, but the same to
be delivered only after receipt of the amount as stated in this receipt.
That Mr. Cirilo Jamandre is hereby authorized to take immediate
possession of the property under lease effective today, October 26, 1960.
WITNESS my hand at the City of Bacolod, Philippines, this 26th day of
October, 1960.
(SGD.) GUILLERMO
AZCONA
SIGNED IN THE PRESENCE OF:
(SGD.) JOSE T. JAMANDRE
Citing the stipulation in the lease contract for an annual rental of P7,200.00, the
petitioner now submits that there was default in the payment thereof by the
respondent because he was P200.00 short of such rental. That deficiency never having
been repaired, the petitioner concludes, the contract should be deemed cancelled in
accordance with its paragraph 8. 16
For his part, the respondent argues that the receipt represented an express reduction
of the stipulated rental in consideration of his allowing the use of 16 hectares of the
leased area by the petitioner as grazing land for his cattle. Having unqualifiedly
accepted the amount of P7,000.00 as rental for the agricultural year 1961-62, the
petitioner should not now be heard to argue that the payment was incomplete. 17
After a study of the receipt as signed by the petitioner and witnessed for the
respondent, this Court has come to the conclusion, and so holds, that the amount of
P7,000.00 paid to by the respondent and received by the petitioner represented
payment in full of the rental for the agricultural year 1961-62.
The language is clear enough: "The amount of SEVEN THOUSAND PESOS (P7,000.00),
Philippine Currency, as payment for the rental corresponding to crop year 1961-62 ...
to the rental due on or before January 30, 1961, as per contract." The conclusion
should be equally clear.
The words "as per contract" are especially significant as they suggest that the parties
were aware of the provisions of the agreement, which was described in detail elsewhere
in the receipt. The rental stipulated therein was P7,200.00. The payment being
acknowledged in the receipt was P7,000.00 only. Yet no mention was made in the
receipt of the discrepancy and, on the contrary, the payment was acknowledged "as
per contract." We read this as meaning that the provisions of the contract were being
maintained and respected except only for the reduction of the agreed rental.
The respondent court held that the amount of P200.00 had been condoned, but we do
not think so. The petitioner is correct in arguing that the requisites of condonation
under Article 1270 of the Civil Code are not present. What we see here instead is a
mere reduction of the stipulated rental in consideration of the withdrawal from the
leased premises of the 16 hectares where the petitioner intended to graze his cattle.
The signing of Exhibit "B " by the petitioner and its acceptance by the respondent
manifested their agreement on the reduction, which modified the lease contract as to
the agreed consideration while leaving the other stipulations intact.
The petitioner says that having admittedly been drafted by lawyer Jose Jamandre, the
respondent's son, the receipt would have described the amount of P7,000.00 as
"payment in full" of the rental if that were really the case.
It seems to us that this meaning was adequately conveyed in the acknowledgment
made by the petitioner that this was "payment for the rental corresponding to crop
year 1961-62" and "corresponds to the rentals due on or before January 30, 1961, as
per contract." On the other hand, if this was not the intention, the petitioner does not
explain why he did not specify in the receipt that there was still a balance of P200.00
and, to be complete, the date when it was to be paid by the respondent.
It is noted that the receipt was meticulously worded, suggesting that the parties were
taking great pains, indeed, to provide against any possible misunderstanding, as if
they were even then already apprehensive of future litigation. Such a reservation-if
there was one-would have been easily incorporated in the receipt, as befitted the legal
document it was intended to be.
In any event, the relative insignificance of the alleged balance seems to us a paltry
justification for annulling the contract for its supposed violation. If the petitioner is
fussy enough to invoke it now, it stands to reason that he would have fussed over it
too in the receipt he willingly signed after accepting, without reservation and
apparently without protest, only P7,000.00.
The applicable provision is Article 1235 of the Civil Code, declaring that:
Art. 1235. 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.
The petitioner says that he could not demand payment of the balance of P200.00 on
October 26, 1960, date of the receipt because the rental for the crop year 1961-62 was
due on or before January 30, 1961. 18 But this would not have prevented him from
reserving in the receipt his right to collect the balance when it fell due. Moreover, there
is no evidence in the record that when the due date arrived, he made any demand,
written or verbal, for the payment of that amount.
As this Court is not a trier of facts, 19 we defer to the findings of the respondent court
regarding the losses sustained by the respondent on the basis of the estimated yield of
the properties in question in the years he was supposed to possess and exploit them.
While the calculations offered by the petitioner are painstaking and even apparently
exhaustive, we do not find any grave abuse of discretion on the part of the respondent
court to warrant its reversal on this matter. We also sustain the P5,000.00 attorney's
fee.
WHEREFORE, the decision of the respondent Court of Appeals is AFFIRMED in full,
with costs against the petitioners.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano, Gancayco and Sarmiento, JJ.,
concur.

Footnotes
1 Exh. A.
2 Exhibit "B"
3 Rollo, p. 66.
4 Ibid, p. 99.
* Presided by Judge Jose F. Fernandez.
5 Id, pp. 99-101.
6 id, p. 99.
7 id, p. 52.
8 id, p. 15.
9 id., p. 74; TSN, p. 48, Dec. 11, 1963:
10 TSN, p. 48, Dec. 11, 1963.
11 Lianga Lumber Co. v. Lianga Timber Co., Inc., 76 SCRA 197;
Cunanan V. Amparo, 80 Phil. 227.
12 TSN, p. 11, Dec. 11, 1963.
** Gatmaitan, J., ponente, Enriquez, Soriano, JJ.
13 Rollo, p. 102.
14 Exh. "B "
15 Id., p. 102.
16 id. p. 34.
17 id, p. 144.
18 id., p. 34.
19 Chemplex Phil. Inc, v. Pamatian, 57 SCRA 408.

G.R. No. L-52807
FIRST DIVISION
[ G.R. No. L-52807, February 29, 1984 ]
JOSE ARAAS AND LUISA QUIJENCIO ARAAS, PETITIONERS, VS. HON.
EDUARDO C. TUTAAN, AS JUDGE OF THE COURT OF FIRST INSTANCE OF
QUEZON CITY, AND UNIVERSAL TEXTILE MILLS, INC., RESPONDENTS.

D E C I S I O N
TEEHANKEE, J.:
In a decision rendered on May 3, 1971 by the now defunct Court of First Instance of
Rizal, Branch V, at Quezon City, in Civil Case No. Q-4689 thereof, entitled "Jose
Araas, et al. vs. Juanito Castaeda, et al.," the said court declared that petitioner
Luisa Quijencio as plaintiff (assisted by her spouse co-petitioner Jose Araas) was the
owner of 400 shares of stock of respondent Universal Textile Mills, Inc. (UTEX) as
defendant issued "in the names of its co-defendants Gene Manuel and B.R.
Castaeda, including the stock dividends that accrued to said shares, and ordering
defendant Universal Textile Mills, Inc. to cancel said certificates and issue new ones in
the name of said plaintiff Luisa Quijencio Araas and to deliver to her all dividends
appertaining to same, whether in cash or in stocks."
In a motion for clarification and/or motion for reconsideration, respondent UTEX
manifested, inter alia, that "(I)f this Honorable Court by the phrase 'to deliver to her all
dividends appertaining to same, whether in cash or in stocks,' meant dividends
properly pertaining to plaintiffs after the court's declaration of plaintiffs' ownership of
said 400 shares of stock, then as defendant UTEX has always maintained it would
rightfully abide by whatever decision may be rendered by this Honorable Court since
such would be the logical consequence after the declaration or ruling in respect to the
rightful ownership of the said shares of stock." The motion for clarification was
granted by the trial court which ruled that its judgment against UTEX was to pay to
Luisa Quijencio Araas the cash dividends which accrued to the stocks in question
after the rendition of this decision excluding cash dividends already paid to its co-
defendants Gene Manuel and B.R. Castaeda which accrued before its decision and
could not be claimed by the petitioners-spouses, as follows:
"This in mind, clarification of the dispositive portion of the decision as aforequoted is
indeed necessary, and thus made as to ordain the payment to plaintiff Luisa Quijencio
Araas of cash dividends which accrue to the stocks in question after the rendition of
this decision. Cash dividends already paid to defendants which accrued before this
decision may not, therefore, be claimed by plaintiffs."
Apparently satisfied with the clarification, UTEX neither moved for reconsideration of
the order nor appealed from the judgment. Subsequently, the trial court granted the
motion for new trial of the two co-defendants Manuel and Castaeda, and after such
new trial, it rendered under date of October 23, 1972 its decision against them which
was substantially the same as its first decision of May 3, 1971 which had already
become final and executory as against UTEX, declaring petitioners-spouses the owners
of the questioned shares of stock in the names of aforementioned co-defendants
Castaeda and Manuel and ordering the cancellation of the certificates in their names
and to issue new ones in the names of petitioners.
Co-defendants Castaeda and Manuel appealed this judgment of October 23, 1972
against them to the Court of Appeals (now Intermediate Appellate Court), which
rendered on September 1, 1978 its judgment affirming in toto the trial court's
judgment. Said co-defendants sought to appeal the appellate court's adverse judgment
on a petition for review with this Court, which rendered its Resolution of March 7,
1979 denying the petition for review for lack of merit and the judgment against the
defendants accordingly became final and executory.
At petitioners' instance, the lower court issued a writ of execution and a specific order
of December 5, 1979 directing UTEX
"1. To effect the cancellation of the certificates of stock in question in the names of B.
R. Castaeda and Gene G. Manuel and the issuance of new ones in the names of the
plaintiffs;
"2. To pay the amount of P100, 701. 45 representing the cash dividends that accrued
to the same stocks from 1972 to 1979 with interest thereon at the rate of 12% per
annum from the date of the service of the writ of execution on October 3, 1979 until
fully paid."
Upon UTEX motion for partial reconsideration alleging that the cash dividends of the
stocks corresponding to the period from 1972 to 1979 had already been paid and
delivered by it to co-defendants Castaeda and Manuel who then still appeared as the
registered owners of the said shares, the lower court issued its order of January 4,
1980 granting said motion of UTEX and partially reconsidered its order "to the effect
that the defendant Universal Textile Mills, Inc. is absolved from paying the cash
dividend corresponding to the stocks in question to the plaintiffs for the period 1972 to
1979. "
Hence, the present action for certiorari to set aside respondent judge's questioned
order of January 4, 1980 as having been issued without jurisdiction and for
mandamus to compel respondent judge to perform his ministerial duty of ordering
execution of the final and executory judgment against UTEX according to its terms.
The Court finds merit in the petition and accordingly grants the same.
The final and executory judgment against UTEX in favor of petitioners, declared
petitioners as the owners of the questioned UTEX shares of stock as againsts its co-
defendants Castaeda and Manuel. It was further made clear upon UTEX' own motion
for clarification that all dividends accruing to the said shares of stock after the
rendition of the decision of August 7, 1971 which for the period from 1972 to 1979
amounted to P100, 701.45 were to be paid by UTEX to petitioners, and UTEX, per the
trial court's order of clarification of June 16, 1971 above quoted had expressly
maintained "it would rightfully abide by whatever decision may be rendered by this
Honorable Court since such would be the logical consequence after the declaration or
ruling in respect to the rightful ownership of the said shares of stock."
Consequently, there is no legal nor equitable basis for respondent judge's position
"that it would indeed be most unjust and inequitable to require the defendant
Universal Textile Mills, Inc. to pay twice cash dividends on particular shares of
stocks."
[1]
If UTEX nevertheless chose to pay the wrong parties, notwithstanding its full
knowledge and understanding of the final judgment, that it was liable to pay all
dividends after the trial court's judgment in 1971 to petitioners as the lawfully
declared owners of the questioned shares of stock (but which could not be enforced
against it pending the outcome of the appeal filed by the co-defendants Castaeda and
Manuel in the Court of Appeals), it only had itself to blame therefor.
The burden of recovering the supposed payment of the cash dividends made by UTEX
to the wrong parties Castaeda and Manuel squarely falls upon itself by its own action
and cannot be passed by it to petitioners as innocent parties. It is elementary that
payment made by a judgment debtor to a wrong party cannot extinguish the judgment
obligation of such debtor to its creditor. It is equally elementary that once a judgment
becomes final and executory, the court which rendered it cannot change or modify the
same in any material aspect such as what respondent judge has without authority
attempted to do with his questioned order, which would relieve the judgment debtor
UTEX of its acknowledged judgment obligation to pay to petitioners as the lawful
owners of the questioned shares of stock, the cash dividends that accrued after the
rendition of the judgment recognizing them as the lawful owners. (Miranda vs.
Tiangco, 96 Phil. 526 [1995]). Execution of a final and executory judgment according
to its terms is a matter of right for the prevailing party and becomes the ministerial
duty of the court (De los Angeles vs. Victoriano, 109 Phil.12).
ACCORDINGLY, judgment is rendered setting aside the questioned order of January 4,
1980 of respondent judge and a writ of mandamus is hereby issued commanding said
respondent judge to order the execution of his judgment against respondent Universal
Textile Mills, Inc., pursuant to his first order of June 16, 1971 ordering it to pay the
sum of P100, 701. 45, representing the cash dividends that accrued to petitioners'
UTEX shares of stock from 1972 to 1979, with interest thereon at the rate of 12% per
annum from the date of service of the writ of execution on October 3, 1979 until fully
paid, as well as to pay petitioners any subsequent cash dividends that may have been
issued by it thereafter, with interest from due date of payment until actual payment,
and directing the sheriff to satisfy such judgment out of the properties of respondent
UTEX. With costs against respondent UTEX. This judgment is immediately executory.
Plana, Escolin, Gutierrez, Jr., and De La Fuente, JJ., concur.

[1]
Record, p. 28.


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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27782 July 31, 1970
OCTAVIO A. KALALO, plaintiff-appellee,
vs.
ALFREDO J. LUZ, defendant-appellant.
Amelia K. del Rosario for plaintiff-appellee.
Pelaez, Jalandoni & Jamir for defendant-appellant.

ZALDIVAR, J.:
Appeal from the decision, dated, February 10, 1967, of the Court of First Instance of
Rizal (Branch V, Quezon City) in its Civil Case No. Q-6561.
On November 17, 1959, plaintiff-appellee Octavio A. Kalalo hereinafter referred to as
appellee), a licensed civil engineer doing business under the firm name of O. A. Kalalo
and Associates, entered into an agreement (Exhibit A )
1
with defendant-appellant
Alfredo J . Luz (hereinafter referred to as appellant), a licensed architect, doing
business under firm name of A. J. Luz and Associates, whereby the former was to
render engineering design services to the latter for fees, as stipulated in the
agreement. The services included design computation and sketches, contract drawing
and technical specifications of all engineering phases of the project designed by O. A.
Kalalo and Associates bill of quantities and cost estimate, and consultation and advice
during construction relative to the work. The fees agreed upon were percentages of the
architect's fee, to wit: structural engineering, 12-%; electrical engineering, 2-%.
The agreement was subsequently supplemented by a "clarification to letter-proposal"
which provided, among other things, that "the schedule of engineering fees in this
agreement does not cover the following: ... D. Foundation soil exploration, testing and
evaluation; E. Projects that are principally engineering works such as industrial
plants, ..." and "O. A. Kalalo and Associates reserve the right to increase fees on
projects ,which cost less than P100,000 ...."
2
Pursuant to said agreement, appellee
rendered engineering services to appellant in the following projects:
(a) Fil-American Life Insurance Building at Legaspi City;
(b) Fil-American Life Insurance Building at Iloilo City;
(c) General Milling Corporation Flour Mill at Opon Cebu;
(d) Menzi Building at Ayala Blvd., Makati, Rizal;
(e) International Rice Research Institute, Research center Los Baos,
Laguna;
(f) Aurelia's Building at Mabini, Ermita, Manila;
(g) Far East Bank's Office at Fil-American Life Insurance Building at
Isaac Peral Ermita, Manila;
(h) Arthur Young's residence at Forbes Park, Makati, Rizal;
(i) L & S Building at Dewey Blvd., Manila; and
(j) Stanvac Refinery Service Building at Limay, Bataan.
On December 1 1, '1961, appellee sent to appellant a statement of account (Exhibit
"1"),
3
to which was attached an itemized statement of defendant-appellant's account
(Exh. "1-A"), according to which the total engineering fee asked by appellee for services
rendered amounted to P116,565.00 from which sum was to be deducted the previous
payments made in the amount of P57,000.00, thus leaving a balance due in the
amount of P59,565.00.
On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees,
according to appellant. amounted to P10,861.08 instead of the amount claimed by the
appellee. On June 14, 1962 appellant sent appellee a check for said amount, which
appellee refused to accept as full payment of the balance of the fees due him.
On August 10, 1962, appellee filed a complaint against appellant, containing four
causes of action. In the first cause of action, appellee alleged that for services rendered
in connection with the different projects therein mentioned there was due him fees in
sum s consisting of $28,000 (U.S.) and P100,204.46, excluding interests, of which
sums only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 and the
balance of P30,881.25. In the second cause of action, appellee claimed P17,000.00 as
consequential and moral damages; in the third cause of action claimed P55,000.00 as
moral damages, attorney's fees and expenses of litigation; and in the fourth cause of
action he claimed P25,000.00 as actual damages, and also for attorney's fees and
expenses of litigation.
In his answer, appellant admitted that appellee rendered engineering services, as
alleged in the first cause of action, but averred that some of appellee's services were
not in accordance with the agreement and appellee's claims were not justified by the
services actually rendered, and that the aggregate amount actually due to appellee
was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a
balance of only P10,861.08. Appellant denied liability for any damage claimed by
appellee to have suffered, as alleged in the second, third and fourth causes of action.
Appellant also set up affirmative and special defenses, alleging that appellee had no
cause of action, that appellee was in estoppel because of certain acts, representations,
admissions and/or silence, which led appellant to believe certain facts to exist and to
act upon said facts, that appellee's claim regarding the Menzi project was premature
because appellant had not yet been paid for said project, and that appellee's services
were not complete or were performed in violation of the agreement and/or otherwise
unsatisfactory. Appellant also set up a counterclaim for actual and moral damages for
such amount as the court may deem fair to assess, and for attorney's fees of
P10,000.00.
Inasmuch as the pleadings showed that the appellee's right to certain fees for services
rendered was not denied, the only question being the assessment of the proper fees
and the balance due to appellee after deducting the admitted payments made by
appellant, the trial court, upon agreement of the parties, authorized the case to be
heard before a Commissioner. The Commissioner rendered a report which, in resume,
states that the amount due to appellee was $28,000.00 (U.S.) as his fee in the
International Research Institute Project which was twenty percent (20%) of the
$140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less
the sum of P69,475.46 which was already paid by the appellant. The Commissioner
also recommended the payment to appellee of the sum of P5,000.00 as attorney's fees.
At the hearing on the Report of the Commissioner, the respective counsel of the
parties manifested to the court that they had no objection to the findings of fact of the
Commissioner contained in the Report, and they agreed that the said Report posed
only two legal issues, namely: (1) whether under the facts stated in the Report, the
doctrine of estoppel would apply; and (2) whether the recommendation in the Report
that the payment of the amount. due to the plaintiff in dollars was legally permissible,
and if not, at what rate of exchange it should be paid in pesos. After the parties had
submitted their respective memorandum on said issues, the trial court rendered its
decision dated February 10, 1967, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered in favor of plaintiff and against the
defendant, by ordering the defendant to pay plaintiff the sum of
P51,539.91 and $28,000.00, the latter to be converted into the Philippine
currency on the basis of the current rate of exchange at the time of the
payment of this judgment, as certified to by the Central Bank of the
Philippines, from which shall be deducted the sum of P69,475.46, which
the defendant had paid the plaintiff, and the legal rate of interest thereon
from the filing of the complaint in the case until fully paid for; by
ordering the defendant to pay to plaintiff the further sum of P8,000.00 by
way of attorney's fees which the Court finds to be reasonable in the
premises, with costs against the defendant. The counterclaim of the
defendant is ordered dismissed.
From the decision, this appeal was brought, directly to this Court, raising only
questions of law.
During the pendency of this appeal, appellee filed a petition for the issuance of a writ
of attachment under Section 1 (f) of Rule 57 of the Rules of Court upon the ground
that appellant is presently residing in Canada as a permanent resident thereof. On
June 3, 1969, this Court resolved, upon appellee's posting a bond of P10,000.00, to
issue the writ of attachment, and ordered the Provincial Sheriff of Rizal to attach the
estate, real and personal, of appellant Alfredo J. Luz within the province, to the value
of not less than P140,000.00.
The appellant made the following assignments of errors:
I. The lower court erred in not declaring and holding that plaintiff-
appellee's letter dated December 11, 1961 (Exhibit "1") and the statement
of account (Exhibit "1-A") therein enclosed, had the effect, cumulatively
or alternatively, of placing plaintiff-appellee in estoppel from thereafter
modifying the representations made in said exhibits, or of making
plaintiff-appellee otherwise bound by said representations, or of being of
decisive weight in determining the true intent of the parties as to the
nature and extent of the engineering services rendered and/or the
amount of fees due.
II. The lower court erred in declaring and holding that the balance owing
from defendant-appellant to plaintiff-appellee on the IRRI Project should
be paid on the basis of the rate of exchange of the U.S. dollar to the
Philippine peso at the time of payment of judgment. .
III. The lower court erred in not declaring and holding that the aggregate
amount of the balance due from defendant-appellant to plaintiff-appellee
is only P15,792.05.
IV. The lower court erred in awarding attorney's fees in the sum of
P8,000.00, despite the commissioner's finding, which plaintiff-appellee
has accepted and has not questioned, that said fee be only P5,000.00;
and
V. The lower court erred in not granting defendant-appellant relief on his
counter-claim.
1. In support of his first assignment of error appellant argues that in Exhibit 1-A,
which is a statement of accounts dated December 11, 1961, sent by appellee to
appellant, appellee specified the various projects for which he claimed engineering
fees, the precise amount due on each particular engineering service rendered on each
of the various projects, and the total of his claims; that such a statement barred
appellee from asserting any claim contrary to what was stated therein, or from taking
any position different from what he asserted therein with respect to the nature of the
engineering services rendered; and consequently the trial court could not award fees
in excess of what was stated in said statement of accounts. Appellant argues that for
estoppel to apply it is not necessary, contrary to the ruling of the trial court, that the
appellant should have actually relied on the representation, but that it is sufficient
that the representations were intended to make the defendant act there on; that
assuming arguendo that Exhibit 1-A did not put appellee in estoppel, the said Exhibit
1-A nevertheless constituted a formal admission that would be binding on appellee
under the law on evidence, and would not only belie any inconsistent claim but also
would discredit any evidence adduced by appellee in support of any claim inconsistent
with what appears therein; that, moreover, Exhibit 1-A, being a statement of account,
establishes prima facie the accuracy and correctness of the items stated therein and
its correctness can no longer be impeached except for fraud or mistake; that Exhibit 1-
A furthermore, constitutes appellee's own interpretation of the contract between him
and appellant, and hence, is conclusive against him.
On the other hand, appellee admits that Exhibit 1-A itemized the services rendered by
him in the various construction projects of appellant and that the total engineering
fees charged therein was P116,565.00, but maintains that he was not in estoppel:
first, because when he prepared Exhibit 1-A he was laboring under an innocent
mistake, as found by the trial court; second, because appellant was not ignorant of the
services actually rendered by appellee and the fees due to the latter under the original
agreement, Exhibit "A."
We find merit in the stand of appellee.
The statement of accounts (Exh. 1-A) could not estop appellee, because appellant did
not rely thereon as found by the Commissioner, from whose Report we read:
While it is true that plaintiff vacillated in his claim, yet, defendant did not
in anyway rely or believe in the different claims asserted by the plaintiff
and instead insisted on a claim that plaintiff was only entitled to
P10,861.08 as per a separate resume of fees he sent to the plaintiff on
May 18, 1962 (See Exhibit 6).
4

The foregoing finding of the Commissioner, not disputed by appellant, was adopted by
the trial court in its decision. Under article 1431 of the Civil Code, in order that
estoppel may apply the person, to whom representations have been made and who
claims the estoppel in his favor must have relied or acted on such representations.
Said article provides:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
An essential element of estoppel is that the person invoking it has been influenced and
has relied on the representations or conduct of the person sought to be estopped, and
this element is wanting in the instant case. In Cristobal vs. Gomez,
5
this Court held
that no estoppel based on a document can be invoked by one who has not been
mislead by the false statements contained therein. And in Republic of the Philippines
vs. Garcia, et al.,
6
this Court ruled that there is no estoppel when the statement or
action invoked as its basis did not mislead the adverse party-Estoppel has been
characterized as harsh or odious and not favored in law.
7
When misapplied, estoppel
becomes a most effective weapon to accomplish an injustice, inasmuch as it shuts a
man's mouth from speaking the truth and debars the truth in a particular case.
8

Estoppel cannot be sustained by mere argument or doubtful inference: it must be
clearly proved in all its essential elements by clear, convincing and satisfactory
evidence.
9
No party should be precluded from making out his case according to its
truth unless by force of some positive principle of law, and, consequently, estoppel in
pains must be applied strictly and should not be enforced unless substantiated in
every particular.
1
0
The essential elements of estoppel in pais may be considered in relation to the party
sought to be estopped, and in relation to the party invoking the estoppel in his favor.
As related to the party to be estopped, the essential elements are: (1) conduct
amounting to false representation or concealment of material facts or at least
calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (2) intent, or
at least expectation that his conduct shall be acted upon by, or at least influence, the
other party; and (3) knowledge, actual or constructive, of the real facts. As related to
the party claiming the estoppel, the essential elements are (1) lack of knowledge and of
the means of knowledge of the truth as the facts in questions; (2) (reliance, in good
faith, upon the conduct or statements of the party to be estopped; (3) action or
inaction based thereon of such character as To change the position or status of the
party claiming the estoppel, to his injury, detriment or prejudice.
1
1
The first essential element in relation to the party sought to be estopped does not
obtain in the instant case, for, as appears in the Report of the Commissioner, appellee
testified "that when he wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet
consulted the services of his counsel and it was only upon advice of counsel that the
terms of the contract were interpreted to him resulting in his subsequent letters to the
defendant demanding payments of his fees pursuant to the contract Exhibit A."
1
2
This finding of the Commissioner was adopted by the trial court.
1
3 It is established ,
therefore, that Exhibit 1-A was written by appellee through ignorance or mistake.
Anent this matter, it has been held that if an act, conduct or misrepresentation of the
party sought to be estopped is due to ignorance founded on innocent mistake, estoppel
will not arise.
1
4 Regarding the essential elements of estoppel in relation to the party
claiming the estoppel, the first element does not obtain in the instant case, for it
cannot be said that appellant did not know, or at least did not have the means of
knowing, the services rendered to him by appellee and the fees due thereon as
provided in Exhibit A. The second element is also wanting, for, as adverted to,
appellant did not rely on Exhibit 1-A but consistently denied the accounts stated
therein. Neither does the third element obtain, for appellant did not act on the basis of
the representations in Exhibit 1-A, and there was no change in his position, to his own
injury or prejudice.
Appellant, however, insists that if Exhibit 1-A did not put appellee in estoppel, it at
least constituted an admission binding upon the latter. In this connection, it cannot
be gainsaid that Exhibit 1-A is not a judicial admission. Statements which are not
estoppels nor judicial admissions have no quality of conclusiveness, and an opponent.
whose admissions have been offered against him may offer any evidence which serves
as an explanation for his former assertion of what he now denies as a fact. This may
involve the showing of a mistake. Accordingly, in Oas vs. Roa,
1
6 it was held that
when a party to a suit has made an admission of any fact pertinent to the issue
involved, the admission can be received against him; but such an admission is not
conclusive against him, and he is entitled to present evidence to overcome the effect of
the admission. Appellee did explain, and the trial court concluded, that Exhibit 1-A
was based on either his ignorance or innocent mistake and he, therefore, is not bound
by it.
Appellant further contends that Exhibit 1-A being a statement of account, establishes
prima facie the accuracy and correctness of the items stated therein. If prima facie, as
contended by appellant, then it is not absolutely conclusive upon the parties. An
account stated may be impeached for fraud, mistake or error. In American Decisions,
Vol. 62, p. 95, cited as authority by appellant himself. we read thus:
An account stated or settled is a mere admission that the account is
correct. It is not an estoppel. The account is still open to impeachment
for mistakes or errors. Its effect is to establish, prima facie, the accuracy
of the items without other proof; and the party seeking to impeach it is
bound to show affirmatively the mistake or error alleged. The force of the
admission and the strength of the evidence necessary to overcome it will
depend upon the circumstances of the case.
In the instant case, it is Our view that the ignorance mistake that attended the writing
of Exhibit 1-A by appellee was sufficient to overcome the prima facie evidence of
correctness and accuracy of said Exhibit 1-A.
Appellant also urges that Exhibit 1-A constitutes appellee's own interpretation of the
contract, and is, therefore, conclusive against him. Although the practical
construction of the contract by one party, evidenced by his words or acts, can be used
against him in behalf of the other party,
1
7 yet, if one of the parties carelessly makes
a wrong interpretation of the words of his contract, or performs more than the
contract requires (as reasonably interpreted independently of his performance), as
happened in the instant case, he should be entitled to a restitutionary remedy, instead
of being bound to continue to his erroneous interpretation or his erroneous
performance and "the other party should not be permitted to profit by such mistake
unless he can establish an estoppel by proving a material change of position made in
good faith. The rule as to practical construction does not nullify the equitable rules
with respect to performance by mistake."
1
8 In the instant case, it has been shown
that Exhibit 1-A was written through mistake by appellee and that the latter is not
estopped by it. Hence, even if said Exhibit 1-A be considered as practical construction
of the contract by appellee, he cannot be bound by such erroneous interpretation. It
has been held that if by mistake the parties followed a practice in violation of the
terms of the agreement, the court should not perpetuate the error.
1
9
2. In support of the second assignment of error, that the lower court erred in holding
that the balance from appellant on the IRRI project should be paid on the basis of the
rate of exchange of the U.S. dollar to the Philippine peso at the time of payment of the
judgment, appellant contends: first, that the official rate at the time appellant received
his architect's fees for the IRRI project, and correspondingly his obligation to appellee's
fee on August 25, 1961, was P2.00 to $1.00, and cites in support thereof Section 1612
of the Revised Administrative Code, Section 48 of Republic Act 265 and Section 6 of
Commonwealth Act No. 699; second, that the lower court's conclusion that the rate of
exchange to be applied in the conversion of the $28,000.00 is the current rate of
exchange at the time the judgment shall be satisfied was based solely on a mere
presumption of the trial court that the defendant did not convert, there being no
showing to that effect, the dollars into Philippine currency at the official rate, when the
legal presumption should be that the dollars were converted at the official rate of
$1.00 to P2.00 because on August 25, 1961, when the IRRI project became due and
payable, foreign exchange controls were in full force and effect, and partial decontrol
was effected only afterwards, during the Macapagal administration; third, that the
other ground advanced by the lower court for its ruling, to wit, that appellant
committed a breach of his obligation to turn over to the appellee the engineering fees
received in U.S. dollars for the IRRI project, cannot be upheld, because there was no
such breach, as proven by the fact that appellee never claimed in Exhibit 1-A that he
should be paid in dollars; and there was no provision in the basic contract (Exh. "A")
that he should be paid in dollars; and, finally, even if there were such provision, it
would have no binding effect under the provision of Republic Act 529; that, moreover,
it cannot really be said that no payment was made on that account for appellant had
already paid P57,000.00 to appellee, and under Article 125 of the Civil Code, said
payment could be said to have been applied to the fees due from the IRRI project, this
project being the biggest and this debt being the most onerous.
In refutation of appellant's argument in support of the second assignment of error,
appellee argues that notwithstanding Republic Act 529, appellant can be compelled to
pay the appellee in dollars in view of the fact that appellant received his fees in dollars,
and appellee's fee is 20% of appellant's fees; and that if said amount is be converted
into Philippine Currency, the rate of exchange should be that at the time of the
execution of the judgment.
2
0
We have taken note of the fact that on August 25, 1961, the date when appellant said
his obligation to pay appellee's fees became due, there was two rates of exchange, to
wit: the preferred rate of P2.00 to $1.00, and the free market rate. It was so provided
in Circular No. 121 of the Central Bank of the Philippines, dated March 2, 1961.
amending an earlier Circular No. 117, and in force until January 21, 1962 when it
was amended by Circular No. 133, thus:
1. All foreign exchange receipts shall be surrendered to the Central Bank
of those authorized to deal in foreign exchange as follows:
Percentage of Total to be surrendered at
Preferred: Free Market Rate: Rate:
(a) Export Proceeds, U.S. Government Expenditures invisibles other than
those specifically mentioned below. ................................................ 25 75
(b) Foreign Investments, Gold Proceeds, Tourists and Inward Remittances
of Veterans and Filipino Citizens; and Personal Expenses of Diplomatic
Per personnel ................................. 100"
2
1
The amount of $140,000.00 received by appellant foil the International Rice Research
Institute project is not within the scope of sub-paragraph (a) of paragraph No. 1 of
Circular No. 121. Appellant has not shown that 25% of said amount had to be
surrendered to the Central Bank at the preferred rate because it was either export
proceeds, or U.S. Government expenditures, or invisibles not included in sub-
paragraph (b). Hence, it cannot be said that the trial court erred in presuming that
appellant converted said amount at the free market rate. It is hard to believe that a
person possessing dollars would exchange his dollars at the preferred rate of P2.00 to
$1.00, when he is not obligated to do so, rather than at the free market rate which is
much higher. A person is presumed to take ordinary care of his concerns, and that the
ordinary course of business has been
followed.
2
2
Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the
amount of $28,000.00. Appellee, however, cannot oblige the appellant to pay him in
dollars, even if appellant himself had received his fee for the IRRI project in dollars.
This payment in dollars is prohibited by Republic Act 529 which was enacted on June
16, 1950. Said act provides as follows:
SECTION 1. Every provision contained in, or made with respect to, any
obligation which provision purports to give the obligee the right to
require payment in gold or in a particular kind of coin or currency other
than Philippine currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public policy, and
null, void and of no effect, and no such provision shall be contained in,
or made with respect to, any obligation hereafter incurred. Every
obligation heretofore or here after incurred, whether or not any such
provision as to payment is contained therein or made with respect
thereto, shall be discharged upon payment in any coin or currency which
at the time of payment is legal tender for public and private debts:
Provided, That, ( a) if the obligation was incurred prior to the enactment
of this Act and required payment in a particular kind of coin or currency
other than Philippine currency, it shall be discharged in Philippine
currency measured at the prevailing rate of exchange at the time the
obligation was incurred, (b) except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in which case the
rate of exchange prevailing at the time of the stipulated date of payment
shall prevail. All coin and currency, including Central Bank notes,
heretofore or hereafter issued and declared by the Government of the
Philippines shall be legal tender for all debts, public and private.
Under the above-quoted provision of Republic Act 529, if the obligation was incurred
prior to the enactment of the Act and require payment in a particular kind of coin or
currency other than the Philippine currency the same shall be discharged in
Philippine currency measured at the prevailing rate of exchange at the time the
obligation was incurred. As We have adverted to, Republic Act 529 was enacted on
June 16, 1950. In the case now before Us the obligation of appellant to pay appellee
the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or
after the enactment of Republic Act 529. It follows that the provision of Republic Act
529 which requires payment at the prevailing rate of exchange when the obligation
was incurred cannot be applied. Republic Act 529 does not provide for the rate of
exchange for the payment of obligation incurred after the enactment of said Act. The
logical Conclusion, therefore, is that the rate of exchange should be that prevailing at
the time of payment. This view finds support in the ruling of this Court in the case of
Engel vs. Velasco & Co.
2
3 where this Court held that even if the obligation assumed
by the defendant was to pay the plaintiff a sum of money expressed in American
currency, the indemnity to be allowed should be expressed in Philippine currency at
the rate of exchange at the time of judgment rather than at the rate of exchange
prevailing on the date of defendant's breach. This is also the ruling of American court
as follows:
The value in domestic money of a payment made in foreign money is
fixed with respect to the rate of exchange at the time of payment. (70 CJS
p. 228)
According to the weight of authority the amount of recovery depends
upon the current rate of exchange, and not the par value of the
particular money involved. (48 C.J. 605-606)
The value in domestic money of a payment made in foreign money is
fixed in reference to the rate of exchange at the time of such payment.
(48 C.J. 605)
It is Our considered view, therefore, that appellant should pay the appellee the
equivalent in pesos of the $28,000.00 at the free market rate of exchange at the time
of payment. And so the trial court did not err when it held that herein appellant
should pay appellee $28,000.00 "to be converted into the Philippine currency on the
basis of the current rate of exchange at the time of payment of this judgment, as
certified to by the Central Bank of the Philippines, ...."
2
4
Appellant also contends that the P57,000.00 that he had paid to appellee should have
been applied to the due to the latter on the IRRI project because such debt was the
most onerous to appellant. This contention is untenable. The Commissioner who was
authorized by the trial court to receive evidence in this case, however, reports that the
appellee had not been paid for the account of the $28,000.00 which represents the
fees of appellee equivalent to 20% of the $140,000.00 that the appellant received as fee
for the IRRI project. This is a finding of fact by the Commissioner which was adopted
by the trial court. The parties in this case have agreed that they do not question the
finding of fact of the Commissioner. Thus, in the decision appealed from the lower
court says:
At the hearing on the Report of the Commissioner on February 15, 1966,
the counsels for both parties manifested to the court that they have no
objection to the findings of facts of the Commissioner in his report; and
agreed that the said report only poses two (2)legal issues, namely: (1)
whether under the facts stated in the Report, the doctrine of estoppel will
apply; and (2) whether the recommendation in the Report that the
payment of amount due to the plaintiff in dollars is permissible under
the law, and, if not, at what rate of exchange should it be paid in pesos
(Philippine currency) ....
2
5
In the Commissioner's report, it is spetifically recommended that the appellant be
ordered to pay the plaintiff the sum of "$28,000. 00 or its equivalent as the fee of the
plaintiff under Exhibit A on the IRRI project." It is clear from this report of the
Commissioner that no payment for the account of this $28,000.00 had been made.
Indeed, it is not shown in the record that the peso equivalent of the $28,000.00 had
been fixed or agreed upon by the parties at the different times when the appellant had
made partial payments to the appellee.
3. In his third assignment of error, appellant contends that the lower court erred in
not declaring that the aggregate amount due from him to appellee is only P15,792.05.
Appellant questions the propriety or correctness of most of the items of fees that were
found by the Commissioner to be due to appellee for services rendered. We believe that
it is too late for the appellant to question the propriety or correctness of those items in
the present appeal. The record shows that after the Commissioner had submitted his
report the lower court, on February 15, 1966, issued the following order:
When this case was called for hearing today on the report of the
Commissioner, the counsels of the parties manifested that they have no
objection to the findings of facts in the report. However, the report poses
only legal issues, namely: (1) whether under the facts stated in the
report, the doctrine of estoppel will apply; and (2) whether the
recommendation in the report that the alleged payment of the defendant
be made in dollars is permissible by law and, if not, in what rate it
should be paid in pesos (Philippine Currency). For the purpose of
resolving these issues the parties prayed that they be allowed to file their
respective memoranda which will aid the court in the determination of
said issues.
2
6
In consonance with the afore-quoted order of the trial court, the appellant submitted
his memorandum which opens with the following statements:
As previously manifested, this Memorandum shall be confined to:
(a) the finding in the Commissioner's Report that defendant's defense of
estoppel will not lie (pp. 17-18, Report); and
(b) the recommendation in the Commissioner's Report that defendant be
ordered to pay plaintiff the sum of '$28,000.00 (U.S.) or its equivalent as
the fee of the plaintiff under Exhibit 'A' in the IRRI project.'
More specifically this Memorandum proposes to demonstrate the
affirmative of three legal issues posed, namely:
First: Whether or not plaintiff's letter dated December 11, 1961 (Exhibit
'I') and/or Statement of Account (Exhibit '1-A') therein enclosed has the
effect of placing plaintiff in estoppel from thereafter modifying the
representations made in said letter and Statement of Account or of
making plaintiff otherwise bound thereby; or of being decisive or great
weight in determining the true intent of the parties as to the amount of
the engineering fees owing from defendant to plaintiff;
Second: Whether or not defendant can be compelled to pay whatever
balance is owing to plaintiff on the IRRI (International Rice and Research
Institute) project in United States dollars; and
Third: Whether or not in case the ruling of this Honorable Court be that
defendant cannot be compelled to pay plaintiff in United States dollars,
the dollar-to-peso convertion rate for determining the peso equivalent of
whatever balance is owing to plaintiff in connection with the IRRI project
should be the 2 to 1 official rate and not any other rate.
2
7
It is clear, therefore, that what was submitted by appellant to the lower court for
resolution did not include the question of correctness or propriety of the amounts due
to appellee in connection with the different projects for which the appellee had
rendered engineering services. Only legal questions, as above enumerated, were
submitted to the trial court for resolution. So much so, that the lower court in another
portion of its decision said, as follows:
The objections to the Commissioner's Report embodied in defendant's
memorandum of objections, dated March 18, 1966, cannot likewise be
entertained by the Court because at the hearing of the Commissioner's
Report the parties had expressly manifested that they had no objection to
the findings of facts embodied therein.
We, therefore hold that the third assignment of error of the appellant has no merit.
4. In his fourth assignment of error, appellant questions the award by the lower court
of P8,000.00 for attorney's fees. Appellant argues that the Commissioner, in his
report, fixed the sum of P5,000.00 as "just and reasonable" attorney's fees, to which
amount appellee did not interpose any objection, and by not so objecting he is bound
by said finding; and that, moreover, the lower court gave no reason in its decision for
increasing the amount to P8,000.00.
Appellee contends that while the parties had not objected to the findings of the
Commissioner, the assessment of attorney's fees is always subject to the court's
appraisal, and in increasing the recommended fees from P5,000.00 to P8,000.00 the
trial court must have taken into consideration certain circumstances which warrant
the award of P8,000.00 for attorney's fees.
We believe that the trial court committed no error in this connection. Section 12 of
Rule 33 of the Rules of Court, on which the fourth assignment of error is presumably
based, provides that when the parties stipulate that a commissioner's findings of fact
shall be final, only questions of law arising from the facts mentioned in the report
shall thereafter be considered. Consequently, an agreement by the parties to abide by
the findings of fact of the commissioner is equivalent to an agreement of facts binding
upon them which the court cannot disregard. The question, therefore, is whether or
not the estimate of the reasonable fees stated in the report of the Commissioner is a
finding of fact.
The report of the Commissioner on this matter reads as follows:
As regards attorney's fees, under the provisions of Art 2208, par (11), the same may be
awarded, and considering the number of hearings held in this case, the nature of the
case (taking into account the technical nature of the case and the voluminous exhibits
offered in evidence), as well as the way the case was handled by counsel, it is believed,
subject to the Court's appraisal of the matter, that the sum of P5,000.00 is just and
reasonable as attorney's fees."
2
8
It is thus seen that the estimate made by the Commissioner was an expression of
belief, or an opinion. An opinion is different from a fact. The generally recognized
distinction between a statement of "fact" and an expression of "opinion" is that
whatever is susceptible of exact knowledge is a matter of fact, while that not
susceptible of exact knowledge is generally regarded as an expression of opinion.
2
9 It
has also been said that the word "fact," as employed in the legal sense includes "those
conclusions reached by the trior from shifting testimony, weighing evidence, and
passing on the credit of the witnesses, and it does not denote those inferences drawn
by the trial court from the facts ascertained and settled by it.
3
0 In the case at bar,
the estimate made by the Commissioner of the attorney's fees was an inference from
the facts ascertained by him, and is, therefore, not a finding of facts. The trial court
was, consequently, not bound by that estimate, in spite of the manifestation of the
parties that they had no objection to the findings of facts of the Commissioner in his
report. Moreover, under Section 11 of Rule 33 of the Rules of Court, the court may
adopt, modify, or reject the report of the commissioner, in whole or in part, and hence,
it was within the trial court's authority to increase the recommended attorney's fees of
P5,000.00 to P8,000.00. It is a settled rule that the amount of attorney's fees is
addressed to the sound discretion of the court.
3
1
It is true, as appellant contends, that the trial court did not state in the decision the
reasons for increasing the attorney's fees. The trial court, however, had adopted the
report of the Commissioner, and in adopting the report the trial court is deemed to
have adopted the reasons given by the Commissioner in awarding attorney's fees, as
stated in the above-quoted portion of the report. Based on the reasons stated in the
report, the trial court must have considered that the reasonable attorney's fees should
be P8,000.00. Considering that the judgment against the appellant would amount to
more than P100,000.00, We believe that the award of P8,000.00 for attorney's fees is
reasonable.
5. In his fifth assignment of error appellant urges that he is entitled to relief on his
counterclaim. In view of what We have stated in connection with the preceding four
assignments of error, We do not consider it necessary to dwell any further on this
assignment of error.
WHEREFORE, the decision appealed from is affirmed, with costs against the
defendant-appellant. It is so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Teehankee,
Barredo and Villamor, JJ., concur.

# Footnotes
1 Annex A to complaint, pp. 18-21, Record on Appeal.
2 Record on Appeal, pp. 21-26.
3 Record on Appeal, pp. 115-118.
4 Record on Appeal, p. 96.
5 50 Phil. 810, 821.
6 91 Phil. 46, 49.
7 Coronel, 7 et al. vs. CIR, et al., 24 -SCRA, 990, 996.
8 28 Am. Jur., 2d. , pp. 601-602.
9 Rivers vs. Metropolitan Life Ins. Co. of New York, 6 NY 2d. 3, 5.
10 28 Am. Jur. 2d. p. 642.
11 Art. 1437, Civil Code. 28 Am. Jur. 2d, pp. 640-641; Reyes and Puno,
an Outline of Philippine Civil Law, Vol. IV, p. 277.
12 Record on appeal, pp. 95-96.
13 Record on Appeal, p. 155.
14 Ramiro vs. Grato 54 Phil. 744, 750; Coleman vs. Southern Pacific Co.,
14 Cal App. 2d 121, 296 P2d 386.
15 Wigmore, Evidence, 3d ed., Vol. IV. pp. 21-23.
16 7 Phil. 20, 22.
17 Corbin On Contracts, Vol. 3, P. 145.
18 Corbin On Contracts, Vol. 3, p. 147, and cases cited therein.
19 In re Chicago & E. 1. Rv. Co., 94 F2d 296; Boucher vs. Godfrey, 178 A
655, 119 Conn 622.
20 Citing 48 CJ, 605, 606-607 in support of his submission.
21 Arthur P. Bacomo Central Bank Circulars and Memoranda, 1949-
1968, p. 389.
22 Rule 131, See. 5, pars. (d) and (g), Rules of Court.
23 47 Phil 115, 142.
24 This ruling modifies the decision in Arrieta vs. National Rice and Corn
Corporation, L-15645, January 31, 1964 (10 SCRA 79), where it was held
that the obligation based on dollar should be converted into the
Philippine peso at the rate of exchange prevailing at the time the
obligation was incurred, or on July 1, 1952. The provision of Rep. Act
529 was wrong applied in this case, because the obligation arose after
the enactment of Rep. Act 529 (June 16, 1950). The rate of exchange
prevailing at the time the obligation was incurred would apply only to
obligations that were incurred prior to the enactment of Rep. Act 529,
but not to obligations incurred after the enactment of said Act. 25 Record
on Appeal, p. 149.
26 Record on Appeal, p. 99.
27 Record on Appeal, pp. 113-115.
28 Record on Appeal, p. 97; emphasis supplied.
29 Pitney Bomes Inc. vs. Sirkle et al., 248 S. W. 2d. 920.
30 Porter vs. Industrial Commission of Wisconsin, et al., 173 Wis. 267,
181 N.W. 317, 318.
31 San Miguel Brewery, Inc. vs. Magno, L-21879, Sept. 29, 1967, 21
SCRA 292.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-49494 May 31, 1979
NELIA G. PONCE and VICENTE C. PONCE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, and JESUSA B. AFABLE, respondents.
Romeo L. Mendoza & Gallardo S. Tongohan for petitioners.
Ramon M. Velayo for private respondent.

MELENCIO-HERRERA, J.:
This is a Petition for Certiorari seeking to set aside the Resolution of the Court of
Appeals, dated June 8, 1978, reconsidering its Decision dated December 17, 1977 and
reversing the judgment of the Court of First Instance of Manila in favor of petitioners
as well as the Resolutions, dated July 6, 1978 and November 27, 1978, denying
petitioners' Motion for Reconsideration.
The factual background of the case is as follows:
On June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L.
Mendoza and Ma. Aurora C. Dio executed a promissory note in favor of petitioner
Nelia G. Ponce in the sum of P814,868.42, Philippine Currency, payable, without
interest, on or before July 31, 1969. It was further provided therein that should the
indebtedness be not paid at maturity, it shall draw interest at 12% per annum,
without demand; that should it be necessary to bring suit to enforce pay ment of the
note, the debtors shall pay a sum equivalent to 10% of the total amount due for
attorney's fees; and, in the event of failure to pay the indebtedness plus interest in
accordance with its terms, the debtors shall execute a first mortgage in favor of the
creditor over their properties or of the Carmen Planas Memorial, Inc.
Upon the failure of the debtors to comply with the terms of the promissory note,
petitioners (Nelia G. Ponce and her husband) filed, on July 27, 1970, a Complaint
against them with the Court of First Instance of Manila for the recovery of the
principal sum of P814,868.42, plus interest and damages.
Defendant Ma. Aurora C. Dio's Answer consisted more of a general denial and the
contention that she did not borrow any amount from plaintiffs and that her signature
on the promissory note was obtained by plaintiffs on their assurance that the same
was for " formality only."
Defendant Jesusa B. Afable, for her part, asserted in her Answer that the promissory
note failed to express the true intent and agreement of the parties, the true agreement
being that the obligation therein mentioned would be assumed and paid entirely by
defendant Felisa L. Mendoza; that she had signed said document only as President of
the Carmen Planas Memorial, Inc., and that she was not to incur any personal
obligation as to the payment thereof because the same would be repaid by defendant
Mendoza and/or Carmen Planas Memorial, Inc.
In her Amended Answer, defendant Felisa L. Mendoza admitted the authenticity and
due execution of the promissory note, but averred that it was a recapitulation of a
series of transactions between her and the plaintiffs, "with defendant Ma. Aurora C.
Dio and Jesusa B. Afable coming only as accomodation parties." As affirmative
defense, defendant Mendoza contended that the promissory note was the result of
usurious transactions, and, as counterclaim, she prayed that plaintiffs be ordered to
account for all the interests paid.
Plaintiffs filed their Answer to defendant Mendoza's counterclaim denying under oath
the allegations of usury.
After petitioners had rested, the case was deemed submitted for decision since
respondent Afable and her co-debtors had repeatedly failed to appear before the trial
Court for the presentation of their evidence.
On March 9, 1972, the trial Court rendered judgment ordering respondent Afable and
her co-debtors, Felisa L. Mendoza and Ma. Aurora C. Dio , to pay petitioners, jointly
and severally, the sum of P814,868.42, plus 12% interest per annum from July 31,
1969 until full payment, and a sum equivalent to 10% of the total amount due as
attorney's fees and costs.
From said Decision, by respondent Afable appealed to the Court of Appeals. She
argued that the contract under consideration involved the payment of US dollars and
was, therefore, illegal; and that under the in pari delicto rule, since both parties are
guilty of violating the law, neither one can recover. It is to be noted that said defense
was not raised in her Answer.
On December 13, 1977, the Court of Appeals* rendered judgment affirming the
decision of the trial Court. In a Resolution dated February 27, 1978, the Court of
Appeals,** denied respondent's Motion for Reconsideration. However, in a Resolution
dated June 8, 1978, the Court of Appeals acting on the Second Motion for
Reconsideration filed by private respondent, set aside the Decision of December 13,
1977, reversed the judgment of the trial Court and dismissed the Complaint. The
Court of Appeals opined that the intent of the parties was that the promissory note
was payable in US dollars, and, therefore, the transaction was illegal with neither
party entitled to recover under the in pari delicto rule.
Their Motions for Reconsideration having been denied in the Resolutions dated July 6,
1978 and November 27, 1978, petitioners filed the instant Petition raising the
following Assignments of Error.
I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING
THAT THE PROMISSORY NOTE EVIDENCING THE TRANSACTION OF
THE PARTIES IS PAYABLE IN U.S. DOLLARS THEREBY DETERMINING
THE INTENT OF THE PARTIES OUTSIDE OF THEIR PROMISSORY NOTE
DESPITE LACK OF SHOWING THAT IT FAILED TO EXPRESS THE TRUE
INTENT OR AGREEMENT OF THE PARTIES AND ITS PAYABILITY IN
PHILIPPINE PESOS WHICH IS EXPRESSED, AMONG OTHERS, BY ITS
CLEAR AND PRECISE TERMS.
II
THE RESPONDENT COURT, OF APPEALS ERRED IN HOLDING THAT
REPUBLIC ACT 529, OTHERWISE KNOWN ASIAN ACT TO ASSURE
UNIFORM VALUE TO PHILIPPINE COINS AND CURRENCY,' COVERS
THE TRANSACTION OF THE PARTIES HEREIN.
III
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT
PRIVATE RESPONDENT JESUSA B. AFABLE COULD NOT FAVORABLY
AVAIL HERSELF OF THE DEFENSE OF ALLEGED APPLICABILITY OF
REPUBLIC ACT 529 AND THE DOCTRINE OF IN PARI DELICTO AS
THESE WERE NOT PLEADED NOR ADOPTED BY HER IN THE TRIAL.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING
ASSUMING ARGUENDO THAT REPUBLIC ACT 529 COVERS THE
PARTIES TRANSACTION, THAT THE Doctrine OF IN PARI DELICTO
DOES NOT APPLY AND THE PARTIES AGREEMENT WAS NOT NULL
AND VOID PURSUANT TO THE RULING IN OCTAVIO A. KALALO VS.
ALFREDO J. LUZ, NO.-27782, JULY 31, 1970.
In the Resolution dated June 8, 1978, the Court of Appeals made the following
observations:
We are convinced from the evidence that the amount awarded by the
lower Court was indeed owed by the defendants to the plaintiffs.
However, the sole issue raised in this second motion for
reconconsideration is not the existence of the obligation itself but the
legality of the subject matter of the contract. If the subject matter is
illegal and against public policy, the doctrine of pari delicto applies.
xxx xxx xxx
We are constrained to reverse our December 13, 1977 decision. While it
is true that the promissory note does not mention any obligation to pay
in dollars, plaintiff-appellee Ponce himself admitted that there was an
agreement that he would be paid in dollars by the defendants. The
promissory note is payable in U.S. donors. The in. tent of the parties
prevails over the bare words of the written contracts.
xxx xxx xxx
The agreement is null and void and of no effect under Republic Act No.
529. Under the doctrine of pari delicto, no recovery can be made in favor
of the plaintiffs for being themselves guilty of violating the law.
1

We are constrained to disagree.
Reproduced hereunder is Section 1 of Republic Act No. 529, which was enacted on
June 16, 1950:
Section 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to require payment in
gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby, be
as it is hereby declared against public policy, and null voice and of no
effect and no such provision shall be contained in, or made with respect to,
any obligation hereafter incurred. The above prohibition shall not apply to
(a) transactions were the funds involved are the proceeds of loans or
investments made directly or indirectly, through bona fide intermediaries
or agents, by foreign governments, their agencies and instrumentalities,
and international financial and banking institutions so long as the funds
are Identifiable, as having emanated from the sources enumerated above;
(b) transactions affecting high priority economic projects for agricultural
industrial and power development as may be determined by the National
Economic Council which are financed by or through foreign funds; (c)
forward exchange transactions entered into between banks or between
banks and individuals or juridical persons; (d) import-export and other
international banking financial investment and industrial transactions.
With the exception of the cases enumerated in items (a) (b), (c) and (d) in
the foregoing provision, in, which cases the terms of the parties'
agreement shag apply, every other domestic obligation heretofore or
hereafter incurred whether or not any such provision as to payment is
contained therein or made with- respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal
tender for public and private debts: Provided, That if the obligation was
incurred prior to the enactment of this Act and required payment in a
particular kind of coin or currency other than Philippine currency, it
shall be discharge in Philippine currency measured at the prevailing
rates of exchange at the time the obligation was incurred, except in case
of a loan made in foreign currency stipulated to be payable in the
currency in which case the rate of exchange prevailing at the time of the
stipulated date of payment shall prevail All coin and currency, including
Central Bank notes, heretofore and hereafter issued and d by the
Government of the Philippines shall be legal tender for all debts, public
and private. (As amended by RA 4100, Section 1, approved June 19,
1964) (Empahsis supplied).
It is to be noted that while an agreement to pay in dollars is declared as null and void
and of no effect, what the law specifically prohibits is payment in currency other than
legal tender. It does not defeat a creditor's claim for payment, as it specifically provides
that "every other domestic obligation ... whether or not any such provision as to
payment is contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender for
public and private debts." A contrary rule would allow a person to profit or enrich
himself inequitably at another's expense.
As the Court of Appeals itself found, the promissory note in question provided on its
face for payment of the obligation in Philippine currency, i.e., P814,868.42. So that,
while the agreement between the parties originally involved a dollar transaction and
that petitioners expected to be paid in the amount of US$194,016.29, petitioners are
not now insisting on their agreement with respondent Afable for the payment of the
obligation in dollars. On the contrary, they are suing on the basis of the promissory
note whereby the parties have already agreed to convert the dollar loan into Philippine
currency at the rate of P4.20 to $1.00.
2
It may likewise be pointed out that the
Promissory Note contains no provision "giving the obligee the right to require payment
in a particular kind of currency other than Philippine currency, " which is what is
specifically prohibited by RA No. 529.
At any rate, even if we were to disregard the promissory note providing for the
payment of the obligation in Philippine currency and consider that the intention of the
parties was really to provide for payment of the obligation would be made in dollars,
petitioners can still recover the amount of US$194,016.29, which respondent Afable
and her co-debtors do not deny having received, in its peso equivalent. As held in
Eastboard Navigation, Ltd. vs. Juan Ysmael & Co. Inc., 102 Phil. 1 (1957), and Arrieta
vs. National Rice & Corn Corp.,
3
if there is any agreement to pay an obligation in a
currency other than Philippine legal tender, the same is nun and void as contrary to
public policy, pursuant to Republic Act No. 529, and the most that could be
demanded is to pay said obligation in Philippine currency. In other words, what is
prohibited by RA No. 529 is the payment of an obligation in dollars, meaning that a
creditor cannot oblige the debtor to pay him in dollars, even if the loan were given in
said currency. In such a case, the indemnity to be allowed should be expressed in
Philippine currency on the basis of the current rate of exchange at the time of
payment.
4

The foregoing premises considered, we deem it unnecessary to discuss the other errors
assigned by petitioners.
WHEREFORE, the Resolutions of the Court of Appeals dated June 8, 1978, July 6,
1978 and November 27, 1978 are hereby set aside, and judgment is hereby rendered
reinstating the Decision of the Court of First Instance of Manila.
No pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ., concur.
Makasiar, J., took no part.

#Footnotes
* Special Fifth Division, composed of JJ. L, B. Reyes, M. V. Agcaoili and
H.E. Gutierrez, ponente.
** Special Fourth Division composed of JJ. L. B. Reyes, H.E. Gutierrez,
ponente, and R.C. Climaco.
1 Pp.24,25 & 28, Petition, Annex "A".
2 T.s.n., September 3, 1971, p. 40.
3 10 SCRA 79 (1964).
4 Kalalo vs. Luz, 34 SCRA 337 (1970).
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41764 December 19, 1980
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner,
vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO SHERIFF
HAKIM S. ABDULWAHID, respondents.

CONCEPCION JR., J.:
A petition for certiorari with preliminary injunction to annul and/or modify the order of
the Court of First Instance of Zamboanga City (Branch ii) dated August 28, 1975
denying petitioner's Ex-Parte Motion for Issuance of Certificate Of Satisfaction Of
Judgment.
Herein petitioner is the defendant in a complaint for collection of a sum of money filed
by the private respondent.
1
On July 19, 1974, a compromise judgment was rendered
by the respondent Judge in accordance with an amicable settlement entered into by
the parties the terms and conditions of which, are as follows:
(1) That defendant will pay to the plaintiff the amount of Fifty Four
Thousand Five Hundred Pesos (P54,500.00) at 6% interest per annum to
be reckoned from August 25, 1972;
(2) That defendant will pay to the plaintiff the amount of Six Thousand
Pesos (P6,000.00) as attorney's fees for which P5,000.00 had been
acknowledged received by the plaintiff under Consolidated Bank and
Trust Corporation Check No. 16-135022 amounting to P5,000.00 leaving
a balance of One Thousand Pesos (P1,000.00);
(3) That the entire amount of P54,500.00 plus interest, plus the balance
of P1,000.00 for attorney's fees will be paid by defendant to the plaintiff
within five months from today, July 19, 1974; and
(4) Failure one the part of the defendant to comply with any of the above-
conditions, a writ of execution may be issued by this Court for the
satisfaction of the obligation.
2

For failure of the petitioner to comply with his judgment obligation, the respondent
Judge, upon motion of the private respondent, issued an order for the issuance of a
writ of execution on December 21, 1974. Accordingly, writ of execution was issued for
the amount of P63,130.00 pursuant to which, the Ex-Officio Sheriff levied upon the
following personal properties of the petitioner, to wit:
(1) Unit American Lathe 24
(1) Unit American Lathe 18 Cracker Wheeler
(1) Unit Rockford Shaper 24
and set the auction sale thereof on January 15, 1975. However, prior to January 15,
1975, petitioner deposited with the Clerk of Court, Court of First Instance, Zamboanga
City, in his capacity as Ex-Officio Sheriff of Zamboanga City, the sum of P63,130.00 for
the payment of the judgment obligation, consisting of the following:
1. P50.000.00 in Cashier's Check No. S-314361 dated January 3, 1975
of the Equitable Banking Corporation; and
2. P13,130.00 incash.
3

In a letter dated January 14, 1975, to the Ex-Officio Sheriff,
4
private respondent
through counsel, refused to accept the check as well as the cash deposit. In the 'same
letter, private respondent requested the scheduled auction sale on January 15, 1975
to proceed if the petitioner cannot produce the cash. However, the scheduled auction
sale at 10:00 a.m. on January 15, 1975 was postponed to 3:00 o'clock p.m. of the
same day due to further attempts to settle the case. Again, the scheduled auction sale
that afternoon did not push through because of a last ditch attempt to convince the
private respondent to accept the check. The auction sale was then postponed on the
following day, January 16, 1975 at 10:00 o'clock a.m.
5
At about 9:15 a.m., on
January 16, 1975, a certain Mr. Taedo representing the petitioner appeared in the
office of the Ex-Officio Sheriff and the latter reminded Mr. Taedo that the auction sale
would proceed at 10:00 o'clock. At 10:00 a.m., Mr. Taedo and Mr. Librado, both
representing the petitioner requested the Ex-Officio Sheriff to give them fifteen minutes
within which to contract their lawyer which request was granted. After Mr. Taedo and
Mr. Librado failed to return, counsel for private respondent insisted that the sale must
proceed and the Ex-Officio Sheriff proceeded with the auction sale.
6
In the course of
the proceedings, Deputy Sheriff Castro sold the levied properties item by item to the
private respondent as the highest bidder in the amount of P50,000.00. As a result
thereof, the Ex-Officio Sheriff declared a deficiency of P13,130.00.
7
Thereafter, on
January 16, 1975, the Ex-Officio Sheriff issued a "Sheriff's Certificate of Sale" in favor
of the private respondent, Ricardo Tong, married to Pascuala Tong for the total
amount of P50,000.00 only.
8
Subsequently, on January 17, 1975, petitioner filed an
ex-parte motion for issuance of certificate of satisfaction of judgment. This motion was
denied by the respondent Judge in his order dated August 28, 1975. In view thereof,
petitioner now questions said order by way of the present petition alleging in the main
that said respondent Judge capriciously and whimsically abused his discretion in not
granting the motion for issuance of certificate of satisfaction of judgment for the
following reasons: (1) that there was already a full satisfaction of the judgment before
the auction sale was conducted with the deposit made to the Ex-Officio Sheriff in the
amount of P63,000.00 consisting of P50,000.00 in Cashier's Check and P13,130.00 in
cash; and (2) that the auction sale was invalid for lack of proper notice to the
petitioner and its counsel when the Ex-Officio Sheriff postponed the sale from June 15,
1975 to January 16, 1976 contrary to Section 24, Rule 39 of the Rules of Court. On
November 10, 1975, the Court issued a temporary restraining order enjoining the
respondent Ex-Officio Sheriff from delivering the personal properties subject of the
petition to Ricardo A. Tong in view of the issuance of the "Sheriff Certificate of Sale."
We find the petition to be impressed with merit.
The main issue to be resolved in this instance is as to whether or not the private
respondent can validly refuse acceptance of the payment of the judgment obligation
made by the petitioner consisting of P50,000.00 in Cashier's Check and P13,130.00 in
cash which it deposited with the Ex-Officio Sheriff before the date of the scheduled
auction sale. In upholding private respondent's claim that he has the right to refuse
payment by means of a check, the respondent Judge cited the following:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character. Checks representing deposit money do not
have legal tender power and their acceptance in payment of debts, both
public and private, is at the option of the creditor, Provided, however,
that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor in cash in an
amount equal to the amount credited to his account.
Article 1249 of the New Civil Code:
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency,
then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance.
Likewise, the respondent Judge sustained the contention of the private respondent
that he has the right to refuse payment of the amount of P13,130.00 in cash because
the said amount is less than the judgment obligation, citing the following Article of the
New Civil Code:
Art. 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the presentations in
which the obligation consists. Neither may the debtor be required to
make partial payment.
However, when the debt is in part liquidated and in part unliquidated,
the creditor may demand and the debtor may effect the payment of the
former without waiting for the liquidation of the latter.
It is to be emphasized in this connection that the check deposited by the petitioner in
the amount of P50,000.00 is not an ordinary check but a Cashier's Check of the
Equitable Banking Corporation, a bank of good standing and reputation. As testified
to by the Ex-Officio Sheriff with whom it has been deposited, it is a certified crossed
check.
9
It is a well-known and accepted practice in the business sector that a
Cashier's Check is deemed as cash. Moreover, since the said check had been certified
by the drawee bank, by the certification, the funds represented by the check are
transferred from the credit of the maker to that of the payee or holder, and for all
intents and purposes, the latter becomes the depositor of the drawee bank, with rights
and duties of one in such situation.
10
Where a check is certified by the bank on which
it is drawn, the certification is equivalent to acceptance.
11
Said certification "implies
that the check is drawn upon sufficient funds in the hands of the drawee, that they
have been set apart for its satisfaction, and that they shall be so applied whenever the
check is presented for payment. It is an understanding that the check is good then,
and shall continue good, and this agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order of the depositor, or any other
obligation it can assume. The object of certifying a check, as regards both parties, is to
enable the holder to use it as money."
12
When the holder procures the check to be
certified, "the check operates as an assignment of a part of the funds to the creditors."
13
Hence, the exception to the rule enunciated under Section 63 of the Central Bank
Act to the effect "that a check which has been cleared and credited to the account of
the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal
to the amount credited to his account" shall apply in this case. Considering that the
whole amount deposited by the petitioner consisting of Cashier's Check of P50,000.00
and P13,130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in
the writ of execution, then, We see no valid reason for the private respondent to have
refused acceptance of the payment of the obligation in his favor. The auction sale,
therefore, was uncalled for. Furthermore, it appears that on January 17, 1975, the
Cashier's Check was even withdrawn by the petitioner and replaced with cash in the
corresponding amount of P50,000.00 on January 27, 1975 pursuant to an agreement
entered into by the parties at the instance of the respondent Judge. However, the
private respondent still refused to receive the same. Obviously, the private respondent
is more interested in the levied properties than in the mere satisfaction of the
judgment obligation. Thus, petitioner's motion for the issuance of a certificate of
satisfaction of judgment is clearly meritorious and the respondent Judge gravely
abused his discretion in not granting the same under the circumstances.
In view of the conclusion reached in this instance, We find no more need to discuss
the ground relied in the petition.
It is also contended by the private respondent that Appeal and not a special civil
action for certiorari is the proper remedy in this case, and that since the period to
appeal from the decision of the respondent Judge has already expired, then, the
present petition has been filed out of time. The contention is untenable. The decision
of the respondent Judge in Civil Case No. 250 (166) has long become final and
executory and so, the same is not being questioned herein. The subject of the petition
at bar as having been issued in grave abuse of discretion is the order dated August 28,
1975 of the respondent Judge which was merely issued in execution of the said
decision. Thus, even granting that appeal is open to the petitioner, the same is not an
adequate and speedy remedy for the respondent Judge had already issued a writ of
execution.
14

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Declaring as null and void the order of the respondent Judge dated August 28,
1975;
2. Declaring as null and void the auction sale conducted on January 16, 1975 and the
certificate of sale issued pursuant thereto;
3. Ordering the private respondent to accept the sum of P63,130.00 under deposit as
payment of the judgment obligation in his favor;
4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to release the
levied properties to the herein petitioner.
The temporary restraining order issued is hereby made permanent.
Costs against the private respondent.
SO ORDERED.
Barredo (Chairman), Aquino, Abad Santos and De Castro, JJ., concur.

Footnotes
l Civil Case No. 250 (1669), Court of First Instance, Zamboanga City,
entitled "Ricardo A. Tong, Plaintiff, versus New Pacific Timber and
Supply, Co., Inc., Defendant."
2 pp. 14-15, rollo.
3 p. 16, rollo.
4 Exhibit "D".
5 p. 4, rollo.
6 pp. 5-6, rollo.
7 p. 6, rollo.
8 Exhibit "C", see Decision, p. 19, rollo.
9 p. 35, t.s.n., May 24, 1975.
10 Gregorio Araneta, Inc. vs. Paz Tuazon de Paterno and Jose Vidal, L-
2886, August 22, 1952, 49 O.G. No. 1, p. 59.
11 Section 187. Certification of check; effect of. Where a check is
certified by the bank on which it is drawn, the certification is equivalent
to acceptance. (Negotiable Instruments Law)
12 PNB vs. Nat. City Bank of New York, 63 Phil. 711, 718-719.
13 PNB vs, Nat. City Bank of New York, supra, 711-717; Sec. 189. When
check operates as an assignment. A cheek of itself does not operate as
an assignment of any part of the funds to the credit of the drawer with
the bank. and the bank, is not liable to the holder unless and until it
accepts or certifies it. (Negotiable Instruments Law) [Emphasis supplied]
14 Matute vs. Court of Appeals, 26 SCRA 799, citing Vda. de Saludes vs.
Pajarillo, 78 Phil. 754, Woodcraft Works, Ltd. vs. Moscoso, 92 Phil. 1021
and Liwanag vs. Castillo, 106 Phil. 375.
G.R. No. 72110
SECOND DIVISION
[ G.R. No. 72110, November 16, 1990 ]
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., PETITIONER, VS.
INTERMEDIATE APPELLATE COURT, AND ROBES-FRANCISCO REALTY AND
DEVELOPMENT CORPORATION, RESPONDENTS.

D E C I S I O N
SARMIENTO, J.:
This is a petition for review on certiorari which seeks the reversal and setting aside of
the decision
[1]
of the Court of Appeals,
[2]
the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby reversed and set aside and
another one entered for the plaintiff ordering the defendant-appellee Roman Catholic
Bishop of Malolos, Inc. to accept the balance of P124,000.00 being paid by plaintiff-
appellant and thereafter to execute in favor of Robes-Francisco Realty Corporation a
registerable Deed of Absolute Sale over 20,655 square meters portion of that parcel of
land situated in San Jose del Monte, Bulacan described in OCT No. 575 (now Transfer
Certificates of Title Nos. T-169493, 169494, 169495 and 169496) of the Register of
Deeds of Bulacan. In case of refusal of the defendant to execute the Deed of Final
Sale, the clerk of court is directed to execute the said document. Without
pronouncement as to damages and attorney's fees. Costs against the defendant-
appellee.
[3]

The case at bar arose from a complaint filed by the private respondent, then plaintiff,
against the petitioner, then defendant, in the Court of First Instance (now Regional
Trial Court) of Bulacan, at Sta. Maria, Bulacan,
[4]
for specific performance with
damages, based on a contract
[5]
executed on July 7, 1971.
The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of
the 30,655 sq.m. total area, of a parcel of land covered by Original Certificate of Title
No. 575 of the Province of Bulacan, issued and registered in the name of the petitioner
which it sold to the private respondent for and in consideration of P123,930.00.
The crux of the instant controversy lies in the compliance or non-compliance by the
private respondent with the provision for payment to the petitioner of the principal
balance of P100,000.00 and the accrued interest of P24,000.00 within the grace
period.











A chronological narration of the antecedent facts is as follows:
On July 7, 1971, the subject contract over the land in question was executed between
the petitioner as vendor and the private respondent through its then president, Mr.
Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930.00 and the
balance of P100,000.00 plus 12% interest per annum to be paid within four (4) years
from execution of the contract, that is, on or before July 7, 1975. The contract
likewise provides for cancellation, forfeiture of previous payments, and reconveyance
of the land in question in case the private respondent would fail to complete payment
within the said period.
On March 12, 1973, the private respondent, through its new president, Atty. Adalia
Francisco, addressed a letter
[6]
to Father Vasquez, parish priest of San Jose Del Monte,
Bulacan, requesting to be furnished with a copy of the subject contract and the
supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated period for payment,
the same Atty. Francisco wrote the petitioner a formal request
[7]
that her company be
allowed to pay the principal amount of P100,000.00 in three (3) equal installments of
six (6) months each with the first installment and the accrued interest of P24,000.00
to be paid immediately upon approval of the said request.
On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo Fernandez,
formally denied the said request of the private respondent, but granted the latter a
grace period of five (5) days from the receipt of the denial
[8]
to pay the total balance of
P124,000.00, otherwise, the provisions of the contract regarding cancellation,
forfeiture, and reconveyance would be implemented.
On August 4, 1975, the private respondent, through its president, Atty. Francisco,
wrote
[9]
the counsel of the petitioner requesting an extension of 30 days from said date
to fully settle its account. The counsel for the petitioner, Atty. Fernandez, received the
said letter on the same day. Upon consultation with the petitioner in Malolos,









Bulacan, Atty. Fernandez, as instructed, wrote the private respondent a letter
[10]
dated
August 7, 1975 informing the latter of the denial of the request for an extension of the
grace period.
Consequently, Atty. Francisco, the private respondent's president, wrote a letter
[11]

dated August 22, 1975, directly addressed to the petitioner, protesting the alleged
refusal of the latter to accept tender of payment purportedly made by the former on
August 5, 1975, the last day of the grace period. In the same letter of August 22,
1975, received on the following day by the petitioner, the private respondent
demanded the execution of a deed of absolute sale over the land in question and after
which it would pay its account in full, otherwise, judicial action would be resorted to.
On August 27, 1975, the petitioner's counsel, Atty. Fernandez, wrote a reply
[12]
to the
private respondent stating the refusal of his client to execute the deed of absolute sale
due to its (private respondent's) failure to pay its full obligation. Moreover, the
petitioner denied that the private respondent had made any tender of payment
whatsoever within the grace period. In view of this alleged breach of contract, the
petitioner cancelled the contract and considered all previous payments forfeited and
the land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending parties have
conflicting versions on the main question of tender of payment.
The trial court, in its ratiocination, preferred not to give credence to the evidence
presented by the private respondent. According to the trial court:
x x x What made Atty. Francisco suddenly decide to pay plaintiff's obligation on
August 5, 1975, go to defendant's office at Malolos, and there tender her payment,
when her request of August 4, 1975 had not yet been acted upon until August 7
1975? If Atty. Francisco had decided to pay the obligation and had available funds for
the purpose on August 5, 1975, then there would have been no need for her to write
defendant on August 4, 1975 to request an extension of time. Indeed, Atty.
Francisco's claim that she made a tender of payment on August 5, 1975 -- such
alleged act, considered in relation to the circumstances both antecedent and







subsequent thereto, being not in accord with the normal pattern of human conduct --
is not worthy of credence.
[13]

The trial court likewise noted the inconsistency in the testimony of Atty. Francisco,
president of the private respondent, who earlier testified that a certain Mila Policarpio
accompanied her on August 5, 1975 to the office of the petitioner. Another person,
however, named Aurora Oracion, was presented to testify as the secretary-companion
of Atty. Francisco on that same occasion.
Furthermore, the trial court considered as fatal the failure of Atty. Francisco to
present in court the certified personal check allegedly tendered as payment or, at
least, its xerox copy, or even bank records thereof. Finally, the trial court found that
the private respondent had insufficient funds available to fulfill the entire obligation
considering that the latter, through its president, Atty. Francisco, only had a savings
account deposit of P64,840.00, and although the latter had a money-market
placement of P300,000.00, the same was to mature only after the expiration of the 5-
day grace period.
Based on the above considerations, the trial court rendered a decision in favor of the
petitioner, the dispositive portion of which reads:
WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby
declares the subject contract cancelled and plaintiff's down payment of P23,930.00
forfeited in favor of defendant, and hereby dismisses the complaint; and on the
counterclaim, the Court orders plaintiff to pay defendant.
(1) Attorney's fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.
SO ORDERED.
[14]

Not satisfied with the said decision, the private respondent appealed to the respondent
Intermediate Appellate Court (now Court of Appeals) assigning as reversible errors,
among others, the findings of the trial court that the available funds of the private
respondent were insufficient and that the latter did not effect a valid tender of
payment and consignation.
The respondent court, in reversing the decision of the trial court, essentially relies on
the following findings:





x x x We are convinced from the testimony of Atty. Adalia Francisco and her witnesses
that in behalf of the plaintiff-appellant they have a total available sum of P364,840.00
at her and at the plaintiff's disposal on or before August 4, 1975 to answer for the
obligation of the plaintiff-appellant. It was not correct for the trial court to conclude
that the plaintiff-appellant had only about P64,840.00 in savings deposit on or before
August 5, 1975, a sum not enough to pay the outstanding account of P124,000.00.
The plaintiff-appellant, through Atty. Francisco proved and the trial court even
acknowledged that Atty. Adalia Francisco had about P300,000.00 in money market
placement. The error of the trial court lies in concluding that the money market
placement of P300,000.00 was out of reach of Atty. Francisco. But as testified to by
Mr. Catalino Estrella, a representative of the Insular Bank of Asia and America, Atty.
Francisco could withdraw anytime her money market placement and place it at her
disposal, thus proving her financial capability of meeting more than the whole of
P124,000.00 then due per contract. This situation, We believe, proves the truth that
Atty. Francisco apprehensive that her request for a 30-day grace period would be
denied, she tendered payment on August 4, 1975 which offer defendant through its
representative and counsel refused to receive. x x x
[15]
(Underscoring supplied)
In other words, the respondent court, finding that the private respondent had
sufficient available funds, ipso facto concluded that the latter had tendered payment.
Is such conclusion warranted by the facts proven? The petitioner submits that it is
not.
Hence, this petition.
[16]

The petitioner presents the following issues for resolution:
xxx xxx xxx
A. Is a finding that private respondent had sufficient available funds on
or before the grace period for the payment of its obligation proof that it (private
respondent) did tender of (sic) payment for its said obligation within said period?
xxx xxx xxx
B. Is it the legal obligation of the petitioner (as vendor) to execute a deed
of absolute sale in favor of the private respondent (as vendee) before the latter has
actually paid the complete consideration of the sale - where the contract between and
executed by the parties stipulates -





"That upon complete payment of the agreed consideration by the herein VENDEE, the
VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the
VENDEE.
xxx xxx xxx
C. Is an offer of a check a valid tender of payment of an obligation under
a contract which stipulates that the consideration of the sale is in Philippine
Currency?
[17]

We find the petition impressed with merit.
With respect to the first issue, we agree with the petitioner that a finding that the
private respondent had sufficient available funds on or before the grace period for the
payment of its obligation does not constitute proof of tender of payment by the latter
for its obligation within the said period. Tender of payment involves a positive and
unconditional act by the obligor of offering legal tender currency as payment to the
obligee for the former's obligation and demanding that the latter accept the same.
Thus, tender of payment cannot be presumed by a mere inference from surrounding
circumstances. At most, sufficiency of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part of the bargain. But whether or not
the obligor avails himself of such funds to settle his outstanding account remains to
be proven by independent and credible evidence. Tender of payment presupposes not
only that the obligor is able, ready, and willing, but more so, in the act of performing
his obligation. Ab posse ad actu non vale illatio. "A proof that an act could have
been done is no proof that it was actually done."
The respondent court was therefore in error to have concluded from the sheer proof of
sufficient available funds on the part of the private respondent to meet more than the
total obligation within the grace period, the alleged truth of tender of payment. The
same is a classic case of non-sequitur.
On the contrary, the respondent court finds itself remiss in overlooking or taking
lightly the more important findings of fact made by the trial court which we have
earlier mentioned and which as a rule, are entitled to great weight on appeal and
should be accorded full consideration and respect and should not be disturbed unless
for strong and cogent reasons.
[18]






While the Court is not a trier of facts, yet, when the findings of fact of the Court of
Appeals are at variance with those of the trial court,
[19]
or when the inference of the
Court of Appeals from its findings of fact is manifestly mistaken,
[20]
the Court has to
review the evidence in order to arrive at the correct findings based on the record.
Apropos the second issue raised, although admittedly the documents for the deed of
absolute sale had not been prepared, the subject contract clearly provides that the full
payment by the private respondent is an a priori condition for the execution of the said
documents by the petitioner.
That upon complete payment of the agreed consideration by the herein VENDEE, the
VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the
VENDEE.
[21]

The private respondent is therefore in estoppel to claim otherwise as the latter did in
the testimony in cross-examination of its president, Atty. Francisco, which reads:
Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute
the final deed of sale before you would given (sic) the personal certified check in
payment of your balance, is that correct?
A Yes, sir.
[22]

xxx xxx xxx
Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from
contracts have the force of law between the contracting parties and should be
complied with in good faith." And unless the stipulations in said contract are contrary
to law, morals, good customs, public order, or public policy, the same are binding as
between the parties.
[23]












What the private respondent should have done if it was indeed desirous of complying
with its obligations would have been to pay the petitioner within the grace period and
obtain a receipt of such payment duly issued by the latter. Thereafter, or, allowing a
reasonable time, the private respondent could have demanded from the petitioner the
execution of the necessary documents. In case the petitioner refused, the private
respondent could have had always resorted to judicial action for the legitimate
enforcement of its right. For the failure of the private respondent to undertake this
more judicious course of action, it alone shall suffer the consequences.
With regard to the third issue, granting arguendo that we would rule affirmatively on
the two preceding issues, the case of the private respondent still can not succeed in
view of the fact that the latter used a certified personal check which is not legal tender
nor the currency stipulated, and therefore, can not constitute valid tender of payment.
The first paragraph of Art. 1249 of the Civil Code provides that "the payment of debts
in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.
The Court en banc in the recent case of Philippine Airlines v. Court of Appeals,
[24]

G.R. No. L-49188, stated thus:
Since a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment (citing Sec. 189,
Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank,
7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a
manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor.
Hence, where the tender of payment by the private respondent was not valid for failure
to comply with the requisite payment in legal tender or currency stipulated within the
grace period and as such, was validly refused receipt by the petitioner, the subsequent
consignation did not operate to discharge the former from its obligation to the latter.
In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant
to the subject contract, did validly order therefore the cancellation of the said contract,
the forfeiture of the previous payment, and the reconveyance ipso facto of the land in
question.
WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of
the respondent court promulgated on April 25, 1985 is hereby SET ASIDE and
ANNULLED and the DECISION of the trial court dated May 25, 1981 is hereby
REINSTATED. Costs against the private respondent.



SO ORDERED.

Melencio-Herrera, (Chairman), Paras, Padilla, and Regalado, JJ., concur.


[1]
Promulgated on April 25, 1985; Zosa, M.A., J., ponente; Bartolome, F.C. and
Ejercito, B.C., JJ., concurring.
[2]
AC-G.R. CV No. 69626, Robes-Francisco Realty & Development Corporation vs.
Roman Catholic Bishop of Malolos, Inc.
[3]
Rollo, 37.
[4]
Hon. Jesus M. Elbinias, Presiding Judge, Branch V.
[5]
Rollo, 9-11.
[6]
Annex "T", 2, Record on Appeal, Court of First Instance, Bulacan, Branch V, Rollo,
49.
[7]
Annex "C-3", Id.













[8]
Annex A-4", Id.
[9]
Annex "A-5", Id.
[10]
Annex "T", 5, Id.
[11]
Annex "C-6", Id.
[12]
Annex "C-7", 1-2, Id.
[13]
Annex "T", 14, Id.
[14]
Annex "T", 22, Id.
[15]
Rollo, 35.

















[16]
Filed on October 25, 1985.
[17]
Rollo, 8-9.
[18]
Natividad del Rosario Vda. de Alberto v. Court of Appeals, G.R. 29759, May 18,
1989; Matabuena v. Court of Appeals, G.R. 76542, May 5, 1989.
[19]
Robleza v. Court of Appeals, G.R. 80364, June 28, 1989.
[20]
Reynolds Philippine Corporation v. Court of Appeals, G.R. 38187, January 17,
1987.
[21]
Rollo, 11.
[22]
T.s.n., June 9, 1977, 24.
[23]
Article 1409, Civil Code, par. 1.

















[24]
Promulgated on January 30, 1990.


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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 100290 June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.

PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court
assailing the decision * of respondent appellate court dated 24 April 1991 in CA-G.R.
SP No. 24164 denying their petition for certiorari prohibition, and injunction which
sought to annul the order of Judge Eutropio Migrio of the Regional Trial Court,
Branch 151, Pasig, Metro Manila in Civil Case No. 54863 entitled "Eden Tan vs. Sps.
Norberto and Carmen Tibajia."
Stated briefly, the relevant facts are as follows:





Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against
the Tibajia spouses. A writ of attachment was issued by the trial court on 17 August
1987 and on 17 September 1987, the Deputy Sheriff filed a return stating that a
deposit made by the Tibajia spouses in the Regional Trial Court of Kalookan City in
the amount of Four Hundred Forty Two Thousand Seven Hundred and Fifty Pesos
(P442,750.00) in another case, had been garnished by him. On 10 March 1988, the
Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered its decision in Civil
Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay
her an amount in excess of Three Hundred Thousand Pesos (P300,000.00). On appeal,
the Court of Appeals modified the decision by reducing the award of moral and
exemplary damages. The decision having become final, Eden Tan filed the
corresponding motion for execution and thereafter, the garnished funds which by then
were on deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila,
were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo
Bolima the total money judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70

Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia
spouses and instead insisted that the garnished funds deposited with the cashier of
the Regional Trial Court of Pasig, Metro Manila be withdrawn to satisfy the judgment
obligation. On 15 January 1991, defendant spouses (petitioners) filed a motion to lift
the writ of execution on the ground that the judgment debt had already been paid. On
29 January 1991, the motion was denied by the trial court on the ground that
payment in cashier's check is not payment in legal tender and that payment was made
by a third party other than the defendant. A motion for reconsideration was denied on
8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court dismissed the
petition on 24 April 1991 holding that payment by cashier's check is not payment in
legal tender as required by Republic Act No. 529. The motion for reconsideration was
denied on 27 May 1991.
In this petition for review, the Tibajia spouses raise the following issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE
AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT
OF THE JUDGMENT DEBT, IS "LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY
REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY
IN CASH MADE BY PETITIONERS, THRU AURORA VITO AND COUNSEL,
FOR THE SATISFACTION OF THE MONETARY OBLIGATION OF
PETITIONERS-SPOUSES.
1

The only issue to be resolved in this case is whether or not payment by means of
check (even by cashier's check) is considered payment in legal tender as required by
the Civil Code, Republic Act No. 529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a cashier's check of the
Bank of the Philippine Islands, undoubtedly a bank of good standing and reputation,
and which was a crossed check marked "For Payee's Account Only" and payable to
private respondent Eden Tan, is considered legal tender, payment with which operates
to discharge their monetary obligation.
2
Petitioners, to support their contention, cite
the case of New Pacific Timber and Supply Co., Inc. v. Seeris
3
where this Court held
through Mr. Justice Hermogenes Concepcion, Jr. that "It is a well-known and accepted
practice in the business sector that a cashier's check is deemed as cash".
The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to, any
obligation which purports to give the obligee the right to require payment
in gold or in any particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby,
shall be as it is hereby declared against public policy null and void, and
of no effect, and no such provision shall be contained in, or made with
respect to, any obligation thereafter incurred. Every obligation heretofore
and hereafter incurred, whether or not any such provision as to payment
is contained therein or made with respect thereto, shall be discharged
upon payment in any coin or currency which at the time of payment is
legal tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:
Sec. 63. Legal character Checks representing deposit money do not
have legal tender power and their acceptance in the payment of debts,
both public and private, is at the option of the creditor: Provided,
however, that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor of
cash in an amount equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals
4
and Roman Catholic
Bishop of Malolos, Inc. vs. Intermediate Appellate Court,
5
this Court held that
A check, whether a manager's check or ordinary check, is not legal
tender, and an offer of a check in payment of a debt is not a valid tender
of payment and may be refused receipt by the obligee or creditor.
The ruling in these two (2) cases merely applies the statutory provisions which lay
down the rule that a check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a manager's, cashier's or personal check.
Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines
case
6
to support their cause. The dissenting opinion however does not in any way
support the contention that a check is legal tender but, on the contrary, states that "If
the PAL checks in question had not been encashed by Sheriff Reyes, there would be no
payment by PAL and, consequently, no discharge or satisfaction of its judgment
obligation."
7
Moreover, the circumstances in the Philippine Airlines case are quite
different from those in the case at bar for in that case the checks issued by the
judgment debtor were made payable to the sheriff, Emilio Z. Reyes, who encashed the
checks but failed to deliver the proceeds of said encashment to the judgment creditor.
In the more recent case of Fortunado vs. Court of Appeals,
8
this Court stressed that,
"We are not, by this decision, sanctioning the use of a check for the payment of
obligations over the objection of the creditor."
WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED,
with costs against the petitioners.
SO ORDERED.
Narvasa, C.J., Regalado and Nocon, JJ., concur.

# Footnotes
* Penned by Justice Consuelo Ynares Santiago with the concurrence of
Justices Nicolas P. Lapea, Jr. and Cancio C. Garcia.
1 Rollo, p. 11.
2 Rollo, p. 54.
3 G.R. No. L-41764, 19 December 1980, 101 SCRA 686.
4 G.R. No. 49188, 30 January 1990, 181 SCRA 557.
5 G.R. No. 72110, 16 November 1990, 191 SCRA 411.
6 Supra, Dissenting Opinion of Padilla, J., pp. 580-582.
7 Supra, pp. 581-582.
8 G.R. No. 78556, 25 April 1991, 196 SCRA 269.

G.R. No. L-18390
[ G.R. No. L-18390, December 20, 1971 ]
PEDRO J. VELASCO, PLAINTIFF-APPELLANT, VS. MANILA ELECTRIC CO., ET
AL., DEFENDANTS-APPELLEES.

R E S O L U T I O N O N

M O T I O N S T O

R E C O N S I D E R
REYES, J.B.L., J.:
Both appellant Velasco and appellee Manila Electric Co. have filed their respective
motions to reconsider the decision of this Court dated 6 August 1971. For the sake of
clarity, the two motions will be here dealt with separately.
A - APPELLANT'S MOTION FOR RECONSIDERATION
The thrust of this motion is that the decision has incorrectly assessed appellant's
damages and unreasonably reduced their amount. It is first argued that the decision
erred in not taking into account, in computing appellant's loss of income, the
appellant's undeclared income of P8,338.20, assessed by the Bureau of Internal
Revenue for the year 1954, in addition to his declared income for that year (P10,975),
it being argued that appellant never claimed any other source of income besides his
professional earnings. Several circumstances of record disprove this claim. (1) That
the amount of P8,338.20 was kept apart from the ordinary earnings of appellant for
the year 1954 (P10,975), and not declared with it, is in itself circumstantial evidence
that it was not of comparable character. (2) If it was part of his ordinary professional
income, appellant was guilty of fraud in not declaring it and he should not be allowed
to derive advantage from his own wrongdoing. (3) The decision pointed but that by
including the undeclared amount in appellant's disclosed professional earnings for
1954, to a grand totals of P19,313.20, the income for said year becomes abnormally
high (in fact, more than double), as compared to appellant's earnings for the three
preceding years, 1951-1953, that averaged not more than P7,000 per annum. Such
abnormality justifies the Court's refusal to consider the undisclosed P8,338.20 as part
of appellant's regular income for the purpose of computing the reduction in his
earnings as a result of the complained acts of appellee. (4) Finally, the true source of
the undeclared amount lay in appellant's own knowledge, but he chose not to disclose
it; neither did he call upon the assessing revenue officer to reveal its character.
Appellant Velasco urges that the damages awarded him are inadequate considering
the present high cost of living, and calls attention to Article 1250 of the present Civil
Code, and to the doctrines laid down in People vs. Pantoja, G.R No. L-18793, 11
October 1968, 25 SCRA 468. We do not deem the rules invoked to be applicable.
Article 1250 of the Civil Code is to the effect that:
"ART. 1250. In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary."
It can be seen from the employment of the words "extraordinary inflation or deflation
of the currency stipulated" that the legal rule envisages contractual obligations where
a specific currency is selected by the parties as the medium of payment; hence it is
inapplicable to obligations arising from tort and not from contract, as in the case at
bar, besides there being no showing that the factual assumption of the article has
come into existence. As to the Pantoja ruling, the regard paid to the decreasing
purchase of the peso was considered a factor in estimating the indemnity due for loss
of life, which in itself is not susceptible of accurate estimation. It should not be
forgotten that the damages awarded to herein appellant were by no means full
compensatory damages, since the decision makes clear that appellant, by his failure to
minimize his damages by means easily within his reach, was declared entitled only to
a reduced award for the nuisance sued upon (Steel vs. Rail & River Coal Co., 42 Ohio
App. 228, 182 N. E. 552); and the amount granted him had already taken into account
the changed economic circumstances.
Nor is the fact that appellant lost a chance to sell his house for P95,000 to Jose
Valencia constitute a ground for an award of damages in that amount. As remarked
in the main decision, there is no adequate proof of loss, since there is no evidence of
the depreciation in the market value of the house in question caused by the acts of
defendant Meralco. The house, after all, has remained with appellant, and he admits
in his motion for reconsideration (page 48) that properties have increased in value by
2006 since then.
For the foregoing reasons, the motion for reconsideration is denied.
B APPELLEES MOTION TO RECONSIDER
Appellee Manila Electric Company argues that in case the noise emitted by its
substation can not be brought down to the 50 decibel level imposed by our decision in
chief, the remedy of the appellant would be to compel the appellee Company to acquire
and pay for the value of the house, under the so-called doctrine of "inverse
condemnation", and cites in support our doctrines in Bengzon vs. Province of
Pangasinan, 62 Phil. 816, and Republic vs. Philippine Long Distance Telephone Co., L-
18841, 27 January 1969, 26 SCRA 620-634. But as pointed out by appellant in his
opposition, this issue was not raised, nor was the inverse condemnation doctrine
invoked in the trial court, so that it would be improper to consider it on appeal, and
worse still, on a motion for reconsideration of the decision on the merits.
Furthermore, there is no showing that it is impossible to reduce the substation noise
to the level decreed by this Court in the main decision. On the contrary, appellee's
own evidence is that the noise can be reduced by erecting a wall barrier on the line
separating the substation lot and the property of appellant.
The version that appellee did not erect the wall because of the objections of appellant's
wife was denied by her, and there is no preponderance of evidence in favor of appellee
on this point. Moreover, since it was appellant Dr. Velasco who complained, his wife's
objection would not suffice to constitute a waiver of his claim.
As to the petition to increase the sound level prescribed by this Court from 50 to 55
decibels, on the ground that present "ambient sound already ranges from 44 to 55
decibels in the mornings", the same can not be granted. As shown by the evidence at
the trial, the intensity of the noise emitted by appellee's transformers are most
objectionable at night, when people are endeavoring to rest and sleep in compensation
for the fatigue and tensions accumulated during daytime.
WHEREFORE, appellee's motion to reconsider is likewise denied.
Concepcion, C.J., Makalintal, Zaldivar, Ruiz Castro, Fernando, Teehankee, Barredo,
Villamor, and Makasiar, JJ., concur.


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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36706 March 31, 1980
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner,
vs.
HON. FRANCISCO P. BURGOS, in his capacity as Judge of the Court of First
Instance of Cebu City, Branch 11, and Victoria Amigable, respondents.
Quirico del Mar & Domingo Antiquera for respondent.
Office of the Solicitor General for petitioner.

DE CASTRO, J.:
Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of
6,167 square meters. Sometime in 1924, the Government took this land for road-right-
of-way purpose. The land had since become streets known as Mango Avenue and
Gorordo Avenue in Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First Instance of Cebu a
complaint, which was later amended on April 17, 1959 to recover ownership and
possession of the land, and for damages in the sum of P50,000.00 for the alleged
illegal occupation of the land by the Government, moral damages in the sum of
P25,000.00, and attorney's fees in the sum of P5,000.00, plus costs of suit. The
complaint was docketed as Civil Case No. R-5977 of the Court of First Instance of
Cebu, entitled "Victoria Amigable vs. Nicolas Cuenca, in his capacity as Commissioner
of Public Highway and Republic of the Philippines.
1

In its answer,
2
the Republic alleged, among others, that the land was either donated
or sold by its owners to the province of Cebu to enhance its value, and that in any
case, the right of the owner, if any, to recover the value of said property was already
barred by estoppel and the statute of limitations, defendants also invoking the non-
suability of the Government.
In a decision rendered on July 29, 1959 by Judge Amador E. Gomez, the plaintiff's
complaint was dismissed on the grounds relied upon by the defendants therein.
3
The
plaintiff appealed the decision to the Supreme Court where it was reversed, and the
case was remanded to the court of origin for the determination of the compensation to
be paid the plaintiff-appellant as owner of the land, including attorney's fees.
4
The
Supreme Court decision also directed that to determine just compensation for the
land, the basis should be the price or value thereof at the time of the taking.
5

In the hearing held pursuant to the decision of the Supreme Court, the Government
proved the value of the property at the time of the taking thereof in 1924 with certified
copies, issued by the Bureau of Records Management, of deeds of conveyance
executed in 1924 or thereabouts, of several parcels of land in the Banilad Friar Lands
in which the property in question is located, showing the price to be at P2.37 per
square meter. For her part, Victoria Amigable presented newspaper clippings of the
Manila Times showing the value of the peso to the dollar obtaining about the middle of
1972, which was P6.775 to a dollar.
Upon consideration of the evidence presented by both parties, the court which is now
the public respondent in the instant petition, rendered judgment on January 9, 1973
directing the Republic of the Philippines to pay Victoria Amigable the sum of
P49,459.34 as the value of the property taken, plus P145,410.44 representing interest
at 6% on the principal amount of P49,459.34 from the year 1924 up to the date of the
decision, plus attorney's fees of 10% of the total amount due to Victoria Amigable, or a
grand total of P214,356.75.
6

The aforesaid decision of the respondent court is now the subject of the present
petition for review by certiorari, filed by the Solicitor General as counsel of the
petitioner, Republic of the Philippines, against the landowner, Victoria Amigable, as
private respondent. The petition was given due course after respondents had filed their
comment thereto, as required. The Solicitor General, as counsel of petitioner, was then
required to file petitioner's brief and to serve copies thereof to the adverse parties.
7

Petitioner's brief was duly filed on January 29, 1974,
8
to which respondents filed only
a "comment."
9
instead of a brief, and the case was then considered submitted for
decision.
10

1. The issue of whether or not the provision of Article 1250 of the New Civil Code is
applicable in determining the amount of compensation to be paid to respondent
Victoria Amigable for the property taken is raised because the respondent court
applied said Article by considering the value of the peso to the dollar at the time of
hearing, in determining due compensation to be paid for the property taken. The
Solicitor General contends that in so doing, the respondent court violated the order of
this Court, in its decision in G.R. No. L-26400, February 29, 1972, to make as basis of
the determination of just compensation the price or value of the land at the time of the
taking.
It is to be noted that respondent judge did consider the value of the property at the
time of the taking, which as proven by the petitioner was P2.37 per square meter in
1924. However, applying Article 1250 of the New Civil Code, and considering that the
value of the peso to the dollar during the hearing in 1972 was P6.775 to a dollar, as
proven by the evidence of the private respondent Victoria Amigable the Court fixed the
value of the property at the deflated value of the peso in relation, to the dollar, and
came up with the sum of P49,459.34 as the just compensation to be paid by the
Government. To this action of the respondent judge, the Solicitor General has taken
exception.
Article 1250 of the New Civil Code seems to be the only provision in our statutes which
provides for payment of an obligation in an amount different from what has been
agreed upon by the parties because of the supervention of extra-ordinary inflation or
deflation. Thus, the Article provides:
ART. 1250. In case extra-ordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
It is clear that the foregoing provision applies only to cases where a contract or
agreement is involved. It does not apply where the obligation to pay arises from law,
independent of contract. The taking of private property by the Government in the
exercise of its power of eminent domain does not give rise to a contractual obligation.
We have expressed this view in the case of Velasco vs. Manila Electric Co., et al., L-
19390, December 29, 1971.
11

Moreover, the law as quoted, clearly provides that the value of the currency at the time
of the establishment of the obligation shall be the basis of payment which, in cases of
expropriation, would be the value of the peso at the time of the taking of the property
when the obligation of the Government to pay arises.
12
It is only when there is an
"agreement to the contrary" that the extraordinary inflation will make the value of the
currency at the time of payment, not at the time of the establishment of the obligation,
the basis for payment. In other words, an agreement is needed for the effects of an
extraordinary inflation to be taken into account to alter the value of the currency at
the time of the establishment of the obligation which, as a rule, is always the
determinative element, to be varied by agreement that would find reason only in the
supervention of extraordinary inflation or deflation.
We hold, therefore, that under the law, in the absence of any agreement to the
contrary, even assuming that there has been an extraordinary inflation within the
meaning of Article 1250 of the New Civil Code, a fact We decline to declare
categorically, the value of the peso at the time of the establishment of the obligation,
which in the instant case is when the property was taken possession of by the
Government, must be considered for the purpose of determining just compensation.
Obviously, there can be no "agreement to the contrary" to speak of because the
obligation of the Government sought to be enforced in the present action does not
originate from contract, but from law which, generally is not subject to the will of the
parties. And there being no other legal provision cited which would justify a departure
from the rule that just compensation is determined on the basis of the value of the
property at the time of the taking thereof in expropriation by the Government, the
value of the property as it is when the Government took possession of the land in
question, not the increased value resulting from the passage of time which invariably
brings unearned increment to landed properties, represents the true value to be paid
as just compensation for the property taken.
13

In the present case, the unusually long delay of private respondent in bringing the
present action-period of almost 25 years which a stricter application of the law on
estoppel and the statute of limitations and prescription may have divested her of the
rights she seeks on this action over the property in question, is an added
circumstance militating against payment to her of an amount bigger-may three-fold
more than the value of the property as should have been paid at the time of the
taking. For conformably to the rule that one should take good care of his own concern,
private respondent should have commenced proper action soon after she had been
deprived of her right of ownership and possession over the land, a deprivation she
knew was permanent in character, for the land was intended for, and had become,
avenues in the City of Cebu. A penalty is always visited upon one for his inaction,
neglect or laches in the assertion of his rights allegedly withheld from him, or
otherwise transgressed upon by another.
From what has been said, the correct amount of compensation due private respondent
for the taking of her land for a public purpose would be not P49,459.34, as fixed by
the respondent court, but only P14,615.79 at P2.37 per square meter, the actual value
of the land of 6,167 square meters when it was taken in 1924. The interest in the sum
of P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered
its decision, as was awarded by the said court should accordingly be reduced.
In Our decision in G.R. No. L-26400, February 29, 1972,
14
We have said that Victoria
Amigable is entitled to the legal interest on the price of the land from the time of the
taking. This holding is however contested by the Solicitor General, citing the case of
Raymunda S. Digsan vs. Auditor General, et al.,
15
alleged to have a similar factual
environment and involving the same issues, where this Court declared that the
interest at the legal rate in favor of the landowner accrued not from the taking of the
property in 1924 but from April 20, 1961 when the claim for compensation was filed
with the Auditor General. Whether the ruling in the case cited is still the prevailing
doctrine, what was said in the decision of this Court in the abovecited case involving
the same on the instant matter, has become the "law of the case", no motion for its
reconsideration having been filed by the Solicitor General before the decision became
final. Accordingly, the interest to be paid private respondent, Victoria Amigable, shall
commence from 1924, when the taking of the property took place, computed on the
basis of P14,615.79, the value of the land when taken in said year 1924.
2. On the amount of attorney's fees to be paid private respondent, about which the
Solicitor General has next taken issue with the respondent court because the latter
fixed the same at P19,486.97, while in her complaint, respondent Amigable had asked
for only P5,000.00, the amount as awarded by the respondent court, would be too
exhorbitant based as it is, on the inflated value of the land. An attorney's fees of
P5,000.00, which is the amount asked for by private respondent herself in her
complaint, would be reasonable.
WHEREFORE, the judgment appealed from is hereby reversed as to the basis in the
determination of the price of the land taken as just compensation for its expropriation,
which should be the value of the land at the time of the taking, in 1924. Accordingly,
the same is hereby fixed at P14,615.79 at P2.37 per square meter, with interest
thereon at 6% per annum, from the taking of the property in 1924, to be also paid by
Government to private respondent, Victoria Amigable, until the amount due is fully
paid, plus attorney's fees of P5,000.00.
SO ORDERED.
Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.


Separate Opinions

TEEHANKEE, Acting C.J., concuring:
I concur in the result, with the observation that the statements in the main opinion re
the applicability or non-applicability of Article 1250 of the Civil Code should be taken
as obiter dicta, since said article may not be invoked nor applied without a proper
declaration of extraordinary inflation or deflation of currency by the competent
authorities. The Court has thus set aside respondent judge's raising of the amount of
compensation for the land taken from P14,615.79 (at P2.37 per square meter) as
properly determined to be its value at the time of its taking in 1924 to P49,459.34
purportedly because of the deflated value of the peso in relation to the dollar. The ratio
decidendi of the Court's judgment is that respondent is entitled to the value of the
land at the time of its taking in 1924 with interest thereon at the legal rate of six (6%)
percent per annum (which for a period of 56 years since 1924 to the present amount
to a total of 336% interest on the principal due) and reasonable attorney's fees of
P5,000.00 in consonance with the earlier decision of the Court in Victoria Amigable vs.
Cuenca, 43 SCRA 360 (February 29, 1972) which is the law of the case. The judgment
at bar is merely an implementation of the said earlier decision which remanded the
case to the Court a quo for determination of the compensation to be paid by the
government, including attorney's fees, with legal interest on the determined price or
value of the land at the time of its taking in 1924 "from the time it was taken up to the
time that payment s made by the government."


Separate Opinions
TEEHANKEE, Acting C.J., concuring:
I concur in the result, with the observation that the statements in the main opinion re
the applicability or non-applicability of Article 1250 of the Civil Code should be taken
as obiter dicta, since said article may not be invoked nor applied without a proper
declaration of extraordinary inflation or deflation of currency by the competent
authorities. The Court has thus set aside respondent judge's raising of the amount of
compensation for the land taken from P14,615.79 (at P2.37 per square meter) as
properly determined to be its value at the time of its taking in 1924 to P49,459.34
purportedly because of the deflated value of the peso in relation to the dollar. The ratio
decidendi of the Court's judgment is that respondent is entitled to the value of the
land at the time of its taking in 1924 with interest thereon at the legal rate of six (6%)
percent per annum (which for a period of 56 years since 1924 to the present amount
to a total of 336% interest on the principal due) and reasonable attorney's fees of
P5,000.00 in consonance with the earlier decision of the Court in Victoria Amigable vs.
Cuenca, 43 SCRA 360 (February 29, 1972) which is the law of the case. The judgment
at bar is merely an implementation of the said earlier decision which remanded the
case to the Court a quo for determination of the compensation to be paid by the
government, including attorney's fees, with legal interest on the determined price or
value of the land at the time of its taking in 1924 "from the time it was taken up to the
time that payment s made by the government."
Footnotes
1 Annex A to Petition, pp. 22-24, Rollo.
2 Annex B to Petition. pp. 25-26, Rollo.
3 Annex C to Petition. pp. 27-33, Rollo
4 Victoria Amigable vs. Cuenca, et al., 43 SCRA 360.
5 Annex E to Petition, pp 35-38, Rollo.
6 Annex F to Petition, pp. 39-42, Rollo.
7 Page 82, Rollo.
8 Page 102, Rollo.
9 Page 115, Rollo.
10 Page 121, Rollo.
11 42 SCRA 556.
12 Republic vs. Philippine National Bank, 1 SCRA 957; J.M. Tuason vs.
Land Tenure Administration, 31 SCRA 413.
13 Republic vs. Philippine National Bank, supra; J.M. Tuason vs Land
Tenure Administration, supra.
14 43 SCRA 360.
15 G.R. No. L-21593. April 29, 1966, 16 SCRA 762.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-43446 May 3, 1988
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant,
vs.
NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, defendant-appellee.

GRIO-AQUINO, J.:
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter referred to as "FPFC"
for brevity) appealed the dismissal of its complaint against defendant National
Waterworks and Sewerage Authority (NAWASA) by the Court of First Instance of
Manila on September 5, 1973. The appeal was originally brought to the Court of
Appeals. However, finding that the principal purpose of the action was to secure a
judicial declaration that there exists 'extraordinary inflation' within the meaning of
Article 1250 of the New Civil Code to warrant the application of that provision, the
Court of Appeals, pursuant to Section 3, Rule 50 of the Rules of Court, certified the
case to this Court for proper disposition.
On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC for the
latter to supply it with 4" and 6" diameter centrifugally cast iron pressure pipes worth
P270,187.50 to be used in the construction of the Anonoy Waterworks in Masbate and
the Barrio San Andres-Villareal Waterworks in Samar. Defendant NAWASA paid in
installments on various dates, a total of One Hundred Thirty-Four Thousand and Six
Hundred Eighty Pesos (P134,680.00) leaving a balance of One Hundred Thirty-Five
Thousand, Five Hundred Seven Pesos and Fifty centavos (P135,507.50) excluding
interest. Having completed the delivery of the pipes, the plaintiff demanded payment
from the defendant of the unpaid balance of the price with interest in accordance with
the terms of their contract. When the NAWASA failed to pay the balance of its account,
the plaintiff filed a collection suit on March 16, 1967 which was docketed as Civil Case
No. 66784 in the Court of First Instance of Manila.
On November 23, 1967, the trial court rendered judgment in Civil Case No. 66784
ordering the defendant to pay the unpaid balance of P135,507.50 in NAWASA
negotiable bonds, redeemable after ten years from their issuance with interest at 6%
per annum, P40,944.73 as interest up to March 15, 1966 and the interest accruing
thereafter to the issuance of the bonds at 6% per annum and the costs. Defendant,
however, failed to satisfy the decision. It did not deliver the bonds to the judgment
creditor. On February 18, 1971, the plaintiff FPFC filed another complaint which was
docketed as Civil Case No. 82296, seeking an adjustment of the unpaid balance in
accordance with the value of the Philippine peso when the decision in Civil Case No.
66784 was rendered on November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground
that it is barred by the 1967 decision in Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the motion to dismiss on the
ground that the bar by prior judgment did not apply to the case because the causes of
action in the two cases are different: the first action being for collection of the
defendant's indebtedness for the pipes, while the second case is for adjustment of the
value of said judgment due to alleged supervening extraordinary inflation of the
Philippine peso which has reduced the value of the bonds paid to the plaintiff.
Article 1250 of the Civil Code provides:
In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary..
The court suggested to the parties during the trial that they present expert testimony
to help it in deciding whether the economic conditions then, and still prevailing, would
justify the application of Article 1250 of the Civil Code. The plaintiff presented
voluminous records and statistics showing that a spiralling inflation has marked the
progress of the country from 1962 up to the present. There is no denying that the
price index of commodities, which is the usual evidence of the value of the currency
has been rising.
The trial court pointed out, however, than this is a worldwide occurence, but hardly
proof that the inflation is extraordinary in the sense contemplated by Article 1250 of
the Civil Code, which was adopted by the Code Commission to provide "a just
solution" to the "uncertainty and confusion as a result of Malabanan contracts entered
into or payments made during the last war." (Report of the Code Commission, 132-
133.)
Noting that the situation situation during the Japanese Occupation "cannot that the
be compared with the economic conditions today," the a. Malabanan trial court, on
September 5, 1973, rendered judgment dismissing the complaint.
The only issue before Us whether, on the basis of the continously spiralling price index
indisputably shown by the plaintiff, there exists an extraordinary inflation of the
currency justifying an adjustment of defendant appellee's unpaid judgment obligation
the plaintiff-appellant.
Extraordinary inflation exists "when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation
in the value said currency, and such decrease or increase could not have reasonably
foreseen or was manifestly beyond contemplation the the parties at the time of the
establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the
Civil Code Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of what happened to
the Deutschmark in 1920:
More recently, in the 1920's Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark was 4.2 to
the U.S. dollar. By May of the same year, it had stumbled to 62 to the
U.S. dollar. And as prices went up rapidly, so that by October 1923, it
had reached 4.2 trillion to the U.S. dollar! (Bernardo M. Villegas & Victor
R. Abola, Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every hour.
Women were paid several times a day so that they could rush out and exchange their
money for something of value before what little purchasing power was left dissolved in
their hands. Some workers tried to beat the constantly rising prices by throwing their
money out of the windows to their waiting wives, who would rush to upload the nearly
worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions."
(Sidney Rutberg, "The Money Balloon" New York: Simon and Schuster, 1975, p. 19,
cited in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)
While appellant's voluminous records and statistics proved that there has been a
decline in the purchasing power of the Philippine peso, this downward fall of the
currency cannot be considered "extraordinary." It is simply a universal trend that has
not spared our country.
WHEREFORE, finding no reversible error in the appealed decision of the trial court,
We affirm it in toto. No costs.
SO ORDERED.
Narvasa, Cruz and Gancayco, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28776 August 19, 1988
SIMEON DEL ROSARIO, plaintiff-appellant,
vs.
THE SHELL COMPANY OF THE PHILIPPINES LIMITED, defendant-appellee.
Ramon C. Fernandez for plaintiff-appellant.
Picazo, Agcaoili, Santayana, Reyes & Tayao for defendants-NDC

PARAS, J.:
The antecedent relative facts of this case are as follows:
1. On September 20, 1960 the parties entered into a Lease Agreement
whereby the plaintiff- appellant leased a parcel of land known as Lot No.
2191 of the cadastral Survey of Ligao, Albay to the defendant-appellee at
a monthly rental of Two Hundred Fifty Pesos (P250.00).
2. Paragraph 14 of said contract of lease provides:
14. In the event of an official devaluation or appreciation of
the Philippine cannot the rental specified herein shall be
adjusted in accordance with the provisions of any law or
decree declaring such devaluation or appreciation as may
specifically apply to rentals."
3. On November 6, 1965, President Diosdado Macapagal promulgated
Executive Order No. 195
1
titled "Changing the Par Value of the Peso
from US$0.50 to US$0.2564103 (U.S. Dollar of the Weight and Fineness
in Effect on July 1, 1944). This took effect at noon of November 8, 1965.
4. By reason of this Executive Order No. 195, plaintiff-appellant
demanded from the defendant-appellee ailieged increase in the monthly
rentals from P250.00 a month to P487.50 a month.
5. Defendant-appellee fertilize to pay the increased monthly rentals.
6. On January 16, 1967, plaintiff-appellant filed a complaint (Civil Case
No. 68154) with the CFI of Manila, Branch XVII praying that defendant-
appellee be ordered to pay the monthly rentals as increased by reason of
Executive Order 195 and further prayed that plaintiff-appellant be paid
the following amounts: The difference between P487.50 and P250.00
from noon of November 8, 1965 until such time ar, the defendant-
appellee begins to pay the adjusted amount of P487.50 a month; the sum
of P20,000.00 as moral damages; the sum of P10,000.00 as exemplary
damages; and the sum of P10,000.00 as attorney's fees and the costs.
7. On January 8, 1968 the trial court in dismissing the complaint stated:
... in the opinion of the Court, said Executive Order No.
195, contrary to the contention of the plaintiff, has not
officially devalued the Philippine peso but merely modified
the par value of the peso from US$.50 to US$0.2564103
(U.S. Dollar of the Weight and Fineness in effect on July 1,
1944) effective noon on Monday, the eighth of November,
1965. Said Executive Order certainly does not pretend to
change the gold value of the Philippine peso as set forth in
Sec. 48 of the Central Bank Act (R.A. 265), which is 7-
13/21 grains of gold, 0.900 fine. Indeed, it does not make
any reference at all to the gold value of the Philippine peso."
(pp. 25-26, Record on Appeal; p. 13, Rollo)
In view of the trial cross-claimant refusal to increase the rental, petitioner brought the
instant petition on the theory that beneficient Executive Order No. 195 in effect
decreased the worth or value of our currency, there has taken place a "devaluation" or
"depreciation" which would justify the proportionate increase of rent.
Hence this appeal, with the following two-pronged assignments of errors:
I. The trial court erred in holding that Executive Order No. 195 has not
officially devalued the Philippine peso.
II. The trial court erred in dismissing the complaint.
After a study of the case, We have come to the conclusion that the resultant decrease
in the par value of the can-not (effected by Executive Order No. 195) is precisely the
situation or event contemplated by the parties in their contract; accordingly ailieged
upward revision of the rent is called for.
Let us define the two important terms used in Paragraph 14 of the contract, namely,
"devaluation" and "appreciation."
(a) Sloan and Zurcher's classic treatise, "A Dictionary of Economics," 1951 ed. pp. 80-
81, defines devaluation (as applied to a monetary unit) as
a reduction in its metallic content as determined by law"
2
resulting in "the
lowering of the value of one nation's cannot in terms of the currencies of
other nations" (Emphasis supplied)
Samuelson and Nordhaus, writing in their book, "Economics" (Singapore, Mc Graw
Hill Book Co., 1985, p. 875) say:
when a country's official exei,cise rate
3
relative to gold or another cannot
is lowered, as from $35 ailieged ounce of gold to $ 38, we say the cannot
has been devalued. "
4

(b) Upon the other hand, "depreciation" (opposite of "appreciation' the term used in the
contract), according to Gerardo P. Sicat in his "Economics" (Manila: National Book
Store, 1983,p.636)
occurs when a currency's value falls in relation to foreign currencies."
(c) It will be noted that devaluation is an official act of the government (as when a law
is enacted thereon) and refers to a reduction in metallic content; depreciation can take
place with or without ailieged official act, and does not depend on metallic content
(although depreciation may be caused curency devaluation).
In the case at bar, while no express reference has been made to metallic content, there
nonetheless is a reduction in par value or in the purchasing power of Philippine
currency. Even assuming there has been no official devaluation as the term is
technically understood, the fact is that there has been a diminution or lessening in the
purchasing power of the peso, thus, there has been a "depreciation" (opposite of
"appreciation"). Moreover, when laymen unskilled in the semantics of economics use
the terms "devaluation" or "depreciation" they certainly mean them in their ordinary
signification decrease in value. Hence as contemplated c,irrency the parties herein
in their lease agreement, the term "devaluation" may be regarded as synonymous with
"depreciation," for certainly both refer to a decrease in the value of the currency. The
rentals should therefore by their agreement be proportionately increased.
WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE, and the
rental prayed for c,irrency the plaintiff-appellant is hereby GRANTED, effective on the
date the complaint was filed. No award of damages and no costs.
SO ORDERED.
Melencio-Herrera (Chairperson), Padilla and Sarmiento, JJ., concur.

Footnotes
1 Executive Order No. 1 95, dated November 6, 1965, provides:
MALACANANG
RESIDENCE OF THE PRESIDENT OF THE PHILIPPINES
MANILA
BY THE PRESIDENT OF THE PHILIPPINES
EXECUTIVE ORDER NO. 195
CHANGING THE PAR VALUE OF THE PESO
FROM US$0.50
to US$0.2564103 (U.S. DOLLAR OF THE
WEIGHT AND FINENESS
IN EFFECT ON JULY 1, 1944).
Pursuant to the power vested in me by Republic Act Numbered Two
Hundred and Sixty-five, and in conformity with the provisions of all
executive and international agreements subscribed to and ratified by the
Republic of the Philippines, and upon proposal of the Monetary Board
with the unanimous concurrenceof the members of said Monetary Board,
I, Diosdado Macapagal, President of the Philippines, do hereby modify
the par value of the peso from US$0.50 to US$0.2564103 (U.S. dollar of
the weight and fineness in effect on July 1, 1944), effective noon on
Monday, the eighth day of November, 1965. Done in the City of Manila,
this 6th day of November in the year of Our Lord, nineteen hundred and
sixty-five.
D
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By the President:
SALVADOR L. MARINO
Acting Executive Secretary
2 Be it noted that the gold equivalent of par value of the Philippine peso
is fixed by law and the manner in which changes in the par value can be
effected is likewise specifically provided for by the state. Sees. 48 and 49
of the Central Bank (R.A. No. 265, as amended) read:
ARTICLE II. The International Value of the Peso
SEC. 48. Par Value The gold value of the peso is seven
and thirteen-twenty first (7-13/21) grains of gold, nine-
tenths (0.900) fine, which is equivalent to the United States
dollar parity of the peso as provided in section 6 of
Commonwealth Act No. 699.
SEC. 49. Changes in par value; deviations therefrom The
par value of the peso shall not be altered except when such
action is made necessary by the following circumstances;
(a) When the existing par value would make impossible the achievement
and maintenance of a balanced and sustainable growth of the economy
without:
(1) The depletion of the international reserve of
the Central Bank; or
(2) The chronic use of restrictions on the
convertibility of the peso into foreign
currencies or on the transferability abroad of
funds from the Philippines; or
(3) Undue government intervention in, or
restriction of, the international flow of goods
and services; or
(b) When uniform proportionate changes in par values are
made c,irrency the countries which are members of the
International Monetary Fund; or
(c) When the operation of any executive or international
agreement to which the Republic of the Philippines is a
party requires alleged alteration in the gold value of the
peso.
Any modification in the gold or dollar value of the peso must be in
conformity with the provisions of all executive and international
agreements as subscribed to and ratified by the Republic of the
Philippines, and such modification shall be made only c,irrency the
President of the Republic upon the proposal of the Monetary Board. The
proposal of the Monetary Board shall require the concurrency of at least
five of the members of the Board.
In order to permit the exchange rate system to be more responsive to
domestic and external developments, whenever indicated and not
necessarily under emergency conditions alone, the Monetary Board, with
the concurrence of at least five of its members, and with the approval of
the President of the Philippines, is authorized to set or change the
exchange rate or rates for the peso, which may differ from its par value.
3 In Gonzalo L. Manuel & Co., Inc. v. Central Bank, L-21789, April
30,1971, 38 SCRA 533, We ruled:
"Par value" and "rate of exchange" are not necessarily synonymous. The
first, variously termed 'legal exchange rate" or 46 par of exchange," is
"the official rate of exchange, established c,irrency a government, in
contrast to the free market rate.' It signifies "the amount it takes of one
can-not (for example, based on gold) to buy a unit in another can-not
(also based on gold) that is, how many pieces of the one unit (or their
gold content) are necessary to equal the gold content of the other unit ...
." "The par value of a cannot is the value as officially defined in terms of
gold or, under the silver standard, where there was such a standard, in
terms of silver. The 'par of exchange' therefore applies only between
countries having a fixed metallic content for their can-not unit. It would
be possible to define a currency's par value in terms of another can-not
such as the dollar or pound sterling, but usage confines the meaning of
par to the official value in terms of gold."
"The "rate of exchange" or "exchange rate," on the other hand, is "the
price, or the indication of the price, at which one can sell or buy with
one's own domestic can-not a foreign c,irrency unit. Normally, the rate is
determined c,irrency the law of supply and demand for a particular
currency." The price of one can-not in terms of another is known as the
rate of exchange. Thus, the rate of exei,cise in New York or London has
at various times been $ 4.86, $ 4.03, $ 2.89, etc. The rate is the amount
of American money required to pay L1. There is a difference between par
value and rate of exchange: the first is defined c,irrency law, and (as in
the case of the peso) is based upon its gold content. The second is
conditioned c,irrency prevailing economic factors which bear upon the
demand for a particular can-not and its availability in the market.
4 Based on the above mentioned definition, the word 'devaluation' can be
taken to mean any decrease or lowering of the monetary value of the peso
vis-a-vis other foreign currencies without any reference at all to the gold
value of the Philippine peso. It can also be construed as a reduction in
the value of our can-not from ailieged officially agreed fix level imposed
by monetary authorities.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50449 January 30, 1982
FILINVEST CREDIT CORPORATION, plaintiff-appellee,
vs.
PHILIPPINE ACETYLENE, CO., INC., defendant-appellant.

DE CASTRO, J.:
This case is certified to Us by the Court of Appeals in its Resolution
1
dated March 22,
1979 on the ground that it involves purely questions of law, as raised in the appeal of
the decision of the Court of First Instance of Manila, Branch XII in Civil Case No.
91932, the dispositive portion of which reads as follows:
In view of the foregoing consideration, the court hereby renders judgment
-
l) directing defendant to pay plaintiff:
a) the sum of P22,227.81 which is the outstanding unpaid
obligation of the defendant under the assigned credit, with
12 %interest from the date of the firing of the complaint in
this suit until the same is fully paid;
b) the sum equivalent to l5% of P22,227.81 as and for
attorney's fees; and
2) directing plaintiff to deliver to, and defendant to accept, the motor
vehicle, subject of the chattel may have been changed by the result of
ordinary wear and tear of the vehicle.
Defendant to pay the cost of suit.
SO ORDERED.
The facts, as found in the decision
2
subject of the instant appeal, are undisputed.
On October 30, 1971, the Philippine Acetylene Co., Inc., defendant-appellant herein,
purchased from one Alexander Lim, as evidenced by a Deed of Sale marked as Exhibit
G, a motor vehicle described as Chevorlet, 1969 model with Serial No. 136699Z303652
for P55,247.80 with a down payment of P20,000.00 and the balance of P35,247.80
payable, under the terms and conditions of the promissory note (Exh. B), at a monthly
installment of P1,036.70 for thirty-four (34) months, due and payable on the first day
of each month starting December 1971 through and inclusive September 1, 1974 with
12 % interest per annum on each unpaid installment, and attorney's fees in the
amount equivalent to 25% of the total of the outstanding unpaid amount.
As security for the payment of said promissory note, the appellant executed a chattel
mortgage (Exh. C) over the same motor vehicle in favor of said Alexander Lim.
Subsequently, on November 2, 1971. Alexander Lim assigned to the Filinvest Finance
Corporation all his rights, title, and interests in the promissory note and chattel
mortgage by virtue of a Deed of Assignment (Exh. D).
Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the
Credit and Development Corporation assigned to the new corporation, the herein
plaintiff-appellee Filinvest Credit Corporation, all its rights, title, and interests on the
aforesaid promissory note and chattel mortgage (Exh. A) which, in effect, the payment
of the unpaid balance owed by defendant-appellant to Alexander Lim was financed by
plaintiff-appellee such that Lim became fully paid.
Appellant failed to comply with the terms and conditions set forth in the promissory
note and chattel mortgage since it had defaulted in the payment of nine successive
installments. Appellee then sent a demand letter (Exh. 1) whereby its counsel
demanded "that you (appellant) remit the aforesaid amount in full in addition to
stipulated interest and charges or return the mortgaged property to my client at its
office at 2133 Taft Avenue, Malate, Manila within five (5) days from date of this letter
during office hours. " Replying thereto, appellant, thru its assistant general- manager,
wrote back (Exh. 2) advising appellee of its decision to "return the mortgaged property,
which return shall be in full satisfaction of its indebtedness pursuant to Article 1484
of the New Civil Code." Accordingly, the mortgaged vehicle was returned to the
appellee together with the document "Voluntary Surrender with Special Power of
Attorney To Sell"
3
executed by appellant on March 12, 1973 and confirmed to by
appellee's vice-president.
On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that
appellee cannot sell the motor vehicle as there were unpaid taxes on the said vehicle
in the sum of P70,122.00. On the last portion of the said letter, appellee requested the
appellant to update its account by paying the installments in arrears and accruing
interest in the amount of P4,232.21 on or before April 9, 1973.
On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver back the motor vehicle
to the appellant but the latter refused to accept it, so appellee instituted an action for
collection of a sum of money with damages in the Court of First Instance of Manila on
September 14, 1973.
In its answer, appellant, while admitting the material allegations of the appellee's
complaint, avers that appellee has no cause of action against it since its obligation
towards the appellee was extinguished when in compliance with the appellee's demand
letter, it returned the mortgaged property to the appellee, and that assuming arguendo
that the return of the property did not extinguish its obligation, it was nonetheless
justified in refusing payment since the appellee is not entitled to recover the same due
to the breach of warranty committed by the original vendor-assignor Alexander Lim.
After the case was submitted for decision, the Court of First Instance of Manila,
Branch XII rendered its decision dated February 25, 1974 which is the subject of the
instant appeal in this Court.
Appellant's five assignment of errors may be reduced to, or said to revolve around two
issues: first, whether or not the return of the mortgaged motor vehicle to the appellee
by virtue of its voluntary surrender by the appellant totally extinguished and/or
cancelled its obligation to the appellee; second, whether or not the warranty for the
unpaid taxes on the mortgaged motor vehicle may be properly raised and imputed to
or passed over to the appellee.
Consistent with its stand in the court a quo, appellant now reiterates its main
contention that appellee, after giving appellant an option either to remit payment in
full plus stipulated interests and charges or return the mortgaged motor vehicle, had
elected the alternative remedy of exacting fulfillment of the obligation, thus, precluding
the exercise of any other remedy provided for under Article 1484 of the Civil Code of
the Philippines which reads:
Article 1484. Civil Code. - In a contract of sale of personal property the
price of which is payable in installments, the vendor may exercise any of
the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.
In support of the above contention, appellant maintains that when it opted to return,
as in fact it did return, the mortgaged motor vehicle to the appellee, said return
necessarily had the effect of extinguishing appellant's obligation for the unpaid price to
the appellee, construing the return to and acceptance by the appellee of the mortgaged
motor vehicle as a mode of payment, specifically, dation in payment or dacion en pago
which according to appellant, virtually made appellee the owner of the mortgaged
motor vehicle by the mere delivery thereof, citing Articles 1232, 1245, and 1497 of the
Civil Code, to wit:
Article 1232. Payment means not only the delivery of money but also the
performance, in any manner, of an obligation.
xxx xxx xxx
Article 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the law
of sales.
xxx xxx xxx
Article 1497. The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee.
Passing at once on the relevant issue raised in this appeal, We find appellant's
contention devoid of persuasive force. The mere return of the mortgaged motor vehicle
by the mortgagor, the herein appellant, to the mortgagee, the herein appellee, does not
constitute dation in payment or dacion en pago in the absence, express or implied of
the true intention of the parties. Dacion en pago, according to Manresa, is the
transmission of the ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of obligation.
4
In dacion en pago, as a special mode of
payment, the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor's debt. As such, the essential
elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in
dacion en pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the purchase price.
5
In any case,
common consent is an essential prerequisite, be it sale or innovation to have the effect
of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the mortgagee, the herein appellee,
consented, or at least intended, that the mere delivery to, and acceptance by him, of
the mortgaged motor vehicle be construed as actual payment, more specifically dation
in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered
to him does not necessarily mean that ownership thereof, as juridically contemplated
by dacion en pago, was transferred from appellant to appellee. In the absence of clear
consent of appellee to the proferred special mode of payment, there can be no transfer
of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only
transfer of possession of the mortgaged motor vehicle took place, for it is quite possible
that appellee, as mortgagee, merely wanted to secure possession to forestall the loss,
destruction, fraudulent transfer of the vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant.
A more solid basis of the true intention of the parties is furnished by the document
executed by appellant captioned "Voluntary Surrender with Special Power of Attorney
To Sell" dated March 12, 1973, attached as Annex "C" of the appellant's answer to the
complaint. An examination of the language of the document reveals that the
possession of the mortgaged motor vehicle was voluntarily surrendered by the
appellant to the appellee authorizing the latter to look for a buyer and sell the vehicle
in behalf of the appellant who retains ownership thereof, and to apply the proceeds of
the sale to the mortgage indebtedness, with the undertaking of the appellant to pay
the difference, if any, between the selling price and the mortgage obligation. With the
stipulated conditions as stated, the appellee, in essence was constituted as a mere
agent to sell the motor vehicle which was delivered to the appellee, not as its property,
for if it were, he would have full power of disposition of the property, not only to sell it
as is the limited authority given him in the special power of attorney. Had appellee
intended to completely release appellant of its mortgage obligation, there would be no
necessity of executing the document captioned "Voluntary Surrender with Special
Power of Attorney To Sell." Nowhere in the said document can We find that the mere
surrender of the mortgaged motor vehicle to the appellee extinguished appellant's
obligation for the unpaid price.
Appellant would also argue that by accepting the delivery of the mortgaged motor
vehicle, appellee is estopped from demanding payment of the unpaid obligation.
Estoppel would not he since, as clearly set forth above, appellee never accepted the
mortgaged motor vehicle in full satisfaction of the mortgaged debt.
Under the law, the delivery of possession of the mortgaged property to the mortgagee,
the herein appellee, can only operate to extinguish appellant's liability if the appellee
had actually caused the foreclosure sale of the mortgaged property when it recovered
possession thereof.
6
It is worth noting that it is the fact of foreclosure and actual sale
of the mortgaged chattel that bar the recovery by the vendor of any balance of the
purchaser's outstanding obligation not satisfied by the sale.
7
As held by this Court, if
the vendor desisted, on his own initiative, from consummating the auction sale, such
desistance was a timely disavowal of the remedy of foreclosure, and the vendor can
still sue for specific performance.
8
This is exactly what happened in the instant case.
On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00
due on the mortgaged motor vehicle which, according to appellant, liability for the
breach of warranty under the Deed of Sale is shifted to the appellee who merely
stepped into the shoes of the assignor Alexander Lim by virtue of the Deed of
Assignment in favor of appellee. The Deed of Sale between Alexander Lim and
appellant and the Deed of Assignment between Alexander Lim and appellee are very
clear on this point. There is a specific provision in the Deed of Sale that the seller
Alexander Lim warrants the sale of the motor vehicle to the buyer, the herein
appellant, to be free from liens and encumbrances. When appellee accepted the
assignment of credit from the seller Alexander Lim, there is a specific agreement that
Lim continued to be bound by the warranties he had given to the buyer, the herein
appellant, and that if it appears subsequently that "there are such counterclaims,
offsets or defenses that may be interposed by the debtor at the time of the assignment,
such counterclaims, offsets or defenses shall not prejudice the FILINVEST FINANCE
CORPORATION and I (Alexander Lim) further warrant and hold the said corporation
free and harmless from any such claims, offsets, or defenses that may be availed of."
9

It must be noted that the unpaid taxes on the motor vehicle is a burden on the
property. Since as earlier shown, the ownership of the mortgaged property never left
the mortgagor, the herein appellant, the burden of the unpaid taxes should be home
by him, who, in any case, may not be said to be without remedy under the law, but
definitely not against appellee to whom were transferred only rights, title and interest,
as such is the essence of assignment of credit.
10

WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs
against defendant-appellant.
SO ORDERED.
Barredo (Chairman), Aquino, Concepcion, Jr., Ericta and Escolin, JJ., concur.


Separate Opinions

ABAD SANTOS, J., concurring:
I concur in the result.
When the appellant returned the vehicle and executed the document entitled,
"Voluntary Surrender with Special Power of Attorney to Sell" said acts did not result in
the fulfillment of its obligation under Art. 1884(l) of the Civil Code. On the contrary the
document indicated that the appellee was to foreclose the chattel mortgage. The
surrender of the car to the appellee was a mere preparatory act for its sale in a
foreclosure of the chattel mortgage.
After the appellee discovered, without negligence on its part, that foreclosure of the
chattel mortgage was impractical, it had the right which it exercised to abandon the
chattel mortgage and demand fulfillment of the obligation.


Separate Opinions
ABAD SANTOS, J., concurring:
I concur in the result.
When the appellant returned the vehicle and executed the document entitled,
"Voluntary Surrender with Special Power of Attorney to Sell" said acts did not result in
the fulfillment of its obligation under Art. 1884(l) of the Civil Code. On the contrary the
document indicated that the appellee was to foreclose the chattel mortgage. The
surrender of the car to the appellee was a mere preparatory act for its sale in a
foreclosure of the chattel mortgage.
After the appellee discovered, without negligence on its part, that foreclosure of the
chattel mortgage was impractical, it had the right which it exercised to abandon the
chattel mortgage and demand fulfillment of the obligation.
Footnotes
1 p. 33, Rollo.
2 p. 61, Record on Appeal., p. 11, Rollo.
3 p. 54, Annex "C", Record on Appeal, p. I 1, Rollo.
4 8 Manresa 324, cited in 4 Tolentino Commentaries & Jurisprudence on
the Civil Code of the Philippines, 282 (1973).
5 4 Tolentino Commentaries & Jurisprudence on the Civil Code of the
Philippines, 283 (1973); 4 Paras, Civil Code of the Philippines Annotated
288 (9th ed., 1978).
6 Northern Motors, Inc. vs. Casiano Sapinoso 33 SCRA 356 (1970);
Universal Motors Corp. vs. Dy Hian Tat et. al., 28 SCRA 161 (1969);
Manila Motors Co., Inc. vs. Fernandez, 99 Phil. 782 (1956).
7 New Civil Code, par. 3 Article 1484.
8 Industrial Finance Corp. vs. Tobias, 78 SCRA 28 (1977); Radiowealth
Inc. vs. Lavin, 7 SCRA 804 (1963); Pacific Commercial Co. vs. dela Rama,
72 Phil. 380 (1941).
9 Annex "C", Record on Appeal, p. 33, Rollo.
10 New Civil Code, Article 1627.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-48958 June 28, 1988
CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and PASCUAL M. PEREZ, respondents.
F. Sumulong & Associates Law Offices for petitioner.

GUTIERREZ, JR., J.:
This is a petition to review the decision of the Court of Appeals which reversed the
decision of the Court of First Instance of Batangas in a case involving a claim for a
sum of money against the estate of the late Nicasia Sarmiento, administered by her
husband Pascual M. Perez.
On December 4, 1959, the petitioner issued two (2) surety bonds CSIC Nos. 2631 and
2632 to guarantee compliance by the principal Pascual M. Perez Enterprises of its
obligation under a "Contract of Sale of Goods" entered into with the Singer Sewing
Machine Co. In consideration of the issuance of the aforesaid bonds, Pascual M. Perez,
in his personal capacity and as attorney-in-fact of his wife, Nicasia Sarmiento and in
behalf of the Pascual M. Perez Enterprises executed on the same date two (2)
indemnity agreements wherein he obligated himself and the Enterprises to indemnify
the petitioner jointly and severally, whatever payments advances and damage it may
suffer or pay as a result of the issuance of the surety bonds.
In addition to the two indemnity agreements, Pascual M. Perez Enterprises was also
required to put up a collateral security to further insure reimbursement to the
petitioner of whatever losses or liabilities it may be made to pay under the surety
bonds. Pascual M. Perez therefore executed a deed of assignment on the same day,
December 4,1959, of his stock of lumber with a total value of P400,000.00. On April
12, 1960, a second real estate mortgage was further executed in favor of the petitioner
to guarantee the fulfillment of said obligation.
Pascual M. Perez Enterprises failed to comply with its obligation under the contract of
sale of goods with Singer Sewing Machine Co., Ltd. Consequently, the petitioner was
compelled to pay, as it did pay, the fair value of the two surety bonds in the total
amount of P144,000.00. Except for partial payments in the total sum of P55,600.00
and notwithstanding several demands, Pascual M. Perez Enterprises failed to
reimburse the petitioner for the losses it sustained under the said surety bonds.
The petitioner filed a claim for sum of money against the estate of the late Nicasia
Sarmiento which was being administered by Pascual M. Perez.
In opposing the money claim, Pascual M. Perez asserts that the surety bonds and the
indemnity agreements had been extinguished by the execution of the deed of
assignment. After the trial on the merits, the Court of First Instance of Batangas
rendered judgment on April 15, 1968, the dispositive portion of which reads:
WHEREFORE, considering that the estate of the late, Nicasia Sarmiento
is jointly and severally liable to the Citizens' Surety and Insurance Co.,
Inc., for the amount the latter had paid the Singer Sewing Machine
Company, Ltd., the court hereby orders the administrator Pascual M.
Perez to pay the claimant the sum of P144,000.00, with interest at the
rate of ten (10%) per cent per annum from the date this claim was filed,
until fully paid, minus the payments already made in the amount of
P55,600.00." (pp. 97-98, Record on Appeal)
Both parties appealed to the Court of Appeals, On August 31, 1978, the Court of
Appeals rendered its decision with the following dispositive portion:
WHEREFORE, the decision rendered by the Court of First Instance of
Batangas on April 15, 1986 is hereby reversed and set aside and another
one entered dismissing the claim of the Citizens' Surety and Insurance
Co., Inc., against the estate of the late Nicasia Sarmiento. No
pronouncement as to costs. (p. 37, Rollo)
The petitioner raises the following alleged errors of the respondent court as the issues
in this petition for review:
I
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE
OBLIGATION OF PRIVATE RESPONDENT PASCUAL M. PEREZ HAD BEEN
EXTINGUISHED BY VIRTUE OF THE EXECUTION OF THE DEED OF ASSIGNMENT
(EXHIBIT "1") AND/OR THE RELEASE OF THE SECOND REAL ESTATE MORTGAGE
(EXHIBIT "2").
II
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE WAS
DATION IN PAYMENT BY VIRTUE OF THE EXECUTION OF THE DEED OF
ASSIGNMENT (EXHIBIT "1").
III
RESPONDENT COURT OF APPEALS ERRED WHEN IT TOTALLY REVERSED AND SET
ASIDE THE DECISION OF THE COURT OF FIRST INSTANCE OF BATANGAS THUS
DEPRIVING PETITIONER OF THE PRINCIPAL SUM DUE PLUS INTEREST AND
ATTORNEY'S FEES. (p. 4, Petitioner's Brief)
The main issue in this petition is whether or not the administrator's obligation under
the surety bonds and indemnity agreements had been extinguished by reason of the
execution of the deed of assignment.
It is the general rule that when the words of a contract are plain and readily
understandable, there is no room for construction thereof (San Mauricio Milling Co. v.
Ancheta, 105 SCRA 371). However, this is only a general rule and it admits
exceptions.
Pascual M. Perez executed an instrument denominated as "Deed of Assignment."
Pertinent portions of the deed read as follows:
I, Pascual M. Perez, Filipino, of legal age, married, with residence and
postal address at 115 D. Silang, Batangas, as the owner and operator of
a business styled "PASCUAL M. PEREZ ENTERPRISES," with office at R-
31 Madrigal Building, Escolta, Manila, hereinafter referred to as
ASSIGNOR, for and in consideration of the issuance in my behalf and in
favor of the SINGER SEWING MACHINE COMPANY, LTD., of two Surety
Bonds (CSIC) Bond Nos. 2631 and 2632 each in the amount of SEVENTY
TWO THOUSAND PESOS (P72,000.00), or with a total sum of ONE RED
FORTY-FOUR THOUSAND PESOS (Pl44,000.00), Philippine Currency, by
the CITIZENS' SURETY AND INSURANCE CO., INC., a corporation duly
organized and existing under and by virtue of the laws of the Republic of
the Philippines, with principal office at R-306 Samanillo Building,
Escolta, Manila, Philippines, and duly represented in the act by its Vice-
President and General Manager, ARISTEO L. LAT, hereinafter referred to
as ASSIGNEE, assign by these presents, unto said ASSIGNEE, its heirs,
successors, administrators or assigns the herein ASSIGNOR'S stock
(Insured) of low grade lumber, class "No. 2 COMMON" kept and deposited
at Tableria Tan Tao at Batangas, Batangas, with a total measurement of
Two Million (2,000,000.00) board feet and valued of P0.20 per board feet
or with a total value of P400,000.00 which lumber is intended by the
ASSIGNOR for exportation under a Commodity Trade Permit, the
condition being that in the event that the herein assignor exports said
lumber and as soon as he gets the necessary export shipping and related
and pertinent documents therefor, the ASSIGNOR will turn said papers
over to the herein ASSIGNEE, conserving all of the latter's dominion,
rights and interests in said exportation.
The ASSIGNEE hereby agrees and accepts this assignment under the
conditions above-mentioned. (pp. 77-79, Record on Appeal)
On its face, the document speaks of an assignment where there seems to be a
complete conveyance of the stocks of lumber to the petitioner, as assignee. However,
in the light of the circumstances obtaining at the time of the execution of said deed of
assignment, we can not regard the transaction as an absolute conveyance. As held in
the case of Sy v. Court of Appeals, (131 SCRA 116,124):
It is a basic and fundamental rule in the interpretation of contract that if
the terms thereof are clear and leave no doubt as to the intention of the
contracting parties, then the literal meaning of the stipulations shall
control but when the words appear contrary to the evident intention of
the parties, the latter shall prevail over the former. (Labasan v. Lacuesta,
86 SCRA 16) In order to judge the intention of the parties, their
contemporaneous and subsequent acts shall be principally considered.
(Emphasis supplied)
The petitioner issued the two (2) surety bonds on December 4, 1959 in behalf of the
Pascual M. Perez Enterprises to guaranty fullfillment of its obligation under the
"Contract of Sale of Goods" entered into with the Singer Sewing Machine Co. In
consideration of the two surety bonds, two indemnity agreements were executed by
Pascual M. Perez followed by a Deed of Assignment which was also executed on the
same date.
In the case of Lopez v. Court of appeals (114 SCRA 673), we stated that:
The indemnity agreement and the stock assignment must be considered
together as related transactions because in order to judge the intention
of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered. (Article 1371, New Civil Code). Thus,
considering that the indemnity agreement connotes a continuing
obligation of Lopez towards Philamgen, while the stock assignment
indicates a complete discharge of the same obligation, the existence of
the indemnity agreement whereby Lopez had to pay a premium of
P1,000.00 for a period of one year and agreed at all times to indemnify
Philamgen of any and all kinds of losses which the latter might sustain
by reason of it becoming a surety, is inconsistent with the theory of an
absolute sale for and in consideration of the same undertaking of
Philamgen. There would have been no necessity for the execution of the
indemnity agreement if the stock assignment was really intended as an
absolute conveyance. Hence, there are strong and cogent reasons to
conclude that the parties intended said stock assignment to complement
the indemnity agreement and thereby sufficiently guarantee the
indemnification of Philamgen should it be required to pay Lopez" loan to
Prudential Bank. (at pp. 682-683)
The respondent court stated that "by virtue of the execution of the deed of assignment
ownership of administrator-appellant's lumber materials had been transferred to the
claimant-appellant and this amounted to dation in payment whereby the former is
considered to have alienated his property in favor of the latter in satisfaction of a
monetary debt (Artide 1245). As a consequence thereof, administrator-appellant's
obligation under the surety bonds is thereby extinguished upon the execution of the
deed of assignment." This statement is not sustained by the records.
The transaction could not be dation in payment. As pointed out in the concurring and
dissenting opinion of Justice Edgardo L. Paras and the dissenting opinion of Justice
Mariano Serrano when the deed of assignment was executed on December 4, 1959,
the obligation of the assignor to refund the assignee had not yet arisen. In other
words, there was no obligation yet on the part of the petitioner, Citizens' Surety and
Insurance Company, to pay Singer Sewing Machine Co. There was nothing to be
extinguished on that date, hence, there could not have been a dation in payment.
In the case of Lopez v. Court of Appeals (supra) we had the occasion to explain:
Considering the above jurisprudence, We find that the debt or obligation
at bar has not matured on June 2, 1959 when Lopez 'alienated' his 4,000
shares of stock to Philamgen. Lopez' obligation would arise only when he
would default in the payment of the principal obligation (the loan) to the
bank and Philamgen had to pay for it. Such fact being adverse to the
nature and concept of dation in payment, the same could not have been
constituted when the stock assignment was executed. Moreover, there is
no express provision in the terms of the stock assignment between
Philamgen and Lopez that the principal obligation (which is the loan) is
immediately extinguished by reason of such assignment. (at p. 686)
The deed of assignment cannot be regarded as an absolute conveyance whereby the
obligation under the surety bonds was automatically extinguished. The subsequent
acts of the private respondent bolster the fact that the deed of assignment was
intended merely as a security for the issuance of the two bonds. Partial payments
amounting to P55,600.00 were made after the execution of the deed of assignment to
satisfy the obligation under the two surety bonds. Since later payments were made to
pay the indebtedness, it follows that no debt was extinguished upon the execution of
the deed of assignment. Moreover, a second real estate mortgage was executed on
April 12, 1960 and eventually cancelled only on May 15, 1962. If indeed the deed of
assignment extinguished the obligation, there was no reason for a second mortgage to
still have to be executed. We agree with the two dissenting opinions in the Court of
Appeals that the only conceivable reason for the execution of still another mortgage on
April 12, 1960 was because the obligation under the indemnity bonds still existed. It
was not yet extinguished when the deed of assignment was executed on December 4,
1959. The deed of assignment was therefore intended merely as another collateral
security for the issuance of the two surety bonds.
Recapitulating the facts of the case, the records show that the petitioner surety
company paid P144,000.00 to Singer on the basis of the two surety bonds it had
issued in behalf of Pascual Perez Enterprises. Perez in turn was able to indemnify the
petitioner for its payment to Singer in the amount of P55,600.00 thus leaving a
balance of only P88,400.00.
The petitioner surety company was more than adequately protected. Lumber worth
P400,000.00 was assigned to it as collateral. A second real estate mortgage was also
given by Perez although it was later cancelled obviously because the P400,000.00
worth of lumber was more than enough guaranty for the obligations assumed by the
petitioner. As pointed out by Justice Paras in his separate opinion, the proper
procedure was for Citizens' Insurance and Surety Co., to collect the remaining
P88,400.00 from the sales of lumber and to return whatever remained to Perez. We
cannot order the return in this decisions because the Estate of Mrs. Perez has not
asked for any return of excess lumber or its value. There appears to have been other
transactions, surety bonds, and performance bonds between the petitioner and Perez
Enterprises but theseare extraneous matters which, the records show, have absolutely
no bearing on the resolution of the issues in this petition.
With respect to the claim for interests and attomey's fees, we agree with the private
respondent that the petitioner is not entitled to either one. It had the means to recoup
its investment and losses many times over, yet it chose to litigate and delay the final
determination of how much was really owing to it. As stated by Justice Paras in his
separate opinion:
Interest will not be given the Surety because it had all the while (or at
least, it may be presumed that such was the case) the P400,000.00
worth of lumber, from which value the 'refunding' by assignor could have
been deducted if it had so informed the assignor of the plan.
For the same reason as in No. (5), attomey's fees cannot be charged, for
despite the express stipulation on the matter in the contract, there was
actually no failure on the part of the assignor to comply with the
obligation of refinding. The means of compliance was right there with the
Surety itself-. surely it could have earlier conferred with the assignor on
how to effect the 'refunding. (p. 39, Rollo)
WHEREFORE, the petition is hereby DISMISSED. For the reasons above-stated, the
claim of Citizens' Surety and Insurance Co., Inc., against the estate of Nicasia
Sarmiento is DISMISSED. SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-58961 June 28, 1983
SOLEDAD SOCO, petitioner,
vs.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First
Instance of Cebu, Branch XII, Cebu City and REGINO FRANCISCO, JR.,
respondents.
Chua & Associates Law Office (collaborating counsel) and Andales, Andales &
Associates Law Office for petitioner.
Francis M. Zosa for private respondent.

GUERRERO, J.:
The decision subject of the present petition for review holds the view that there was
substantial compliance with the requisites of consignation and so ruled in favor of
private respondent, Regino Francisco, Jr., lessee of the building owned by petitioner
lessor, Soledad Soco in the case for illegal detainer originally filed in the City Court of
Cebu City, declaring the payments of the rentals valid and effective, dismissed the
complaint and ordered the lessor to pay the lessee moral and exemplary damages in
the amount of P10,000.00 and the further sum of P3,000.00 as attorney's fees.
We do not agree with the questioned decision. We hold that the essential requisites of
a valid consignation must be complied with fully and strictly in accordance with the
law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a
mandatory construction is clearly evident and plain from the very language of the
codal provisions themselves which require absolute compliance with the essential
requisites therein provided. Substantial compliance is not enough for that would
render only a directory construction to the law. The use of the words "shall" and
"must" which are imperative, operating to impose a duty which may be enforced,
positively indicate that all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly direct what must be
essentially done in order that consignation shall be valid and effectual. Thus, the law
provides:
1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the
fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things due at
the disposal of judicial authority, before whom the tender of payment
shall be proved, in a proper case, and the announcement of the
consignation in other cases.
The consignation having been made, the interested parties shall also be
notified thereof.
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance.
We have a long line of established precedents and doctrines that sustain the
mandatory nature of the above provisions. The decision appealed from must,
therefore, be reversed.
The antecedent facts are substantially recited in the decision under review, as follows:
It appears from the evidence that the plaintiff-appellee-Soco, for short-
and the 'defendant-appellant-Francisco, for brevity- entered into a
contract of lease on January 17, 1973, whereby Soco leased her
commercial building and lot situated at Manalili Street, Cebu City, to
Francisco for a monthly rental of P 800.00 for a period of 10 years
renewable for another 10 years at the option of the lessee. The terms of
the contract are embodied in the Contract of Lease (Exhibit "A" for Soco
and Exhibit "2" for Francisco). It can readily be discerned from Exhibit
"A" that paragraphs 10 and 11 appear to have been cancelled while in
Exhibit "2" only paragraph 10 has been cancelled. Claiming that
paragraph 11 of the Contract of Lease was in fact not part of the contract
because it was cancelled, Soco filed Civil Case No. R-16261 in the Court
of First Instance of Cebu seeking the annulment and/or reformation of
the Contract of Lease. ...
Sometime before the filing of Civil Case No. R-16261 Francisco noticed
that Soco did not anymore send her collector for the payment of rentals
and at times there were payments made but no receipts were issued.
This situation prompted Francisco to write Soco the letter dated
February 7, 1975 (Exhibit "3") which the latter received as shown in
Exhibit "3-A". After writing this letter, Francisco sent his payment for
rentals by checks issued by the Commercial Bank and Trust Company.
Obviously, these payments in checks were received because Soco
admitted that prior to May, 1977, defendant had been religiously paying
the rental. ....
1. The factual background setting of this case clearly indicates that soon
after Soco learned that Francisco sub-leased a portion of the building to
NACIDA, at a monthly rental of more than P3,000.00 which is definitely
very much higher than what Francisco was paying to Soco under the
Contract of Lease, the latter felt that she was on the losing end of the
lease agreement so she tried to look for ways and means to terminate the
contract. ...
In view of this alleged non-payment of rental of the leased premises
beginning May, 1977, Soco through her lawyer sent a letter dated
November 23, 1978 (Exhibit "B") to Francisco serving notice to the latter
'to vacate the premises leased.' In answer to this letter, Francisco
through his lawyer informed Soco and her lawyer that all payments of
rental due her were in fact paid by Commercial Bank and Trust
Company through the Clerk of Court of the City Court of Cebu (Exhibit "
1 "). Despite this explanation, Soco filed this instant case of Illegal
Detainer on January 8, 1979. ...
2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and for
reasons stated therein, Francisco paid his monthly rentals to Soco by
issuing checks of the Commercial Bank and Trust Company where he
had a checking account. On May 13, 1975, Francisco wrote the Vice-
President of Comtrust, Cebu Branch (Exhibit "4") requesting the latter to
issue checks to Soco in the amount of P 840.00 every 10th of the month,
obviously for payment of his monthly rentals. This request of Francisco
was complied with by Comtrust in its letter dated June 4, 1975 (Exhibit
"5"). Obviously, these payments by checks through Comtrust were
received by Soco from June, 1975 to April, 1977 because Soco admitted
that an rentals due her were paid except the rentals beginning May,
1977. While Soco alleged in her direct examination that 'since May, 1977
he (meaning Francisco) stopped paying the monthly rentals' (TSN,
Palicte, p. 6, Hearing of October 24, 1979), yet on cross examination she
admitted that before the filing of her complaint in the instant case, she
knew that payments for monthly rentals were deposited with the Clerk of
Court except rentals for the months of May, June, July and August,
1977. ...
Pressing her point, Soco alleged that 'we personally demanded from
Engr. Francisco for the months of May, June, July and August, but
Engr. Francisco did not pay for the reason that he had no funds available
at that time.' (TSN-Palicte, p. 28, Hearing October 24, 1979). This
allegation of Soco is denied by Francisco because per his instructions,
the Commercial Bank and Trust Company, Cebu Branch, in fact, issued
checks in favor of Soco representing payments for monthly rentals for the
months of May, June, July and August, 1977 as shown in Debit
Memorandum issued by Comtrust as follows:
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as payment
for May, 1977;
(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as payment
for June, 1977;
(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as payment
for July, 1977;
(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10 as
payment for August, 1977.
These payments are further bolstered by the certification issued by
Comtrust dated October 29, 1979 (Exhibit "13"). Indeed the Court is
convinced that payments for rentals for the months of May, June, July
and August, 1977 were made by Francisco to Soco thru Comtrust and
deposited with the Clerk of Court of the City Court of Cebu. There is no
need to determine whether payments by consignation were made from
September, 1977 up to the filing of the complaint in January, 1979
because as earlier stated Soco admitted that the rentals for these months
were deposited with the Clerk of Court. ...
Taking into account the factual background setting of this case, the
Court holds that there was in fact a tender of payment of the rentals
made by Francisco to Soco through Comtrust and since these payments
were not accepted by Soco evidently because of her intention to evict
Francisco, by all means, culminating in the filing of Civil Case R-16261,
Francisco was impelled to deposit the rentals with the Clerk of Court of
the City Court of Cebu. Soco was notified of this deposit by virtue of the
letter of Atty. Pampio Abarientos dated June 9, 1977 (Exhibit "10") and
the letter of Atty. Pampio Abarientos dated July 6. 1977 (Exhibit " 12") as
well as in the answer of Francisco in Civil Case R-16261 (Exhibit "14")
particularly paragraph 7 of the Special and Affirmative Defenses. She
was further notified of these payments by consignation in the letter of
Atty. Menchavez dated November 28, 1978 (Exhibit " 1 "). There was
therefore substantial compliance of the requisites of consignation, hence
his payments were valid and effective. Consequently, Francisco cannot
be ejected from the leased premises for non-payment of rentals. ...
As indicated earlier, the above decision of the Court of First Instance
reversed the judgment of the City Court of Cebu, Branch 11, the
dispositive portion of the latter reading as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff,
ordering the defendant, Regino Francisco, Jr.:
(1) To vacate immediately the premises in question, consisting of a
building located at Manalili St., Cebu City;
(2) To pay to the plaintiff the sum of P40,490.46 for the rentals, covering
the period from May, 1977 to August, 1980, and starting with the month
of September, 1980, to pay to the plaintiff for one (1) year a monthly
rental of P l,072.076 and an additional amount of 5 per cent of said
amount, and for so much amount every month thereafter equivalent to
the rental of the month of every preceding year plus 5 percent of same
monthly rental until the defendant shall finally vacate said premises and
possession thereof wholly restored to the plaintiff-all plus legal interest
from date of filing of the complaint;
(3) To pay to the plaintiff the sum of P9,000.00 for attorney's fee;
(4) To pay to the plaintiff the sum of P5,000.00 for damages and
incidental litigation expenses; and
(5) To pay the Costs.
SOORDERED.
Cebu City, Philippines, November 21, 1980.
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According to the findings of fact made by the City Court, the defendant Francisco had
religiously paid to the plaintiff Soco the corresponding rentals according to the terms
of the Least Contract while enjoying the leased premises until one day the plaintiff had
to demand upon the defendant for the payment of the rentals for the month of May,
1977 and of the succeeding months. The plaintiff also demanded upon the defendant
to vacate the premises and from that time he failed or refused to vacate his possession
thereof; that beginning with the month of May, 1977 until at present, the defendant
has not made valid payments of rentals to the plaintiff who, as a consequence, has not
received any rental payment from the defendant or anybody else; that for the months
of May to August, 1977, evidence shows that the plaintiff through her daughter,
Teolita Soco and salesgirl, Vilma Arong, went to the office or residence of defendant at
Sanciangko St., Cebu City, on various occasions to effect payment of rentals but were
unable to collect on account of the defendant's refusal to pay; that defendant
contended that payments of rental thru checks for said four months were made to the
plaintiff but the latter refused to accept them; that in 1975, defendant authorized the
Commercial Bank and Trust Company to issue checks to the plaintiff chargeable
against his bank account, for the payment of said rentals, and the delivery of said
checks was coursed by the bank thru the messengerial services of the FAR
Corporation, but the plaintiff refused to accept them and because of such refusal,
defendant instructed said bank to make consignation with the Clerk of Court of the
City Court of Cebu as regard said rentals for May to August, 1977 and for subsequent
months.
The City Court further found that there is no showing that the letter allegedly
delivered to the plaintiff in May, 1977 by Filomeno Soon, messenger of the FAR
Corporation contained cash money, check, money order, or any other form of note of
value, hence there could never be any tender of payment, and even granting that there
was, but plaintiff refused to accept it without any reason, still no consignation for
May, 1977 rental could be considered in favor of the defendant unless evidence is
presented to establish that he actually made rental deposit with the court in cash
money and prior and subsequent to such deposit, he notified the plaintiff thereof.
Notwithstanding the contradictory findings of fact and the resulting opposite
conclusions of law by the City Court and the Court of First Instance, both are agreed,
however, that the case presents the issue of whether the lessee failed to pay the
monthly rentals beginning May, 1977 up to the time the complaint for eviction was
filed on January 8, 1979. This issue in turn revolves on whether the consignation of
the rentals was valid or not to discharge effectively the lessee's obligation to pay the
same. The City Court ruled that the consignation was not valid. The Court of First
Instance, on the other hand, held that there was substantial compliance with the
requisites of the law on consignation.
Let us examine the law and consider Our jurisprudence on the matter, aside from the
codal provisions already cited herein.
According to Article 1256, New Civil Code, if the creditor to whom tender of payment
has been made refuses without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum due. Consignation alone
shall produce the same effect in the following cases: (1) When the creditor is absent or
unknown, or does not appear at the place of payment; (2) When he is incapacitated to
receive the payment at the time it is due; (3) When, without just cause, he refuses to
give a receipt; (4) When two or more persons claim the same right to collect; (5) When
the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and it
generally requires a prior tender of payment. (Limkako vs. Teodoro, 74 Phil. 313).
In order that consignation may be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due;
(2) that the consignation of the obligation had been made because the creditor to
whom tender of payment was made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to receive the amount
due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given
to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4)
that the amount due was placed at the disposal of the court (Art. 1178, Civil Code);
and (5) that after the consignation had been made the person interested was notified
thereof (Art. 1178, Civil Code). Failure in any of these requirements is enough ground
to render a consignation ineffective. (Jose Ponce de Leon vs. Santiago Syjuco, Inc., 90
Phil. 311).
Without the notice first announced to the persons interested in the fulfillment of the
obligation, the consignation as a payment is void. (Limkako vs. Teodoro, 74 Phil. 313),
In order to be valid, the tender of payment must be made in lawful currency. While
payment in check by the debtor may be acceptable as valid, if no prompt objection to
said payment is made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956) the fact
that in previous years payment in check was accepted does not place its creditor in
estoppel from requiring the debtor to pay his obligation in cash (Sy vs. Eufemio, L-
10572, Sept. 30, 1958). Thus, the tender of a check to pay for an obligation is not a
valid tender of payment thereof (Desbarats vs. Vda. de Mortera, supra). See
Annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA 174-179.
Tender of payment must be distinguished from consignation. Tender is the antecedent
of consignation, that is, an act preparatory to the consignation, which is the principal,
and from which are derived the immediate consequences which the debtor desires or
seeks to obtain. Tender of payment may be extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation. (8 Manresa 325).
Reviewing carefully the evidence presented by respondent lessee at the trial of the case
to prove his compliance with all the requirements of a valid tender of payment and
consignation and from which the respondent Judge based his conclusion that there
was substantial compliance with the law on consignation, We note from the assailed
decision hereinbefore quoted that these evidences are: Exhibit 10, the letter of Atty.
Pampio Abarintos dated June 9, 1977: Exhibit 12, letter of Atty. Pampio Abarintos
dated July 6, 1977; Exhibit 14, the Answer of respondent Francisco in Civil Case R-
16261, particularly paragraph 7 of the Special and Affirmative Defenses; and Exhibit
1, letter of Atty. Eric Menchavez dated November 28, 1978. All these evidences,
according to respondent Judge, proved that petitioner lessor was notified of the
deposit of the monthly rentals.
We have analyzed and scrutinized closely the above exhibits and We find that the
respondent Judge's conclusion is manifestly wrong and based on misapprehension of
facts. Thus-
(1) Exhibit 10 reads: (see p. 17, Records)
June
9,
1977
Miss Soledad Soco
Soledad Soco Retazo
P. Gullas St., Cebu City
Dear Miss Soco:
This is in connection with the payment of rental of my client, Engr.
Regino Francisco, Jr., of your building situated at Manalili St., Cebu
City.
It appears that twice you refused acceptance of the said payment made
by my client.
It appears further that my client had called your office several times and
left a message for you to get this payment of rental but until the present
you have not sent somebody to get it.
In this connection, therefore, in behalf of my client, you are hereby
requested to please get and claim the rental payment aforestated from
the Office of my client at Tagalog Hotel and Restaurant, Sanciangko St.,
Cebu City. within three (3) days from receipt hereof otherwise we would
be constrained to make a consignation of the same with the Court in
accordance with law.
Hoping for your cooperation on this matter, we remain.
Very truly yours,
(SGD.) PAMPIO A.
ABARINTOS
Counsel for Engr.
REGINO
FRANCISCO, Jr.
We may agree that the above exhibit proves tender of payment of the particular
monthly rental referred to (the letter does not, however, indicate for what month and
also the intention to deposit the rental with the court, which is the first notice. But
certainly, it is no proof of tender of payment of other or subsequent monthly rentals.
Neither is it proof that notice of the actual deposit or consignation was given to the
lessor, which is the second notice required by law.
(2) Exhibit 12 (see p. 237, Records) states:
J
u
l
y

6
,

1
9
7
7

Miss Soledad Soco
Soledad Soco Reta
P. Gullas St., Cebu City
Dear Miss Soco:
This is to advise and inform you that my client, Engr. Regino Francisco,
Jr., has consigned to you, through the Clerk of Court, City Court of
Cebu, Cebu City, the total amount of Pl,852.20, as evidenced by cashier's
checks No. 478439 and 47907 issued by the Commercial Bank and Trust
Company (CBTC) Cebu City Branch, dated May 11, 1977 and June 15,
1977 respectively and payable to your order, under Official Receipt No.
0436936 dated July 6,1977.
This amount represents payment of the rental of your building situated
at Manalili St., Cebu City which my client, Engr. Regino Francisco, Jr., is
renting. You can withdraw the said amount from the Clerk of Court, City
Court of Cebu, Cebu City at any time.
Please be further notified that all subsequent monthly rentals will be
deposited to the Clerk of Court, City Court of Cebu, Cebu City.
Very truly yours,
(SGD.) PAMPIO A.
ABARINTOS
Counsel for ENGR.
REGINO
FRANCISCO, JR.
The above evidence is, of course, proof of notice to the lessor of the deposit or
consignation of only the two payments by cashier's checks indicated therein. But
surely, it does not prove any other deposit nor the notice thereof to the lessor. It is not
even proof of the tender of payment that would have preceded the consignation.
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records) alleges:
7. That ever since, defendant had been religiously paying his rentals
without any delay which, however, the plaintiff had in so many occasions
refused to accept obviously in the hope that she may declare non-
payment of rentals and claim it as a ground for the cancellation of the
contract of lease. This, after seeing the improvements in the area which
were effected, at no small expense by the defendant. To preserve
defendant's rights and to show good faith in up to date payment of
rentals, defendant had authorized his bank to issue regularly cashier's
check in favor of the plaintiff as payment of rentals which the plaintiff
had been accepting during the past years and even for the months of
January up to May of this year, 1977 way past plaintiff's claim of lease
expiration. For the months of June and July, however, plaintiff again
started refusing to accept the payments in going back to her previous
strategy which forced the defendant to consign his monthly rental with
the City Clerk of Court and which is now the present state of affairs in so
far as payment of rentals is concerned. These events only goes to show
that the wily plaintiff had thought of this mischievous scheme only very
recently and filed herein malicious and unfounded complaint.
The above exhibit which is lifted from Civil Case No. R-16261 between the parties for
annulment of the lease contract, is self-serving. The statements therein are mere
allegations of conclusions which are not evidentiary.
(4) Exhibit 1 (see p. 15, Records) is quoted thus:
Nove
mber
28,
1978
Atty. Luis V. Diores
Suite 504, SSS Bldg.
Jones Avenue, Cebu City
Dear Compaero:
Your letter dated November 23, 1978 which was addressed to my client,
Engr. Regino Francisco, Jr. has been referred to me for reply.
It is not true that my client has not paid the rentals as claimed in your
letter. As a matter of fact, he has been religiously paying the rentals in
advance. Payment was made by Commercial Bank and Trust Company to
the Clerk of Court, Cebu City. Attached herewith is the receipt of
payment made by him for the month of November, 1978 which is dated
November 16, 1978.
You can check this up with the City Clerk of Court for satisfaction.
Regards.
(SGD.)
ERIC
MENC
HAVE
Z
Couns
el for
Regin
o
Franci
sco,
Jr.
377-B
Junqu
era
St.,
Cebu
City
(new
addre
ss)
Again, Exhibit 1 merely proves rental deposit for the particular month of November,
1978 and no other. It is no proof of tender of payment to the lessor, not even proof of
notice to consign. We hold that the best evidence of the rental deposits with the Clerk
of Court are the official receipts issued by the Clerk of Court. These the respondent
lessee utterly failed to present and produce during the trial of the case. As pointed out
in petitioner's Memorandum, no single official receipt was presented in the trial court
as nowhere in the formal offer of exhibits for lessee Francisco can a single official
receipt of any deposit made be found (pp. 8-9, Memorandum for Petitioner; pp. 163-
164, Records).
Summing up Our review of the above four (4) exhibits, We hold that the respondent
lessee has utterly failed to prove the following requisites of a valid consignation: First,
tender of payment of the monthly rentals to the lessor except that indicated in the
June 9, l977 Letter, Exhibit 10. In the original records of the case, We note that the
certification, Exhibit 11 of Filemon Soon, messenger of the FAR Corporation, certifying
that the letter of Soledad Soco sent last May 10 by Commercial Bank and Trust Co.
was marked RTS (return to sender) for the reason that the addressee refused to receive
it, was rejected by the court for being immaterial, irrelevant and impertinent per its
Order dated November 20, 1980. (See p. 117, CFI Records).
Second, respondent lessee also failed to prove the first notice to the lessor prior to
consignation, except the payment referred to in Exhibit 10.
In this connection, the purpose of the notice is in order to give the creditor an
opportunity to reconsider his unjustified refusal and to accept payment thereby
avoiding consignation and the subsequent litigation. This previous notice is essential
to the validity of the consignation and its lack invalidates the same. (Cabanos vs. Calo,
104 Phil. 1058; Limkako vs. Teodoro, 74 Phil. 313).
There is no factual basis for the lower court's finding that the lessee had tendered
payment of the monthly rentals, thru his bank, citing the lessee's letter (Exh. 4)
requesting the bank to issue checks in favor of Soco in the amount of P840.00 every
10th of each month and to deduct the full amount and service fee from his current
account, as well as Exhibit 5, letter of the Vice President agreeing with the request.
But scrutinizing carefully Exhibit 4, this is what the lessee also wrote: "Please
immediately notify us everytime you have the check ready so we may send somebody
over to get it. " And this is exactly what the bank agreed: "Please be advised that we
are in conformity to the above arrangement with the understanding that you shall
send somebody over to pick up the cashier's check from us." (Exhibit 4, see p. 230,
Original Records; Exhibit 5, p. 231, Original Records)
Evidently, from this arrangement, it was the lessee's duty to send someone to get the
cashier's check from the bank and logically, the lessee has the obligation to make and
tender the check to the lessor. This the lessee failed to do, which is fatal to his
defense.
Third, respondent lessee likewise failed to prove the second notice, that is after
consignation has been made, to the lessor except the consignation referred to in
Exhibit 12 which are the cashier's check Nos. 478439 and 47907 CBTC dated May 11,
1977 and June 15, 1977 under Official Receipt No. 04369 dated July 6, 1977.
Respondent lessee, attempting to prove compliance with the requisites of valid
consignation, presented the representative of the Commercial Bank and Trust Co.,
Edgar Ocaada, Bank Comptroller, who unfortunately belied respondent's claim. We
quote below excerpts from his testimony, as follows:
ATTY. LUIS DIORES:
Q What month did you say you made ,you started making
the deposit? When you first deposited the check to the
Clerk of Court?
A The payment of cashier's check in favor of Miss Soledad
Soco was coursed thru the City Clerk of Court from the
letter of request by our client Regino Francisco, Jr., dated
September 8, 1977. From that time on, based on his
request, we delivered the check direct to the City Clerk of
Court.
Q What date, what month was that, you first delivered the
check to the Clerk of Court.?
A We started September 12, 1977.
Q September 1977 up to the present time, you delivered the
cashier's check to the City Clerk of Court?
A Yes.
Q You were issued the receipts of those checks?
A Well, we have an acknowledgment letter to be signed by
the one who received the check.
Q You mean you were issued, or you were not issued any
official receipt? My question is whether you were issued any
official receipt? So, were you issued, or you were not
issued?
A We were not issued.
Q On September, 1977, after you deposited the manager's
check for that month with the Clerk of Court, did you serve
notice upon Soledad Soco that the deposit was made on
such amount for the month of September, 1977 and now to
the Clerk of Court? Did you or did you not?
A Well, we only act on something upon the request of our
client.
Q Please answer my question. I know that you are acting
upon instruction of your client. My question was-after you
made the deposit of the manager's check whether or not
you notified Soledad Soco that such manager's check was
deposited in the Clerk of Court from the month of
September, 1977?
A We are not bound to.
Q I am not asking whether you are bound to or not.
I'masking whether you did or you did not?
A I did not.
Q Alright, for October, 1977, after having made a deposit
for that particular month, did you notify Miss Soledad Soco
that the deposit was in the Clerk of Court?
A No, we did not.
Q Now, on November, 1977, did you notify Soledad Soco
that you deposited the manager's check to the City Clerk of
Court for that month?
A I did not.
Q You did not also notify Soledad Soco for the month
December, 1977, so also from January, February, March,
April, May, June, July until December, 1978, you did not
also notify Miss Soledad Soco all the deposits of the
manager's check which you said you deposited with the
Clerk of Court in every end of the month? So also from each
and every month from January 1979 up to December 1979,
you did not also serve notice upon Soledad Socco of the
deposit in the Clerk of Court, is that correct?
A Yes.
Q So also in January 1980 up to this month 1980, you did
not instructed by your client Mr. and Mrs. Regino
Francisco, jr. to make also serve notice upon Soledad Soco
of the Manager's check which you said you deposited to the
Clerk of Court?
A I did not.
Q Now, you did not make such notices because you were
not such notices after the deposits you made, is that
correct?
A Yes, sir.
Q Now, from 1977, September up to the present time,
before the deposit was made with the Clerk of Court, did
you serve notice to Soledad Soco that a deposit was going to
be made in each and every month?
A Not.
Q In other words, from September 1977 up to the present
time, you did not notify Soledad Soco that you were going to
make the deposit with the Clerk of Court, and you did not
also notify Soledad Soco after the deposit was made, that a
deposit has been made in each and every month during
that period, is that correct?
A Yes
Q And the reason was because you were not instructed by
Mr. and Mrs. Regino Francisco, Jr. that such notification
should be made before the deposit and after the deposit
was made, is that correct?
A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing
on June 3, 1980).
Recapitulating the above testimony of the Bank Comptroller, it is clear that the bank
did not send notice to Soco that the checks will be deposited in consignation with the
Clerk of Court (the first notice) and also, the bank did not send notice to Soco that the
checks were in fact deposited (the second notice) because no instructions were given
by its depositor, the lessee, to this effect, and this lack of notices started from
September, 1977 to the time of the trial, that is June 3, 1980.
The reason for the notification to the persons interested in the fulfillment of the
obligation after consignation had been made, which is separate and distinct from the
notification which is made prior to the consignation, is stated in Cabanos vs. Calo,
G.R. No. L-10927, October 30, 1958, 104 Phil. 1058. thus: "There should be notice to
the creditor prior and after consignation as required by the Civil Code. The reason for
this is obvious, namely, to enable the creditor to withdraw the goods or money
deposited. Indeed, it would be unjust to make him suffer the risk for any deterioration,
depreciation or loss of such goods or money by reason of lack of knowledge of the
consignation."
And the fourth requisite that respondent lessee failed to prove is the actual deposit or
consignation of the monthly rentals except the two cashier's checks referred to in
Exhibit 12. As indicated earlier, not a single copy of the official receipts issued by the
Clerk of Court was presented at the trial of the case to prove the actual deposit or
consignation. We find, however, reference to some 45 copies of official receipts issued
by the Clerk of Court marked Annexes "B-1 " to "B-40" to the Motion for
Reconsideration of the Order granting execution pending appeal filed by defendant
Francisco in the City Court of Cebu (pp, 150-194, CFI Original Records) as well as in
the Motion for Reconsideration of the CFI decision, filed by plaintiff lessor (pp. 39-50,
Records, marked Annex "E ") the allegation that "there was no receipt at all showing
that defendant Francisco has deposited with the Clerk of Court the monthly rentals
corresponding to the months of May and June, 1977. And for the months of July and
August, 1977, the rentals were only deposited with the Clerk of Court on 20 November
1979 (or more than two years later)."... The deposits of these monthly rentals for July
and August, 1977 on 20 November 1979, is very significant because on 24 October
1979, plaintiff Soco had testified before the trial court that defendant had not paid the
monthly rentals for these months. Thus, defendant had to make a hurried deposit on
the following month to repair his failure. " (pp. 43-44, Records).
We have verified the truth of the above claim or allegation and We find that indeed,
under Official Receipt No. 1697161Z, the rental deposit for August, 1977 in cashier's
check No. 502782 dated 8-10-77 was deposited on November 20, 1979 (Annex "B-15",
p. 169, Original CFI Records) and under Official Receipt No. 1697159Z, the rental
deposit for July under Check No. 479647 was deposited on November 20, 1979 (Annex
"B-16", p. 170, Original CFI Records). Indeed, these two rental deposits were made on
November 20, 1979, two years late and after the filing of the complaint for illegal
detainer.
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit Memorandum issued
by Comtrust Bank deducting the amounts of the checks therein indicated from the
account of the lessee, to prove payment of the monthly rentals. But these Debit
Memorandums are merely internal banking practices or office procedures involving the
bank and its depositor which is not binding upon a third person such as the lessor.
What is important is whether the checks were picked up by the lessee as per the
arrangement indicated in Exhibits 4 and 5 wherein the lessee had to pick up the
checks issued by CBTC or to send somebody to pick them up, and logically, for the
lessee to tender the same to the lessor. On this vital point, the lessee miserably failed
to present any proof that he complied with the arrangement.
We, therefore, find and rule that the lessee has failed to prove tender of payment
except that in Exh. 10; he has failed to prove the first notice to the lessor prior to
consignation except that given in Exh. 10; he has failed to prove the second notice
after consignation except the two made in Exh. 12; and he has failed to pay the rentals
for the months of July and August, 1977 as of the time the complaint was filed for the
eviction of the lessee. We hold that the evidence is clear, competent and convincing
showing that the lessee has violated the terms of the lease contract and he may,
therefore, be judicially ejected.
The other matters raised in the appeal are of no moment. The motion to dismiss filed
by respondent on the ground of "want of specific assignment of errors in the
appellant's brief, or of page references to the records as required in Section 16(d) of
Rule 46," is without merit. The petition itself has attached the decision sought to be
reviewed. Both Petition and Memorandum of the petitioner contain the summary
statement of facts; they discuss the essential requisites of a valid consignation; the
erroneous conclusion of the respondent Judge in reversing the decision of the City
Court, his grave abuse of discretion which, the petitioner argues, "has so far departed
from the accepted and usual course of judicial proceeding in the matter of applying
the law and jurisprudence on the matter." The Memorandum further cites other basis
for petitioner's plea.
In Our mind, the errors in the appealed decision are sufficiently stated and assigned.
Moreover, under Our rulings, We have stated that:
This Court is clothed with ample authority to review matters, even if they
are not assigned as errors in the appeal, if it finds that their
consideration is necessary in arriving at a just decision of the case. Also,
an unassigned error closely related to an error properly assigned or upon
which the determination of the questioned raised by the error properly
assigned is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as an error." (Ortigas, Jr. vs.
Lufthansa German Airlines, L-28773, June 30, 1975, 64 SCRA 610)
Under Section 5 of Rule 53, the appellate court is authorized to consider
a plain error, although it was not specifically assigned by appellants."
(Dilag vs. Heirs of Resurreccion, 76 Phil. 649)
Appellants need not make specific assignment of errors provided they
discuss at length and assail in their brief the correctness of the trial
court's findings regarding the matter. Said discussion warrants the
appellate court to rule upon the point because it substantially complies
with Section 7, Rule 51 of the Revised Rules of Court, intended merely to
compel the appellant to specify the questions which he wants to raise
and be disposed of in his appeal. A clear discussion regarding an error
allegedly committed by the trial court accomplishes the purpose of a
particular assignment of error." (Cabrera vs. Belen, 95 Phil. 54; Miguel vs
Court of Appeals, L- 20274, Oct. 30, 1969, 29 SCRA 760-773, cited in
Moran, Comments on the Rules of Court, Vol. 11, 1970 ed., p. 534).
Pleadings as well as remedial laws should be construed liberally in order
that the litigants may have ample opportunity to prove their respective
claims, and that a possible denial of substantial justice, due to legal
technicalities, may be avoided." (Concepcion, et al. vs. The Payatas
Estate Improvement Co., Inc., 103 Phil. 10 17).
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of First
Instance of Cebu, 14th Judicial District, Branch XII is hereby REVERSED and SET
ASIDE, and the derision of the City Court of Cebu, Branch II is hereby reinstated, with
costs in favor of the petitioner.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Abad Santos, and De Castro, JJ., concur.
Aquino and Escolin JJ., concurs in the result,

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-42230 April 15, 1988
LAURO IMMACULATA, represented by his wife AMPARO VELASCO, as Guardian
Ad Litem, petitioner,
vs.
HON. PEDRO C. NAVARRO, in his capacity as Presiding Judge of the Court of
First Instance of Rizal, Branch No. II, and HEIRS OF JUANITO VICTORIA,
namely: LOLITA, TOMAS, BENJAMIN, VIRGINIA, BRENDA and ELVIE, all
surnamed VICTORIA, and JUANITA NAVAL, surviving widow; and the
PROVINCIAL SHERIFF OF RIZAL, respondents.
Pedro N. Belmi for petitioner.
Alfonso G. Salvador for respondents.
R E S O L U T I O N

PARAS, J.:
Petitioner's Motion for Reconsideration of Our decision dated November 26, 1986 asks
Us to consider a point inadvertently missed by the Court the matter of legal
redemption of a parcel of land previously obtained by petitioner Lauro Immaculata
thru a free patent. The reconsideration of this issue is hereby GRANTED.
While res judicata may bar questions on the validity of the sale in view of alleged
insanity and intimidation (and this point is no longer pressed by counsel for the
petitioner) still the question of the right of legal redemption has remained unresolved.
Be it noted that in an action (Civil Case No. 20968) filed on March 24, 1975 before the
defunct Court of First Instance of Rizal, petitioner presented an alternative cause of
action or prayer just in case the validity of the sale would be sustained. And this
alternative cause of action or prayer is to allow petitioner to legally redeem the
property.
We hereby grant said alternative cause of action or prayer. While the sale was
originally executed sometime in December, 1969, it was only on February 3, 1974
when, as prayed for
1
by private respondent, and as ordered by the court a quo, a
"deed of conveyance" was formally executed. Since offer to redeem was made on March
24, 1975, this was clearly within the five-year period of legal redemption allowed by
the Public Land Act (See Abuan v. Garcia, 14 SCRA 759, 761).
The allegation that the offer to redeem was not sincere, because there was no
consignation of the amount in Court is devoid of merit. The right to redeem is a
RIGHT, not an obligation, therefore, there is no consignation required (De Jesus v.
Garcia, C.A. 47 O.G. 2406; Resales v. Reyes, 25 Phil. 495, Vda. de Quirino v. Palarca,
L-28269, Aug. 16, 1969) to preserve the right to redeem (Villegas v. Capistrano, 9 Phil.
416).
WHEREFORE, as prayed for by the petitioner Lauro Immaculata (represented by his
wife, Amparo Velasco, as Guardian ad litem) the decision of this Court dated November
26, 1986 is hereby MODIFIED, and the case is remanded to the court a quo for it to
accept payment or consignation
2
(in connection with the legal redemption which We
are hereby allowing the petitioner to do) by the herein petitioner of whatever he
received from respondent at the time the transaction was made.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.

Footnotes
1 "Na matapos maaprobahan and plano (subdivision plan) ukol sa
nasabing lupa, ako ay lalagda o magbibigay ng anomang kinakailangang
kasulatan o papeles upang ang lupa ng ito ay masalin at magkatitulo sa
pangalan ni JUANITO VICTORIA, na ligtas sa anomang pagkakahalang,
suliranin o agravamen." (p. 219, Rollo)
2 To preserve the right to redeem, consignation is not required; but to
actually redeem, there must of course be payment or consignation
(deposit) itself.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-21507 June 7, 1971
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & INSURANCE COMPANY, INC.,
bondsman-appellant.
Office of the Solicitor General Arturo A. Alafriz, Acting Solicitor General Isidro C.
Borromeo and Solicitor Antonio M. Consing for plaintiff-appellee.
Advincula, Astraquillo, Villa & Ramos for bondsman-appellant.

DIZON, J.:
Appeal taken by the Asian Surety & Insurance Company, Inc. from the decision of the
Court of First Instance of Pampanga dated April 17, 1963, forfeiting the bail bond
posted by it for the provisional release of Natividad Franklin, the accused in Criminal
Case No. 4300 of said court, as well as from the latter's orders denying the surety
company's motion for a reductions of bail, and its motion for reconsideration thereof.
It appears that an information filed with the Justice of the Peace Court of Angeles,
Pampanga, docketed as Criminal Case No. 5536, Natividad Franklin was charged with
estafa. Upon a bail bond posted by the Asian Surety & Insurance Company, Inc. in the
amount of P2,000.00, she was released from custody.
After the preliminary investigation of the case, the Justice of the Peace Court elevated
it to the Court of First Instance of Pampanga where the Provincial Fiscal filed the
corresponding information against the accused. The Court of First Instance then set
her arraignment on July 14, 1962, on which date she failed to appear, but the court
postponed the arraignment to July 28 of the same year upon motion of counsel for the
surety company. The accused failed to appear again, for which reason the court
ordered her arrest and required the surety company to show cause why the bail bond
posted by it should not be forfeited.
On September 25, 1962, the court granted the surety company a period of thirty days
within which to produce and surrender the accused, with the warning that upon its
failure to do so the bail bond posted by it would be forfeited. On October 25, 1962 the
surety company filed a motion praying for an extension of thirty days within which to
produce the body of the accused and to show cause why its bail bond should not be
forfeited. As not withstanding the extension granted the surety company failed to
produce the accused again, the court had no other alternative but to render the
judgment of forfeiture.
Subsequently, the surety company filed a motion for a reduction of bail alleging that
the reason for its inability to produce and surrender the accused to the court was the
fact that the Philippine Government had allowed her to leave the country and proceed
to the United States on February 27, 1962. The reason thus given not being to the
satisfaction of the court, the motion for reduction of bail was denied. The surety
company's motion for reconsideration was also denied by the lower court on May 27,
1963, although it stated in its order that it would consider the matter of reducing the
bail bond "upon production of the accused." The surety company never complied with
this condition.
Appellant now contends that the lower court should have released it from all liability
under the bail bond posted by it because its failure to produce and surrender the
accused was due to the negligence of the Philippine Government itself in issuing a
passport to said accused, thereby enabling her to leave the country. In support of this
contention the provisions of Article 1266 of the New Civil Code are invoked.
Appellant's contention is untenable. The abovementioned legal provision does not
apply to its case, because the same speaks of the relation between a debtor and a
creditor, which does not exist in the case of a surety upon a bail bond, on the one
hand, and the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that:
The rights and liabilities of sureties on a recognizance or bail bond are,
in many respects, different from those of sureties on ordinary bonds or
commercial contracts. The former can discharge themselves from liability
by surrendering their principal; the latter, as a general rule, can only be
released by payment of the debt or performance of the act stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held that:
By the mere fact that a person binds himself as surety for the accused,
he takes charge of, and absolutely becomes responsible for the latter's
custody, and under such circumstances it is incumbent upon him, or
rather, it is his inevitable obligation not merely a right, to keep the
accused at all times under his surveillance, inasmuch as the authority
emanating from his character as surety is no more nor less than the
Government's authority to hold the said accused under preventive
imprisonment. In allowing the accused Eugenio Uy Tuising to leave the
jurisdiction of the Philippines, the appellee necessarily ran the risk of
violating and in fact it clearly violated the terms of its bail bonds because
it failed to produce the said accused when on January 15, 1932, it was
required to do so. Undoubtedly, the result of the obligation assumed by
the appellee to hold the accused at all times to the orders and processes
of the lower court was to prohibit said accused from leaving the
jurisdiction of the Philippines because, otherwise, said orders and
processes would be nugatory and inasmuch as the jurisdiction of the
court from which they issued does not extend beyond that of the
Philippines, they would have no binding force outside of said jurisdiction.
It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian
and jailer of the accused, thereby assuming the obligation to keep the latter at all
times under his surveillance, and to produce and surrender him to the court upon the
latter's demand.
That the accused in this case was able to secure a Philippine passport which enabled
her to go to the United States was, in fact, due to the surety company's fault because
it was its duty to do everything and take all steps necessary to prevent that departure.
This could have been accomplished by seasonably informing the Department of
Foreign Affairs and other agencies of the government of the fact that the accused for
whose provisional liberty it had posted a bail bond was facing a criminal charge in a
particular court of the country. Had the surety company done this, there can be no
doubt that no Philippine passport would have been issued to Natividad Franklin.
UPON ALL THE FOREGOING, the decision appealed from is affirmed in all its parts,
with costs.
Concepcion C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo,
Villamor and Makasiar, JJ., concur.
Castro, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-23546 August 29, 1974
LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION COMPANY,
petitioners,
vs.
FRANCISCO C. MANABAT, as assignee of Bian Transportation Company,
Insolvent, respondent.
Domingo E. de Lara for petitioners.
M. A. Concordia & V.A. Guevarra for respondent.

MAKASIAR, J.:p
This is an appeal by certiorari from a judgment of the Court of Appeals dated August
31, 1964, which WE AFFIRM.
The undisputed facts are recounted by the Court of Appeals through then Associate
Justice Salvador Esguerra thus:
On January 20, 1956, a contract was executed whereby the Bian
Transportation Company leased to the Laguna-Tayabas Bus Company at
a monthly rental of P2,500.00 its certificates of public convenience over
the lines known as Manila-Bian, Manila-Canlubang and Sta. Rosa-
Manila, and to the Batangas Transportation Company its certificate of
public convenience over the line known as Manila-Batangas Wharf,
together with one "International" truck, for a period of five years,
renewable for another similar period, to commence from the approval of
the lease contract by the Public Service Commission. On the same date
the Public Service Commission provisionally approved the lease contract
on condition that the lessees should operate on the leased lines in
accordance with the prescribed time schedule and that such approval
was subject to modification or cancellation and to whatever decision that
in due time might be rendered in the case.
Sometime after the execution of the lease contract, the plaintiff Bian
Transportation Company was declared insolvent in Special Proceedings
No. B-30 of the Court of First Instance of Laguna, and Francisco C.
Manabat was appointed as its assignee. From time to time, the
defendants paid the lease rentals up to December, 1957, with the
exception of the rental for August 1957, from which there was deducted
the sum of P1,836.92 without the consent of the plaintiff. This deduction
was based on the ground that the employees of the defendants on the
leased lines went on strike for 6 days in June and another 6 days in July,
1957, and caused a loss of P500 for each strike, or a total of P1,000.00;
and that in Civil Case No. 696 of the Court of First Instance of Batangas,
Branch II, judgment was rendered in favor of defendant Batangas
Transportation Company against the Bian Transportation Company for
the sum of P836.92. The assignee of the plaintiff objected to such
deduction, claiming that the contract of lease would be suspended only if
the defendants could not operate the leased lines due to the action of the
officers, employees or laborers of the lessor but not of the lessees, and
that the deduction of P836.92 amounted to a fraudulent preference in the
insolvency proceedings as whatever judgment might have been rendered
in favor of any of the lessees should have been filed as a claim in said
proceedings. The defendants neither refunded the deductions nor paid
the rentals beginning January, 1958, notwithstanding demands therefor
made from time to time. At first, the defendants assured the plaintiff that
the lease rentals would be paid, although it might be delayed, but in the
end they failed to comply with their promise.
On February 18, 1958, the Batangas Transportation Company and
Laguna-Tayabas Bus Company separately filed with the Public Service
Commission a petition for authority to suspend the operation on the
lines covered by the certificates of public convenience leased to each of
them by the Bian Transportation Company. The defendants alleged as
reasons the reduction in the amount of dollars allowed by the Monetary
Board of the Central Bank of the Philippines for the purchase of spare
parts needed in the operation of their trucks, the alleged difficulty
encountered in securing said parts, and their procurement at exorbitant
costs, thus rendering the operation of the leased lines prohibitive. The
defendants further alleged that the high cost of operation, coupled with
the lack of passenger traffic on the leased lines resulted in financial
losses. For these reasons they asked permission to suspend the
operation of the leased lines until such time as the operating expenses
were restored to normal levels so as to allow the lessees to realize a
reasonable margin of profit from their operation.
Plaintiff's assignee opposed the petition on the ground that the Public
Service Commission had no jurisdiction to grant the relief prayed for as it
should involve the interpretation of the lease contract, which act falls
exclusively within the jurisdiction of the ordinary courts; that the
petitioners had not asked for the suspension of the operation of the lines
covered by their own certificates of public convenience; that to grant the
petition would amount to an impairment of the obligation of contract;
and that the defendants have no legal personality to ask for suspension
of the operation of the leased lines since they belonged exclusively to the
plaintiffwho is the grantee of the corresponding certificate of public
convenience. Aside from the assignee, the Commissioner of the Internal
Revenue and other creditors of the Bian Transportation Company, like
the Standard Vacuum Oil Co. and Parsons Hardware Company, filed
oppositions to the petitions for suspension of operation.
On October 15, 1958, the Public Service Commission overruled all
oppositions filed by the assignee and other creditors of the insolvent,
holding that upon its approval of the lease contract, the lessees acquired
the operating rights of the lessor and assumed full responsibility for
compliance with all the terms and conditions of the certificate of public
convenience. The Public Service Commission further stated that the
petition to suspend operation did not pertain to any act of dominion or
ownership but only to the use of the certificate of public convenience
which had been transferred by the plaintiff to the defendants, and that
the suspension prayed for was but an incident of the operation of the
lines leased to the defendants. The Public Service Commission further
ruled that being a quasi-judicial body of limited jurisdiction, it had no
authority to interpret contracts, which function belongs to the exclusive
domain of the ordinary courts, but the petition did not call for
interpretation of any provision of the lease contract as the authority of
the Public Service Commission to grant or deny the prayer therein was
derived from its regulatory power over the leased certificates of public
convenience.
While proceedings before the Public Service Commission were thus going on, as a
consequence of the continuing failure of the lessees to fulfill their earlier promise to
pay the accruing rentals on the leased certificates,
On May 19, 1959, plaintiff Bian Transportation Company represented
by Francisco C. Manabat, assignee, filed this action against defendants
Laguna Tayabas Bus Company and Batangas Transportation Company
for the recovery of the sum of P42,500 representing the accrued rentals
for the lease of the certificates of public convenience of the former to the
latter, corresponding to the period from January 1958, to May 1959,
inclusive, plus the sum of P1,836.92 which was deducted by the
defendants from the rentals due for August, 1957, together with all
subsequent rentals from June, 1959, that became due and payable;
P5,000.00 for attorney's fees and such corrective and exemplary damages
as the court may find reasonable.
The defendants moved to dismiss the complaint for lack of jurisdiction
over the subject matter of the action, there being another case pending in
the Public Service Commission between the same parties for the same
cause. ... (pp. 20-21, rec.; pp. 54-55, ROA).
The motion to dismiss was, however, denied. Meanwhile
The Public Service Commission delegated its Chief Attorney to receive
evidence of the parties on the petition of the herein defendants for
authority to suspend operation on the lines leased to them by the
plaintiff. The defendants, the assignee of the plaintiff and other creditors
of the insolvent presented evidence before the Chief Attorney and the
hearing was concluded on June 29, 1959. On October 20, 1959, the
Public Service Commission issued an order the dispositive part of which
reads as follows:
In view of the foregoing, the petitioners herein are
authorized to suspend their operation of the trips of the
Bian Transportation Company between Batangas Piers-
Manila, Bian-Manila, Sta. Rosa-Manila and Canlubang-
Manila authorized in the aforementioned cases from the
date of the filing of their petition on February 18, 1958,
until December 31, 1959. (p. 25, rec.; pp. 60-61, ROA).
Going back to the Court of First Instance of Laguna
... The motion (to dismiss) having been denied, the defendants answered
the complaint, alleging among others, that the Public Service
Commission authorized the suspension of operation over the leased lines
from February 18, 1950, up to December 31, 1959, and hence the lease
contract should be deemed suspended during that period; that plaintiff
failed to place defendants in peaceful and adequate enjoyment and
possession of the things leased; that as a result of the plaintiff being
declared insolvent the lease contract lost further force and effect and
payment of rentals thereafter was made under a mistake and should be
refunded to the defendants. (p. 21; rec.; p. 55, ROA).
The Court of Appeals proceeded to state that
After hearing in the court a quo and presentation by the parties herein of
their respective memoranda, the trial court on March 18, 1960, rendered
judgment in favor of plaintiff, ordering the defendants jointly and
severally to pay to the former the sum of P65,000.00 for the rentals of
the certificates of public convenience corresponding to the period from
January, 1958, to February, 1960, inclusive, including the withheld
amount of P836.92 from the rentals for August, 1957, plus the rentals
that might become due and payable beginning March, 1960, at the rate
of P2,500.00 a month, with interest on the sums of P42,500 and P836.92
at the rate of 6% per annum from the date of the filing of the complaint,
with interest on the subsequent rentals at the same rate beginning the
first of the following month, plus the sum of P3,000.00 as attorney's fees,
and the cost of the suit. (pp. 25-26, rec.)
From the decision of the Court of First Instance, defendants appealed to the Court of
Appeals, which affirmed the same in toto in its decision dated August 31, 1964. Said
decision was received by the appellants on September 7, 1964.
On September 21, 1964, appellants filed the present appeal, raising the following
questions of law:
1. Considering that the Court of Appeals found that the Public Service
Commission provisionally approved the lease contract of January 20,
1956 between petitioners and Bian Transportation Company upon the
condition, amongothers, that such approval was subject to modification
and cancellation and towhatever decision that in due time might be
rendered in the case, the Court ofAppeals erred in giving no legal effect
and significance whatever to the suspension of operations later granted
by the Public Service Commission after due hearing covering the lines
leased to petitioners thereby nullifying, contrary to law and decisions of
this Honorable Court, the authority and powersconferred on the Public
Service Commission.
2. The Court of Appeals misapplied the statutory rules on interpreting
contracts and erred in its construction of the clauses in the lease
agreement authorizing petitioners to suspend operation without the
corresponding liability for rentals during the period of suspension.
3. Contrary to various decisions of this Honorable Court relieving the
lessee from the obligation to pay rent where there is failure to use or
enjoy the thing leased, the Court of Appeals erroneously required
petitioners to pay rentals, with interest, during the period of suspension
of the lease from January, 1958 up to the expiration of the agreement on
January 20, 1961. (p. 7, rec.)
On October 12, 1964, the Supreme Court issued a resolution dismissing said petition
"for lack of merit." (p. 43, rec.). Said resolution was received by petitioners on October
16, 1964.
On October 31, 1964, the day the Court's resolution was to become final, petitioners
filed a "Motion to Admit Amended Petition and to Give Due Course Thereto." In said
motion, petitioners explained
... The amendment includes an alternative ground relating to petitioners'
prayer for the reduction of the rentals payable by them. This alternative
petition was not included in the original one as petitioners where
genuinely convinced that they should have been absolved from all
liabilities whatever. However, in view of the apparent position taken by
this Honorable Court, as implied in its resolution on October 12, 1964,
notice of which was received on October 16, 1964, petitioners now
squarely submit their alternative position for consideration. There is
decisional authority for the reduction of rentals payable (see Reyes v.
Caltex, 47 O.G. 1193, 1203-1204) (p. 44, rec).
The new question raised is presented thus:
xxx xxx xxx
IV
This Honorable Court is authorized to equitably reduce the rentals
payableby the petitioners, should this Honorable Court adopt the
position of the Courtof Appeals and the lower court that petitioners have
not been releived from thepayment of rentals on the leased lines. (p. 7
Amended Petition for Certiorari,pp. 46, 52, rec.).
On November 5, 1964, the Supreme Court required respondents herein
to file an answer to the amended petition. On the same date, respondents
filed, quite belatedly, an opposition to the motion of the petitioners. Said
opposition was later "noted" by the Court in its resolution dated
December 1, 1964.
I
First, it must be pointed out that the first three questions of law raised by petitioners
were already disposed of in Our resolution dated October 12, 1964 dismissing the
original petition for lack of merit, which in effect affirmed the appealed decision of the
Court of of Appeals. Although, in their motion to admit amended petition dated
October 31, 1964, petitioners sought a reconsideration of the said resolution not only
in the light of the fourth legal issue raised but also on the said first three legal
questions, the petitioners advanced no additional arguments nor cited new authorities
in support of their stand on the first three questions of law. They merely reproduced
verbatim from their original petition their discussion on said questions.
To the extent therefore that the motion filed by the petitioner seeks a reconsideration
of our order of dismissal by submitting anew, through the amended petition, the very
same arguments already dismissed by this Court, the motion shall be considered pro
forma, (See Estrada v. Sto. Domingo, 28 SCRA 890, 905-906, 911) and hence is
without merit.
Consequently, we limit the resolution of this case solely on the discussions on the last
(fourth) question of law raised, taking into consideration the discussion on the first
three questions only insofar as they place the petitioners' discussion on the fourth
question in its proper context and perspective.
II
The undisguised object of petitioners' discussion on the fourth question of law raised
is to justify their plea for a reduction of the rentals on the ground that the subject
matter of the lease was allegedly not used by them as a result of the suspension of
operations on the lines authorized by the Public Service Commission.
In support of said plea, petitioners invoke article 1680 of the Civil Code which grants
lessees of rural lands a right to a reduction of rentals whenever the harvest on the
land leased is considerably damaged by an extraordinary fortuitous event. Reliance
was also placed by the petitioners on Our decision in Reyes v. Caltex (Phil.) Inc., 84
Phil. 654, which supposedly applied said article by analogy to a lease other than that
covered by said legal provision.
The authorities from which the petitioners draw support, however, are not applicable
to the case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right to a reduction of the rent on
accountof the sterility of the land leased, or by reason of the loss of fruits
due toordinary fortuitous events; but he shall have such right in case of
the loss ofmore than one-half of the fruits through extraordinary and
unforeseen fortuitous events, save always when there is a specific
stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war,
pestilence, unusual flood, locusts, earthquake, or others which are
uncommon, and which thecontracting parties could not have reasonably
foreseen.
Article 1680, it will be observed is a special provision for leases of rural lands. No
other legal provision makes it applicable to ordinary leases. Had theintention of the
lawmakers been so, they would have placed the article among the general provisions
on lease. Nor can the article be applied analogously to ordinary leases, for precisely
because of its special character, it was meant to apply only to a special specie of lease.
It is a provision of social justice designed to relieve poor farmers from the harsh
consequences of their contracts with rich landowners. And taken in that light, the
article provides no refuge to lessees whose financial standing or social position is
equal to, or even better than, the lessor as in the case at bar.
Even if the cited article were a general rule on lease, its provisions nevertheless do not
extend to petitioners. One of its requisites is that the cause of loss of the fruits of the
leased property must be an "extraordinary and unforeseen fortuitous event." The
circumstances of the instant case fail tosatisfy such requisite. As correctly ruled by
the Court of Appeals, the alleged causes for the suspension of operations on the lines
leased, namely, the high prices of spare parts and gasoline and the reduction of the
dollar allocations, "already existed when the contract of lease was executed" (p. 11,
Decision; p. 30, rec.; Cuyugan v. Dizon, 89 Phil. 80). The cause of petitioners' inability
to operate on the lines cannot, therefore, be ascribed to fortuitous events or
circumstances beyond their control, but to their own voluntary desistance (p. 13,
Decision; p. 32, rec.).
If the petitioners would predicate their plea on the basis solely of their inability to use
the certificates of public convenience, absent the requisite of fortuitous event, the cited
article would speak strongly against their plea.Article 1680 opens with the statement:
"The lessee shall have no right to reduction of the rent on account of the sterility of the
land leased ... ." Obviously, no reduction can be sustained on the ground that the
operation of the leased lines was suspended upon the mere speculation that it would
yield no substantial profit for the lessee bus company. Petitioners' profits may be
reduced due to increase operating costs; but the volume of passenger traffic along the
leased lines not only remains same but may even increase as the tempo of the
movement of population is intensified by the industrial development of the areas
covered or connected by the leased routes. Moreover, upon proper showing, the Public
Service Commission might have granted petitioners an increase in rates, as it has
done so in several instances, so that public interest will always be promoted by a
continuous flow of transportation facilities to service the population and the economy.
The citizenry and the economy will suffer by reason of any disruption in the
transportation facilities.
Furthermore, we are not at all convinced that the lease contract brought no material
advantage to the lessor for the period of suspension. It must be recalled that the lease
contract not only stipulated for the transfer of the lessor's right to operate the lines
covered by the contract, but also for a forbearance on the part of the lessor to operate
transportation business along the same lines and to hold a certificate for that
purpose. Thus, even if the lessee would not actually make use of the lessor's
certificates over the leased lines, the contractual commitment of the lessor not to
operate on the lines would sufficiently insure added profit to the lessees on account of
the lease contract. In other words, the commitment alone of the lessor under the
contract would enable the lessees to reap full benefits therefrom since the commuting
public would, after all, be forced at their inconvenience and prejudice to
patronize petitioner's remaining buses.
Contrary to what petitioners want to suggest, WE refused in the Reyes case, supra, to
apply by analogy Article 1680 and consequently, WE denied the plea oflessee therein
for an equitable reduction of the stipulated rentals, holding that:
The general rule on performance of contracts is graphically set forth in
American treatises which is also the rule, in our opinion, obtaining under
the Civil Code.
Where a person by his contract charges himself with an obligation
possible to be performed, he must perform it, unless the performance is
rendered impossible by the act of God, by the law, or by the other party,
it being the rule that in case the party desires to be excused from the
performance in the event of contingencies arising, it is his duty to provide
therefor in his contract. Hence, performance is not excused by
subsequent inability to perform, by unforeseen difficulties, by unusual or
unexpected expenses, by danger, by inevitable accident, by breaking of
machinery, by strikes, by sickness, by failure of a party to avail himself of
the benefits tobe had under the contract, by weather conditions, by
financial stringency or bystagnation of business. Neither is performance
excused by the fact that the contract turns out to be hard and improvident,
unprofitable, or impracticable, ill-advised, or even foolish, or less
profitable, unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex,
supra, 664. Emphasis supplied).
Also expressed in said case is a ruling in American jurisprudence, which found
relevance again in the case at bar, to wit: "(S)ince, by the lease, the lessee was to have
the advantage of casual profits of the leased premises, he should run the hazard of
casual losses during the term and not lay the whole burden upon the lessor." (Reyes
vs. Caltex, supra, 664).
Militating further against a grant of reduction of the rentals to the petitioners is the
petitioners' conduct which is not in accord with the rules of fair play and justice.
Petitioners, it must be recalled, promised to pay the accrued rentals in due time.
Later, however, when they believed they found a convenient excuse for escaping their
obligation, they reneged on their earlier promise. Moreover, petitioners' option to
suspend operation on the leased lines appears malicious. Thus, Justice Esguerra,
speaking for the Court of Appeals, propounded the following questions: "If it were true
that thecause of the suspension was the high prices of spare parts, gasoline and
needed materials and the reduction of the dollar allocation, why was it that only
plaintiff-appellee's certificate of public convenience was sought to be suspended? Why
did not the defendants-appellants ask for a corresponding reduction or suspension
under their own certificate along the same route? Suppose the prices of the spare
parts and needed materials were cheap, would the defendants-appellants have paid
more than what is stipulated in the lease contract? We believe not. Hence, the
suspension of operation on the leased lines was conceived as a scheme to lessen
operation costs with the expectation of greater profit." (p. 14, Decision).
Indeed, petitioners came to court with unclean hands, which fact militates against
their plea for equity.
WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE HEREBY
DISMISSED, AND THE DECISION OF THE COURT OF APPEALS DATED AUGUST 31,
1964 IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONERS.
Makalintal, C.J., Castro, Teehankee and Muoz Palma, JJ., concur.
Esguerra, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44349 October 29, 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal,
Branch XXVI; COURT OF APPEALS and TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.

TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution. The Civil Code
authorizes the release of an obligor when the service has become so difficult as to be
manifestly beyond the contemplation of the parties but does not authorize the courts
to modify or revise the subdivision contract between the parties or fix a different
sharing ratio from that contractually stipulated with the force of law between the
parties. Private respondent's complaint for modification of the contract manifestly has
no basis in law and must therefore be dismissed for failure to state a cause of action.
On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for
modification of the terms and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in Davao City), making the
following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant
worldwide spiralling of prices, which are not within the control of plaintiff, of all
commodities including basis raw materials required for such development work, the
cost of development has risen to levels which are unanticipated, unimagined and not
within the remotest contemplation of the parties at the time said agreement was
entered into and to such a degree that the conditions and factors which formed the
original basis of said contract, Annex 'A', have been totally changed; 'That further
performance by the plaintiff under the contract.
That further performance by the plaintiff under the contract,Annex 'S',
will result in situation where defendants would be unustly enriched at
the expense of the plaintiff; will cause an inequitous distribution of
proceeds from the sales of subdivided lots in manifest actually result in
the unjust and intolerable exposure of plaintiff to implacable losses, all
such situations resulting in an unconscionable, unjust and immoral
situation contrary to and in violation of the primordial concepts of good
faith, fairness and equity which should pervade all human relations.
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as
the latter's fixed and sole share and participation an amount equivalent to forty (40%)
percent of all cash receifpts fromthe sale of the subdivision lots"
Respondent pray of the Rizal court of first instance that "after due trial, this Honorable
Court render judgment modifying the terms and conditions of the contract ... by fixing
the proer shares that shouls pertain to the herein parties out of the gross proceeds
from the sales of subdivided lots of subjects subdivision".
Petitioners moved to dismiss the complaint principally for lack of cause of action, and
upon denial thereof and of reconsideration by the lower court elevated the matter on
certiorari to respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the
preliminary injunction previously issued by it and dimissed petition on the ground
that under Article 1267 of the Civil Code which provides that
ART. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
1

... a positive right is created in favor of the obligor to be released from the
performance of an obligation in full or in part when its performance 'has
become so difficult as to be manifestly beyond the contemplation of the
parties.
Hence, the petition at abar wherein petitioners insist that the worldwide increase
inprices cited by respondent does not constitute a sufficient casue of action for
modification of the subdivision contrct. After receipt of respondent's comment, the
Court in its Resolution of September 13, 1976 resolved to treat the petition as special
civil actionand declared the case submitted for decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code Commission's report
giving the rationale for Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor.
However, it is submitted that when the service has become so difficult as
to be manifestly beyond the contemplation of the parties, the court
should be authorized to release the obligor in whole or in part. The
intention of the parties should govern and if it appears that the service
turns out to be so difficult as have been beyond their contemplation, it
would be doing violence to that intention to hold the obligor still
responsible. ...
2

It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the
subdivision contract, assuming it could show at the trial that the service undertaken
contractually by it had "become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's upholding of respondet's
complaint and dismissal of the petition would be justifiable under the cited codal
article. Without said article, respondent would remain bound by its contract under the
theretofore prevailing doctrine that performance therewith is ot excused "by the fact
that the contract turns out to be hard and improvident, unprofitable, or unespectedly
burdensome",
3
since in case a party desires to be excuse from performance in the
event of such contingencies arising, it is his duty to provide threfor in the contract.
But respondent's complaint seeks not release from the subdivision contract but that
the court "render judgment I modifying the terms and Conditions of the Contract by
fixing the proper shares that should pertain to the herein parties out of the gross
proceed., from the sales of subdivided lots of subject subdivision". The cited article
does not grant the courts this authority to remake, modify or revise the contract or to
fix the division of shares between the parties as contractually stipulated with the force
of law between the parties, so as to substitute its own terms for those covenanted by
the partiesthemselves. Respondent's complaint for modification of contract manifestly
has no basis in law and therefore states no cause of action. Under the particular
allegations of respondent's complaint and the circumstances therein averred, the
courts cannot even in equity grant the relief sought.
A final procedural note. Respondent cites the general rule that an erroneous order
denying a motion to dismiss is interlocutory and should not be corrected by certiorari
but by appeal in due course. This case however manifestly falls within the recognized
exception that certiorari will lie when appeal would not prove to be a speedy and
adequate remedy.' Where the remedy of appeal would not, as in this case, promptly
relieve petitioners from the injurious effects of the patently erroneous order
maintaining respondent's baseless action and compelling petitioners needlessly to go
through a protracted trial and clogging the court dockets by one more futile case,
certiorari will issue as the plain, speedy and adequate remedy of an aggrieved party.
ACCORDINGLY, the resolution of respondent appellate court is reversed and the
petition for certiorari is granted and private respondent's complaint in the lower court
is ordered dismissed for failure to state a sufficient cause of action. With costs in all
instances against private respondent.
Makasiar, Muoz Palma, Concepcion, Jr., and Martin JJ., concur.

Footnotes
1 Other Civil Code articles cited by respondent court as justifyng the
complaint were Articles 19 and 1159 which read:
ART. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due and
observe honesty and good faith.
xxx xxx xxx
ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 136202 January 25, 2007
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO,
Respondents
D E C I S I O N
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of
the Decision
1
dated April 3, 1998, and the Resolution
2
dated November 9, 1998, of the
Court of Appeals in CA-G.R. CV No. 42241.
The facts
3
are as follows:
A.A. Salazar Construction and Engineering Services filed an action for a sum of money
with damages against herein petitioner Bank of the Philippine Islands (BPI) on
December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City.
The complaint was later amended by substituting the name of Annabelle A. Salazar as
the real party in interest in place of A.A. Salazar Construction and Engineering
Services. Private respondent Salazar prayed for the recovery of the amount of Two
Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos
(P267,707.70) debited by petitioner BPI from her account. She likewise prayed for
damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo,
third-party defendant and herein also a private respondent, demanded from the former
payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-
Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three
(3) checks, which were allegedly payable to him, but which were deposited with the
petitioner bank to private respondent Salazars account (Account No. 0203-1187-67)
without his knowledge and corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No.
0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of
Account No. 0203-1187-67 where the checks were deposited, since this account was
already closed by private respondent Salazar or had an insufficient balance.
Private respondent Salazar was advised to settle the matter with Templonuevo but
they did not arrive at any settlement. As it appeared that private respondent Salazar
was not entitled to the funds represented by the checks which were deposited and
accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from
her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo
by means of a cashiers check. The difference between the value of the checks
(P267,692.50) and the amount actually debited from her account (P267,707.70)
represented bank charges in connection with the issuance of a cashiers check to
Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted
the payment to him of P267,692.50 and argued that said payment was to correct the
malicious deposit made by private respondent Salazar to her private account, and that
petitioner banks negligence and tolerance regarding the matter was violative of the
primary and ordinary rules of banking. He likewise contended that the debiting or
taking of the reimbursed amount from the account of private respondent Salazar by
petitioner BPI was a matter exclusively between said parties and may be pursuant to
banking rules and regulations, but did not in any way affect him. The debiting from
another account of private respondent Salazar, considering that her other account was
effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and
ordering the latter to pay as follows:
1. The amount of P267,707.70 with 12% interest thereon from September 16,
1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED
for lack of merit.
Third-party defendants [i.e., private respondent Templonuevos] counterclaim is
hereby likewise DISMISSED for lack of factual basis.
SO ORDERED.
4

On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that
respondent Salazar was entitled to the proceeds of the three (3) checks
notwithstanding the lack of endorsement thereon by the payee. The CA concluded that
Salazar and Templonuevo had previously agreed that the checks payable to JRT
Construction and Trading
5
actually belonged to Salazar and would be deposited to her
account, with petitioner acquiescing to the arrangement.
6

Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of the
Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on
Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the provisions of
Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that the account from which BPI debited the amount of
P267,707.70 belonged to a corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on
speculations, surmises or conjectures, that there was an agreement between SALAZAR
and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by
SALAZAR to her personal account and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely on
speculation, surmises or conjectures, that SALAZAR suffered great damage and
prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower
court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing the
third-party complaint of BPI.
7

The issues center on the propriety of the deductions made by petitioner from private
respondent Salazars account. Stated otherwise, does a collecting bank, over the
objections of its depositor, have the authority to withdraw unilaterally from such
depositors account the amount it had previously paid upon certain unendorsed order
instruments deposited by the depositor to another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when found in
the possession of a person who is neither a payee nor the indorsee thereof, has
been lawfully transferred for value. Hence, the CA should not have presumed
that Salazar was a transferee for value within the contemplation of Section 49
of the Negotiable Instruments Law,
8
as the latter applies only to a holder
defined under Section 191of the same.
9

2. Salazar failed to adduce sufficient evidence to prove that her possession of
the three checks was lawful despite her allegations that these checks were
deposited pursuant to a prior internal arrangement with Templonuevo and that
petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal compensation
because in deducting the subject amount from Salazars account, petitioner was
merely rectifying the undue payment it made upon the checks and exercising
its prerogative to alter or modify an erroneous credit entry in the regular course
of its business.
4. The debit of the amount from the account of A.A. Salazar Construction and
Engineering Services was proper even though the value of the checks had been
originally credited to the personal account of Salazar because A.A. Salazar
Construction and Engineering Services, an unincorporated single
proprietorship, had no separate and distinct personality from Salazar.
5. Assuming the deduction from Salazars account was improper, the CA should
not have dismissed petitioners third-party complaint against Templonuevo
because the latter would have the legal duty to return to petitioner the proceeds
of the checks which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual findings made
by the CA. The CAs conclusion that the deductions from the bank account of A.A.
Salazar Construction and Engineering Services were improper stemmed from its
finding that there was no ineffective payment to Salazar which would call for the
exercise of petitioners right to set off against the formers bank deposits. This finding,
in turn, was drawn from the pleadings of the parties, the evidence adduced during
trial and upon the admissions and stipulations of fact made during the pre-trial, most
significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the
amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount
of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August
28, 1990 for the amount of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were
payable to the order of JRT Construction and Trading, the name and style
under which Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon such
checks, Salazar was able to deposit the checks in her personal savings account
with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate occasions
over a span of eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized encashment
of the checks after the lapse of one year from the date of the last check.
10

Petitioner concedes that when it credited the value of the checks to the account of
private respondent Salazar, it made a mistake because it failed to notice the lack of
endorsement thereon by the designated payee. The CA, however, did not lend credence
to this claim and concluded that petitioners actions were deliberate, in view of its
admission that the "mistake" was committed three times on three separate occasions,
indicating acquiescence to the internal arrangement between Salazar and
Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar deposited were not
indorsed. Three times she deposited them to her account and three times the amounts
borne by these checks were credited to the same. And in those separate occasions, the
bank did not return the checks to her so that she could have them indorsed. Neither
did the bank question her as to why she was depositing the checks to her account
considering that she was not the payee thereof, thus allowing us to come to the
conclusion that defendant-appellant BPI was fully aware that the proceeds of the three
checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and Templonuevo, it is
most unlikely that appellant BPI (or any bank for that matter) would have accepted the
checks for deposit on three separate times nary any question. Banks are most finicky
over accepting checks for deposit without the corresponding indorsement by their
payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is
not one they know very well.
11

The CA likewise sustained Salazars position that she received the checks from
Templonuevo pursuant to an internal arrangement between them, ratiocinating as
follows:
If there was indeed no arrangement between Templonuevo and the plaintiff over the
three questioned checks, it baffles us why it was only on August 31, 1991 or more
than a year after the third and last check was deposited that he demanded for the
refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him would have demanded payment by
his debtor from the moment the same became due and demandable. More so if the
sum involved runs in hundreds of thousand of pesos. By and large, every person, at
the very moment he learns that he was deprived of a thing which rightfully belongs to
him, would have created a big fuss. He would not have waited for a year within which
to do so. It is most inconceivable that Templonuevo did not do this.
12

Generally, only questions of law may be raised in an appeal by certiorari under Rule 45
of the Rules of Court.
13
Factual findings of the CA are entitled to great weight and
respect, especially when the CA affirms the factual findings of the trial court.
14
Such
questions on whether certain items of evidence should be accorded probative value or
weight, or rejected as feeble or spurious, or whether or not the proofs on one side or
the other are clear and convincing and adequate to establish a proposition in issue,
are questions of fact. The same holds true for questions on whether or not the body of
proofs presented by a party, weighed and analyzed in relation to contrary evidence
submitted by the adverse party may be said to be strong, clear and convincing, or
whether or not inconsistencies in the body of proofs of a party are of such gravity as to
justify refusing to give said proofs weight all these are issues of fact which are not
reviewable by the Court.
15

This rule, however, is not absolute and admits of certain exceptions, namely: a) when
the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; b) when the inference made is manifestly mistaken, absurd, or
impossible; c) when there is a grave abuse of discretion; d) when the judgment is
based on a misapprehension of facts; e) when the findings of fact are conflicting; f)
when the CA, in making its findings, went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee; g) when the findings of
the CA are contrary to those of the trial court; h) when the findings of fact are
conclusions without citation of specific evidence on which they are based; i) when the
finding of fact of the CA is premised on the supposed absence of evidence but is
contradicted by the evidence on record; and j) when the CA manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion.
16

In the present case, the records do not support the finding made by the CA and the
trial court that a prior arrangement existed between Salazar and Templonuevo
regarding the transfer of ownership of the checks. This fact is crucial as Salazars
entitlement to the value of the instruments is based on the assumption that she is a
transferee within the contemplation of Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the
payee or indorsee delivers a negotiable instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument payable to
his order transfers it for value without indorsing it, the transfer vests in the transferee
such title as the transferor had therein, and the transferee acquires in addition, the
right to have the indorsement of the transferor. But for the purpose of determining
whether the transferee is a holder in due course, the negotiation takes effect as of the
time when the indorsement is actually made.
17

It bears stressing that the above transaction is an equitable assignment and the
transferee acquires the instrument subject to defenses and equities available among
prior parties. Thus, if the transferor had legal title, the transferee acquires such title
and, in addition, the right to have the indorsement of the transferor and also the right,
as holder of the legal title, to maintain legal action against the maker or acceptor or
other party liable to the transferor. The underlying premise of this provision, however,
is that a valid transfer of ownership of the negotiable instrument in question has
taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor indorsees of such instruments. The weight of
authority is that the mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive payment, or of the
right of one who has made payment to be discharged from liability. Thus, something
more than mere possession by persons who are not payees or indorsers of the
instrument is necessary to authorize payment to them in the absence of any other
facts from which the authority to receive payment may be inferred.
18

The CA and the trial court surmised that the subject checks belonged to private
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a
one-year delay in demanding reimbursement for the proceeds of the same. To the
Courts mind, however, such period of delay is not of such unreasonable length as to
estop Templonuevo from asserting ownership over the checks especially considering
that it was readily apparent on the face of the instruments
19
that these were crossed
checks.
In State Investment House v. IAC,
20
the Court enumerated the effects of crossing a
check, thus: (1) that the check may not be encashed but only deposited in the bank;
(2) that the check may be negotiated only once - to one who has an account with a
bank; and (3) that the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose so that such holder must inquire if
the check has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction with
Salazars possession of the checks, it cannot be said that the presumption of
ownership in Templonuevos favor as the designated payee therein was sufficiently
overcome. This is consistent with the principle that if instruments payable to named
payees or to their order have not been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive payment in their own right.
21

The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of
Salazar because the term "given" does not pertain merely to a transfer of physical
possession of the instrument. The phrase "given or indorsed" in the context of a
negotiable instrument refers to the manner in which such instrument may be
negotiated. Negotiable instruments are negotiated by "transfer to one person or
another in such a manner as to constitute the transferee the holder thereof. If payable
to bearer it is negotiated by delivery. If payable to order it is negotiated by the
indorsement completed by delivery."
22
The present case involves checks payable to
order. Not being a payee or indorsee of the checks, private respondent Salazar could
not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the
instrument without indorsement. Precisely because the situation is abnormal, it is but
fair to the maker and to prior holders to require possessors to prove without the aid of
an initial presumption in their favor, that they came into possession by virtue of a
legitimate transaction with the last holder.
23
Salazar failed to discharge this burden,
and the return of the check proceeds to Templonuevo was therefore warranted under
the circumstances despite the fact that Templonuevo may not have clearly
demonstrated that he never authorized Salazar to deposit the checks or to encash the
same. Noteworthy also is the fact that petitioner stamped on the back of the checks
the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby
making the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser, petitioners liability
to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars
account for the value of the checks it previously credited in her favor. It is of no
moment that the account debited by petitioner was different from the original account
to which the proceeds of the check were credited because both admittedly belonged to
Salazar, the former being the account of the sole proprietorship which had no separate
and distinct personality from her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:
24

A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client's
account for the value of a dishonored check that has previously been credited has
fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code
provides that "[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code
may take place "when all the requisites mentioned in Article 1279 are present," as
follows:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of set-off over the amount
it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted
judiciously is an entirely different matter.
25
As businesses affected with public
interest, and because of the nature of their functions, banks are under obligation to
treat the accounts of their depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
26
In this regard, petitioner was clearly remiss in
its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the
obvious lack of indorsement thereon, petitioner permitted the encashment of these
checks three times on three separate occasions. This negates petitioners claim that it
merely made a mistake in crediting the value of the checks to Salazars account and
instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of
ownership of checks and acted deliberately in paying the same, contrary to ordinary
banking policy and practice. It must be emphasized that the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it, for the purpose
of determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the
law thus holds it to a high standard of conduct.
27
The taking and collection of a check
without the proper indorsement amount to a conversion of the check by the bank.
28

More importantly, however, solely upon the prompting of Templonuevo, and with full
knowledge of the brewing dispute between Salazar and Templonuevo, petitioner
debited the account held in the name of the sole proprietorship of Salazar without
even serving due notice upon her. This ran contrary to petitioners assurances to
private respondent Salazar that the account would remain untouched, pending the
resolution of the controversy between her and Templonuevo.
29
In this connection, the
CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of
petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her
that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No.
0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled
matters with Templonuevo. But, in an unexpected move, in less than two weeks
(eleven days to be precise) from the time that letter was written, [petitioner] bank
issued a cashiers check in the name of Julio R. Templonuevo of the J.R.T.
Construction and Trading for the sum of P267,692.50 (Exhibit "8") and debited said
amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be
frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if
not a fraudulent, wanton and reckless disregard of the right of its depositor.
The records further bear out the fact that respondent Salazar had issued several
checks drawn against the account of A.A. Salazar Construction and Engineering
Services prior to any notice of deduction being served. The CA sustained private
respondent Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount of P267,692.50 from the
account of A.A. Salazar Construction and Engineering Services caused plaintiff-
appellee great damage and prejudice particularly when she had already issued checks
drawn against the said account. As can be expected, the said checks bounced. To
prove this, plaintiff-appellee presented as exhibits photocopies of checks dated
September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits "D", "E" and
"F" respectively)
30

These checks, it must be emphasized, were subsequently dishonored, thereby causing
private respondent Salazar undue embarrassment and inflicting damage to her
standing in the business community. Under the circumstances, she was clearly not
given the opportunity to protect her interest when petitioner unilaterally withdrew the
above amount from her account without informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of damages
granted by the CA against petitioner. This whole incident would have been avoided
had petitioner adhered to the standard of diligence expected of one engaged in the
banking business. A depositor has the right to recover reasonable moral damages even
if the banks negligence may not have been attended with malice and bad faith, if the
former suffered mental anguish, serious anxiety, embarrassment and humiliation.
31

Moral damages are not meant to enrich a complainant at the expense of defendant. It
is only intended to alleviate the moral suffering she has undergone. The award of
exemplary damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable attorneys
fees is proper where exemplary damages are awarded. It is proper where depositors are
compelled to litigate to protect their interest.
32

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3,
1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R.
CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine
Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred
and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which
portion is REVERSED and SET ASIDE. In all other respects, the same are
AFFIRMED.
No costs.
SO ORDERED.
ADOLFO S. AZCUNA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chairperson
Chief Justice
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
RENATO C. CORONA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1
CA Rollo, pp. 100-116.
2
Rollo, p. 57.
3
CA Rollo, pp. 100-105.
4
Records, pp. 323-324.
5
Private respondent Templonuevo admitted that he was doing business under
the name and style, "JRT
Construction and Trading." See Records, p.179.
6
Rollo, p. 106.
7
Id. at 12-13.
8
Infra note 17.
9
Sec. 191. Definition and meaning of terms. - In this Act, unless the contract
otherwise requires:
x x x
"Holder" means the payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof;
x x x
10
Records, pp. 178-179.
11
CA Rollo, pp. 106-107.
12
Id. at 107.
13
Madrigal v. CA, G.R. No. 142944, April 15, 2005, 456 SCRA 247; Bernardo v.
CA, G.R. No. 101680, December 7, 1992, 216 SCRA 224; Remalante v. Tibe,
G.R. No. L-59514, February 25,1988, 158 SCRA 138.
14
Borromeo v. Sun, G.R. No. 75908, October 22, 1999, 317 SCRA 176.
15
Paterno v. Paterno, G.R. No. 63680, March 23, 1990, 183 SCRA 630.
16
Arcaba v. Tabancura, 421 Phil. 1096 (2001); Martinez v. CA, G.R. No. 123547,
May 21, 2001, 358 SCRA 38.
17
Act No. 2031 (1911).
18
11 Am Jur 2d, 988, citing Doubleday v. Kress, 50 NY 410, Hoffmaster v.
Black, 84 NE 423, and First Nat. Bank v. Gorman, 21 P2d 549.
19
Records, pp. 286-293.
20
G.R. No. 72764, July 13, 1989, 175 SCRA 310.
21
Supra note 18.
22
Negotiable Instruments Law, Section 30.
23
Campos Jr. and Lopez Campos, "Notes and Selected Cases on Negotiable
Instruments Law," p. 108, (1994).
24
G.R. No. 156940, December 14, 2004, 446 SCRA 282.
25
Id.
26
Prudential Bank v. CA, G.R. No. 125536, March 16, 2000, 328 SCRA 264;
Simex International [Manila], Inc. v. CA, G.R. No.88013, March 19, 1990, 183
SCRA 360; BPI v. IAC, G.R. No. 69162, February 21, 1992, 206 SCRA 408.
27
Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp., G.R.
No. L-74917, January 20,1988, 157 SCRA 188.
28
Associated Bank v. CA, G.R. No. 89802, May 7, 1992, 208 SCRA 465; City
Trust Banking Corp. v. IAC, G.R. No. 84281, May 27, 1994, 232 SCRA 559.
29
CA rollo, p. 112; Transcript of Stenographic Notes dated November 9, 1992,
pp. 8-9.
30
CA rollo, pp. 111.
31
Civil Code, Article 2217.
32
Prudential Bank v. CA, supra note 26.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22490 May 21, 1969
GAN TION, petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of the
Court of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF
MANILA, respondents.
Burgos and Sarte for petitioner.
Roxas, Roxas, Roxas and Associates for respondents.
MAKALINTAL, J.:
The sole issue here is whether or not there has been legal compensation between
petitioner Gan Tion and respondent Ong Wan Sieng.
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the
latter filed an ejectment case against the former, alleging non-payment of rents for
August and September of that year, at P180 a month, or P360 altogether. The
defendant denied the allegation and said that the agreed monthly rental was only
P160, which he had offered to but was refused by the plaintiff. The plaintiff obtained a
favorable judgment in the municipal court (of Manila), but upon appeal the Court of
First Instance, on July 2, 1962, reversed the judgment and dismissed the complaint,
and ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees. That
judgment became final.
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was
increasing the rent to P180 a month, effective November 1st, and at the same time
demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00,
corresponding to a period from August 1961 to October 1963.lwphi1.et
In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a writ
of execution of the judgment for attorney's fees in his favor. Gan Tion went on
certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that
Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. The
appellate court accepted the petition but eventually decided for the respondent,
holding that although "respondent Ong is indebted to the petitioner for unpaid rentals
in an amount of more than P4,000.00," the sum of P500 could not be the subject of
legal compensation, it being a "trust fund for the benefit of the lawyer, which would
have to be turned over by the client to his counsel." In the opinion of said court, the
requisites of legal compensation, namely, that the parties must be creditors and
debtors of each other in their own right (Art. 1278, Civil Code) and that each one of
them must be bound principally and at the same time be a principal creditor of the
other (Art. 1279), are not present in the instant case, since the real creditor with
respect to the sum of P500 was the defendant's counsel.
This is not an accurate statement of the nature of an award for attorney's fee's. The
award is made in favor of the litigant, not of his counsel, and is justified by way of
indemnity for damages recoverable by the former in the cases enumerated in Article
2208 of the Civil Code.
1
It is the litigant, not his counsel, who is the judgment creditor
and who may enforce the judgment by execution. Such credit, therefore, may properly
be the subject of legal compensation. Quite obviously it would be unjust to compel
petitioner to pay his debt for P500 when admittedly his creditor is indebted to him for
more than P4,000.
WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of
execution issued by the Court of First Instance of Manila in its Civil Case No. 49535 is
set aside. Costs against respondent.
Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Teehankee and Barredo JJ., took no part.
Concepcion, C.J., and Castro, J., are on leave.
Footnotes
1
Fores vs. Miranda, 105 Phil. 268, 272; Necesito, et al. vs. Paras,et al., 104 Phil.
75, 86.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-69255 February 27, 1987
PHILIPPINE NATIONAL BANK, petitioner,
vs.
GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG
ACERO CHUA, respondents.
Leopoldo E. Petilla for respondents.

NARVASA, J.:
Savings Account No. 010-5878868-D of Isabela Wood Construction & Development
Corporation, opened with the Philippine National Bank on March 9, 1979 in the
amount of P2 million is the subject of two (2) conflicting claims, sought to be
definitively resolved in the proceedings at bar.
1
One claim is asserted by the ACEROS
Gloria G. Vda. de Ong Acero, Arnolfo Ong Acero and Soledad Ong Acero-Chua,
judgment creditors of the depositor (hereafter simply referred to as ISABELA) who
seek to enforce against said savings account the final and executory judgment
rendered in their favor by the Court of First Instance of Rizal QC Br. XVI). The other
claim has been put forth by the Philippine National Bank (hereafter, simply PNB)
which claims that since ISABELA was at some point in time both its debtor and
creditor-ISABELA's deposit being deemed a loan to it (PNB)-there had occurred a
mutual set-off between them, which effectively precluded the ACEROS' recourse to
that deposit.
The controversy was decided by the Intermediate Appellate Court adversely to the
PNB. It is this decision that the PNB would have this Court reverse.
The ACEROS' claim to the bank deposit is more specifically founded upon the
garnishment thereof by the sheriff, effected in execution of the partial judgment
rendered by the CFI at Quezon City in their favor on November 18, 1979. The partial
judgment ordered payment by ISABELA to the ACEROS of the amount of
P1,532,000.07.
2
Notice of garnisment was served on the PNB on January 9, 1980,
pursuant to the writ of execution dated December 23, 1979.
3
This was followed by an
Order issued on February 15, 1980 directing PNB to hand over this amount of
P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. Not quite two
months later, or on April 8, 1980, a second (and the final and complete judgment) was
promulgated by the CFI in favor of the ACEROS and against ISABELA, the dispositive
part of which is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of plaintiffs and against the defendant:
1. Reiterating the dispositive portion of the partial judgment issued by
this Court, dated November 16, 1979, ordering the defendant to pay to
the plaintiff the amount of P1,532,000.07 as principal, with interest at
12% per annum from December 11, 1975 until the whole amount is fully
paid;
2. Ordering defendant to pay the plaintiffs the amount of P207,148.00 as
compensatory damages, with legal interest thereon from the filing of the
complaint until the whole amount is fully paid;
3. Ordering defendant to pay plaintiffs the amount of P383,000.00 as
and by way of attorneys fees.
4

On the other hand, PNB's claim to the two-million-peso deposit in question is made to
rest on an agreement between it and ISABELA in virtue of which, according to PNB: (1)
the deposit was made by ISABELA as "collateral" in connection with its indebtedness
to PNB as to which it (ISABELA) had assumed certain contractual undertakings; and
(2) in the event of ISABELA's failure to fulfill those undertakings, PNB was empowered
to apply the deposit to the payment of that indebtedness. The facts upon which PNB's
theory stands are summarized in the Order of CFI Judge Solano dated October 1,
1982,
5
relevant portions of which are here reproduced:
On October 13, 1977, Isabela Wood Construction and Development
Corporation ** entered into a Credit Agreement with PNB. Under the
agreement PNB, having approved the application of defendant (Isabela &
c.) for the establishment for its account of a deferred letter of credit in the
amount of DM 4,695,947.00 in favor of the Machinenfabric Augsburg
Nunberg (MAN) of Germany from whom defendant purchased thirty-five
(35) units of MAN trucks, defendant corporation agreed to put up, as
collaterals, among others, the following:
4. The CLIENT shall assign to the BANK the proceeds of its
contract with the Department of Public Works for the
construction of Nagapit Suspension Bridge (Substructure)
in Cagayan.
This particular proviso in the aforesaid agreement was to be
subsequently confirmed by Faustino Dy, Jr., as president of defendant
corporation, in a letter to the PNB, dated February 21, 1970, quoted in
full as follows:
Gentlemen:
This is to confirm our arrangement that the treasury
warrant in the amount of P2,704 millon in favor of Isabela
Wood Construction and Development Corporation to be
delivered either by the Commission on Audit or the Ministry
of Public Highways, shall be placed in a savings account
with your bank to the extent of P 2 million.
The said amount shall remain in the savings account until
we are able to comply with the delivery and registration of
the mortgage in favor of the Philippine National Bank of our
Paranaque property, and the securing from Metropolitan
Bank and Home Owners Savings and Loan Association to
snow PNB a second mortgage on the properties of Isabela
Wood Construction Group, Inc., presently under first
mortgage with them.
Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit
Agreement, quoted above, PNB thru its International Department opened
the savings account in question, under Account No. 010-58768-D, with
an initial deposit of P2,000,000.00, proceeds of a treasury warrant
delivered to PNB (EXHIBIT 3-A).
xxx xxx xxx
Since defendant corporation failed to deliver to PNB by way of mortgage
its Paranaque property, neither was defendant corporation able to secure
from Metropolitan Bank and Home Owners Savings and Loan Association
its consent to allow PNB a second mortgage, and considering that the
obligation of defendant corporation to PNB have been due and unsettled,
PNB applied the amount of P 2,102804.11 in defendant's savings
account of PNB.
It was upon this version of the facts, and its theory thereon based on a mutual set-off,
or compensation, between it and ISABELA in accordance with Articles 1278 et al. of
the Civil Code that PNB intervened in the action between the ACEROS and
ISABELA on or about February 28, 1980 and moved for reconsideration of the Order of
February 15, 1980 (requiring it to turn over to the sheriff the sum of P1,532,000.07,
supra: fn. 2). But its motion met with no success. It was denied by the Lower Court
(Hon. Judge Apostol, presiding) by Order dated May 14, 1980.
6
And a motion for the
reconsideration of that Order of May 14, 1980 was also denied, by Order dated August
11, 1980.
PNB again moved for reconsideration, this time of the Order of August 11, 1980; it
also pleaded for suspension in the meantime of the enforcement of the Orders of
February 15, and May 14, 1980. Its persistence seemingly paid off. For the Trial Court
(now presided over by Hon. Judge Solano), directed on October 9, 1980 the setting
aside of the said Orders of May 14, and August 11, 1980, and set for hearing PNB's
first motion for the reconsideration of the Order of February 15, 1980.
7
Several
months afterwards, or more precisely on October 1, 1982, the Order of February 15,
1980 was itself also struck down,
8
the Lower Court opining that under the
circumstances, there had been a valid assignment by ISABELA to PNB of the amount
deposited, which effectively placed that amount beyond the reach of the ACE ROS, viz:
When the two million or so treasury warrant, proceeds of defendant's
contract with the government was delivered to PNB, said amount, per
agreement aforequoted, had already been assigned by defendant
corporation to PNB, as collateral.
The said amount is not a pledge.
The assignment is valid. The defendant need not be the owner thereof at
the time of assignment.
An assignment of credit and other incorporeal rights shall
be perfected in accordance with the provisions of Article
1475.
The contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of
the interest and upon its price.
It is not necessary for the perfection of the contract of sale that the thing
be delivered and that the price be paid. Neither is it necessary that the
thing should belong to the vendor at the time of the perfection of the
contract, it being sufficient that the vendor has the right to transfer
ownership thereof at the time it is delivered.
The shoe was now on the other foot. It was the ACEROS' turn to move for
reconsideration, which they did as regards this Order of October 1, 1982; but by Order
promulgated on December 14, 1982, the Court declined to modify its resolution.
The ACEROS then appealed to the Intermediate Appellate Court which, after due
proceedings, sustained them. On September 14, 1984, it rendered judgment the
dispositive part whereof reads as follows:
WHEREFORE, the Orders of October 1 and December 14, 1982 of the
Court a quo are hereby REVERSED and SET ASIDE, and in their stead,
it is hereby adjudged:
1. That the Order of February 15, 1980 of the Court a quo is hereby
ordered reinstated;
2. That intervenor PNB must deliver the amount stated in the Order of
February 15, 1980 with interest thereon at 12% from February 15, 1980
until delivered to appellants, the amount of interest to be paid by PNB
and not to be deducted from the deposit of Isabela Wood;
3. That intervenor PNB must pay attorney's fees and expenses of
litigation to appellants in the amount of P10,000.00 plus the costs of
suit.
9

This dispositive part was subsequently modified at the ACEROS' instance, by
Resolution dated November 8, 1984 which inter alia "additionally ** (ordered) PNB to
likewise deliver to appellants the balance of the deposit of Isabela Wood Construction
and Development Corporation after first deducting the amount applied to the partial
judgment of P1,532,000.00 in satisfaction of appeallants' final judgment."
10

PNB's main thesis is that when it opened a savings account for ISABELA on March 9,
1979 in the amount of P 2M, it (PNB) became indebted to ISABELA in that amount.
11

So that when ISABELA itself subsequently came to be indebted to it on account of
ISABELA's breach of the terms of the Credit Agreement of October 13, 1977, and
therefore ISABELA and PNB became at the same time creditors and debtors of each
other, compensation automatically took place between them, in accordance with
Article 1278 of the Civil Code. The amounts due from each other were, in its view,
applied by operation of law to satisfy and extinguish their respective credits. More
specifically, the P2M owed by PNB to ISABELA was automatically applied in payment
and extinguishment of PNB's own credit against ISABELA. This having taken place,
that amount of P2M could no longer be levied on by any other creditor of ISABELA, as
the ACEROS attempted to do in the case at bar, in order to satisfy their judgment
against ISABELA.
Article 1278 of the Civil Code does indeed provide that "Compensation shall take when
two persons, in their own right, are creditors and debtors of each other. " Also true is
that compensation may transpire by operation of law, as when all the requisites
therefor, set out in Article 1279, are present. Nonetheless, these legal provisions can
not apply to PNB's advantage under the circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the factual finding of the
IAC, by which upon firmly established rules even this Court is bound,
12
that it has
not proven by competent evidence that it is a creditor of ISABELA. The only evidence
present by PNB towards this end consists of two (2) documents marked in its behalf as
Exhibits 1 and 2, But as the IAC has cogently observed, these documents do not prove
any indebtedness of ISABELA to PNB. All they do prove is that a letter of credit might
have been opened for ISABELA by PNB, but not that the credit was ever availed of (by
ISABELA's foreign correspondent MAN, or that the goods thereby covered were in fact
shipped, and received by ISABELA.
Quite obviously, as the IAC has further observed, the most persuasive evidence of
these facts i.e., ISABELA's availment of the credit, as well as the actual delivery of
the goods covered by and shipped pursuant to the letter of credit-assuming these facts
to have occurred, would naturally and logically have been in PNB's possession and
could have been readily submitted to the Court, to wit:
1. The document of availment by the foreign creditor of the letter of
credit.
2. The document of release of the amounts mentioned in the agreement.
3. The documents showing that the trucks (transported to the
Philippines by the foreign creditor [MAN] were shipped to ** and received
by Isabela.
4. The trust receipts by which possession was given to Isabela of the 35
(Imported) trucks.
5. The chattel mortgages over the trucks required under No. 3 of II
Collaterals of the Credit Agreement (Exhibit 1).
6. The receipt by Isabela of the standing accounts sent by PNB.
7. There receipt of the letter of demand by Isabela Wood.
13

It bears stressing that PNB did not at all lack want for opportunity to produce these
documents, if it does indeed have them. Judge Solano, it should be recalled,
specifically allowed PNB to introduce evidence in relation to its Motion for
Reconsideration filed on August 26, 1980,
14
and thus furnished the occasion for PNB
to prove, among others, ISABELA's debt to it. PNB unaccountably failed to do so.
Moreover, PNB never even attempted to offer or exhibit such evidence, in the course of
the appellate proceedings before the IAC, which is a certain indication, in that Court's
view, that PNB does not really have these proofs at ala
For this singular omission PNB offers no explanation except that it saw no necessity to
submit the Documents in evidence, because sometime on March 14, 1980, the
ACEROS's attorney had been shown those precise documents setting forth
ISABELA's loan obligations, such as the import bills and the sight draft covering
drawings on the L/C for ISABELA's account and after all, the ACEROS had not
really put this indebtedness in issue.
15
The explanation cannot be taken seriously. In
the picturesque but forceful language of the Appellate Court, the explanation "is silly
as you do not prove a fact in issue by showing evidence in support thereof to the
opposing counsel; you prove it by submitting evidence to the proper court." The fact is
that the record does not disclose that the ACEROS have ever admitted the asserted
theory of ISABELA's indebtedness to PNB. At any rate, not being privies to whatever
transactions might have generated that indebtedness, they were clearly not in a
position to make any declaration on the matter. The fact is, too, that the avowed
indebtedness of ISABELA was an essential element of PNB's claim to the former's P2
million deposit and hence, it was incumbent on the latter to demonstrate it by
competent evidence if it wished its claim to be judicially recognized and enforced. This,
it has failed to do. The failure is fatal to its claim.
PNB has however deposited an alternative theory, which is that the P2M deposit had
been assigned to it by ISABELA as "collateral," although not by way of pledge; that
ISABELA had explicitly authorized it to apply the P2M deposit in payment of its
indebtedness; and that PNB had in fact applied the deposit to the payment of
ISABELA's debt on February 26, 1980, in concept of voluntary compensation.
16
This
second, alternative theory, is as untenable as the first.
In the first place, there being no indebtedness to PNB on ISABELA's part, there is in
consequence no occasion to speak of any mutual set-off, or compensation, whether it
be legal, i.e., which automatically occurs by operation of law, or voluntary, i.e., which
can only take place by agreement of the parties.
17

In the second place, the documents indicated by PNB as constitutive of the claimed
assignment do not in truth make out any such transaction. While the Credit
Agreement of October 13, 1977 (Exh. 1) declares it to be ISABELA's intention to
"assign to the BANK the proceeds of its contract with the Department of Public Works
for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan,"
18
it
does not appear that that intention was adhered to, much less carried out. The letter
of ISABELA's president dated February 21, 1979 (Exh. 2) would on the contrary seem
to indicate the abandonment of that intention, in the light of the statements therein
that the amount of P2M (representing the bulk of the proceeds of its contract referred
to) "shall be placed in a savings account" and that "said amount shall remain in the
savings account until ** (ISABELA is) able to comply with" specified commitments
these being: the constitution and registration of a mortgage in PNB's favor over its
"Paranaque property," and the obtention from the first mortgage thereof of consent for
the creation of a second lien on the property.
19
These statements are to be sure
inconsistent with the notion of an assignment of the money. In addition, there is yet
another circumstance militating against the actuality of such an assignment-the "most
telling argument" against it, in fact, in the line of the Appellate Court-and that is, that
PNB itself, through its International Department, deposited the whole amount of ?2
million, not in its name, but in the name of ISABELA,
20
without any accompanying
statement even remotely intimating that it (PNB) was the owner of the deposit, or that
an assignment thereof was intended, or that some condition or lien was meant to
burden it.
Even if it be assumed that such an assignment had indeed been made, and PNB had
been really authorized to apply the P2M deposit to the satisfaction of ISABELA's
indebtedness to it, nevertheless, since the record reveals that the application was
attempted to be made by PNB only on February 26, 1980, that essayed application
was ineffectual and futile because at that time, the deposit was already in custodia
legis, notice of garnishment thereof having been served on PNB on January 9, 1980
(pursuant to the writ of execution issued by the Court of First Instance on December
23, 1979 for the enforcement of the partial judgment in the ACEROS' favor rendered
on November 18,1979).
One final factor precludes according validity to PNB's arguments. On the assumption
that the P 2M deposit was in truth assigned as some sort of "collateral" to PNB
although as PNB insists, it was not in the form of a pledge the agreement postulated
by PNB that it had been authorized to assume ownership of the fund upon the coming
into being of ISABELA s indebtedness is void ab initio, it being in the nature of a
pactum commisoruim proscribed as contrary to public policy.
21

WHEREFORE, the judgment of the Intermediate Appellate Court subject of the instant
appeal, being fully in accord with the facts and the law, is hereby affirmed in toto.
Costs against petitioner.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ.,
concur.

Footnotes
1 Appeal by certiorari from the judgment of the Intermediate Appellate
Court in AC-G.R. CV No. 009978: Caguioa, J. ponente.
2 Rollo, pp. 115-116.
3 Id., p. 117.
4 Id., p. 78.
5 Id., pp. 118-121.
6 Id., pp. 51-52.
7 Id., pp. 117.
8 Id., pp. 118-121.
9 Id., p. 64.
10 Id., p. 71.
11 Citing: Tian Tiong Tick v. American Apothecaries, 38 O.G. 889 [65
Phil. 414]; Gullas v. National Bank, 62 Phil. 519; Rollo, pp. 31-35.
12 Estate of R. Jalandoni vs. C.A., et al., G.R. No. 50374-76, Sept. 24,
1986, citing Sec. 2 (2d par.), Rule 45 of the Rules of Court; Terunez v.
IAC, 134 SCRA 414, and other cases.
13 Rollo, P. 128-129.
14 Id., pp. 117-118.
15 Id., pp. 41-43.
16 Id., pp. 40-41,126-127.
17 SEE e.g., Caguioa, E., Comments & Cases on Civil Law, 1st. ed.
[1968], Vol. IV, p. 287 [citing 3 Castan, 8th ed., pp. 298-299]; Paras, Civil
Code Annotated, 11th ed (1985), Vol. IV, p. 409.
18 See footnote 5, supra.
19 See footnote 5, supra.
20 Rollo, pp. 123-124.
21 Art. 2088, Civil Code; Reyes v. Nebrija, 98 Phil. 639.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the questioned decision
of the Intermediate Appellate Court, to set aside the auction sale of his property which
took place on December 5, 1977, and to allow him to recover a 203 square meter lot
which was, sold at public auction to Ho Fernandez and ordered titled in the latter's
name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house
built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City,
Metro Manila. The lot, with an area of about 328 square meters, is described and
covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of
Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00 representing
the estimated amount equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public auction by the City Treasurer of
Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez
was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that
time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re:
Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the
cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate
of title. Upon verification through his lawyer, Francia discovered that a Final Bill of
Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11,
1978. The auction sale and the final bill of sale were both annotated at the back of
TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later
amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered
dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new
Transfer Certificate of Title in favor of the defendant Ho
Fernandez over the parcel of land including the
improvements thereon, subject to whatever encumbrances
appearing at the back of TCT No. 4739 (37795) and
ordering the same TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of
P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR
OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR
SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00
WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND
SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND
DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE
ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF
P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A
SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE
PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY
INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND
CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21,
Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's
allegations that his property was sold at public auction without notice to him and that
the price paid for the property was shockingly inadequate, amounting to fraud and
deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems
raised in his petition upon himself. While we commiserate with him at the loss of his
property, the law and the facts militate against the grant of his petition. We are
constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of
his land was expropriated on October 15, 1977. Hence, his tax obligation had been
set-off by operation of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other,
are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy
the requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at
the same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled
that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that
Internal Revenue Taxes can not be the subject of set-off or compensation. We stated
that:
A claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action
or any indebtedness of the state or municipality to one who is liable to
the state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or transaction
sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands
for taxes levied for general or local governmental purposes. The reason
on which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of duty to, and are
the positive acts of the government to the making and enforcing of which,
the personal consent of individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the
collector because he has a claim against the governmental body not included in the
tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we
stated that: "... internal revenue taxes can not be the subject of compensation:
Reason: government and taxpayer are not mutually creditors and debtors of each
other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was
due to the city government while the expropriation was effected by the national
government. Moreover, the amount of P4,116.00 paid by the national government for
the 125 square meter portion of his lot was deposited with the Philippine National
Bank long before the sale at public auction of his remaining property. Notice of the
deposit dated September 28, 1977 was received by the petitioner on September 30,
1977. The petitioner admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have been an easy matter
to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus
aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be
shown later, he claimed that he pocketed the notice of the auction sale without
reading it.
Petitioner contends that "the auction sale in question was made without complying
with the mandatory provisions of the statute governing tax sale. No evidence, oral or
otherwise, was presented that the procedure outlined by law on sales of property for
tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of
this issue, the burden of proof therefore rests upon him to show that plaintiff was duly
and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction
sale, has the burden of proof to show that there was compliance with all the
prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be
established by proof and the general rule is that the purchaser of a tax
title is bound to take upon himself the burden of showing the regularity of
all proceedings leading up to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in
depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil.
437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the
rule that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal
prerequisites have been complied with, the petitioner can not, however, deny that he
did receive the notice for the auction sale. The records sustain the lower court's
finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he
was not properly notified of the auction sale. Surprisingly, however, he
admitted in his testimony that he received the letter dated November 21,
1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He
claimed further that he was not present on December 5, 1977 the date of
the auction sale because he went to Iligan City. As long as there was
substantial compliance with the requirements of the notice, the validity
of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for
Ho Fernandez notified you that the property in question
shall be sold at public auction to the highest bidder on
December 5, 1977 pursuant to Sec. 74 of PD 464. Will you
tell the Court whether you received the original of this
letter?
A. I just signed it because I was not able to read the same.
It was just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I
and you signed upon receipt thereof but you did not read
the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part
when he ignored such notice. By his very own admission that he received the notice,
his now coming to court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule,
gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de
Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91
Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388)
we held that "alleged gross inadequacy of price is not material when the law gives the
owner the right to redeem as when a sale is made at public auction, upon the theory
that the lesser the price, the easier it is for the owner to effect redemption." In
Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands
were sold are unconscionable considering the wide divergence between
their assessed values and the amounts for which they had been actually
sold. However, while in ordinary sales for reasons of equity a transaction
may be invalidated on the ground of inadequacy of price, or when such
inadequacy shocks one's conscience as to justify the courts to interfere,
such does not follow when the law gives to the owner the right to redeem,
as when a sale is made at public auction, upon the theory that the lesser
the price the easier it is for the owner to effect the redemption. And so it
was aptly said: "When there is the right to redeem, inadequacy of price
should not be material, because the judgment debtor may reacquire the
property or also sell his right to redeem and thus recover the loss he
claims to have suffered by reason of the price obtained at the auction
sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v.
De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for
taxes, the collection of taxes in this manner would be greatly
embarrassed, if not rendered altogether impracticable. In Black on Tax
Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is
sold for taxes, the inadequacy of the price given is not a valid objection to
the sale." This rule arises from necessity, for, if a fair price for the land
were essential to the sale, it would be useless to offer the property.
Indeed, it is notorious that the prices habitually paid by purchasers at
tax sales are grossly out of proportion to the value of the land. (Rothchild
Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et
al. (267 P. 555):
Like most cases of this character there is here a certain element of
hardship from which we would be glad to relieve, but do so would
unsettle long-established rules and lead to uncertainty and difficulty in
the collection of taxes which are the life blood of the state. We are
convinced that the present rules are just, and that they bring hardship
only to those who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly
appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay
City, which necessitated the expropriation of adjoining areas, real estate values have
gone up in the area. However, the price quoted by the petitioner for a 203 square
meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer
the petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds,
there are no strong considerations of substantial justice in his favor. Mr. Francia failed
to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to
have pocketed the notice of sale without reading it which, if true, is still an act of
inexplicable negligence. He did not withdraw from the expropriation payment
deposited with the Philippine National Bank an amount sufficient to pay for the back
taxes. The petitioner did not pay attention to another notice sent by the City Treasurer
on November 3, 1978, during the period of redemption, regarding his tax delinquency.
There is furthermore no showing of bad faith or collusion in the purchase of the
property by Mr. Fernandez. The petitioner has no standing to invoke equity in his
attempt to regain the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED.
The decision of the respondent court is affirmed.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30187 June 25, 1980
REPUBLIC OF THE PHILIPPINES, in behalf of the RICE AND CORN
ADMINISTRATION, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, in his capacity as Judge of the Court of First
Instance of Rizal, Branch IV, Quezon City and MARCELO STEEL CORPORATION,
respondents.

CONCEPCION JR., J.:
Petition for certiorari and prohibition, with preliminary injunction to annul and set
aside the order of the respondent Judge in Civil Case No. Q-9384 of the Court of First
Instance of Rizal Branch IV, Quezon City, entitled "Petra R. Farin, et al., petitioners,
versus Benito Macrohon, et al., respondents," dated December 23, 1967, ordering "the
Rice and Corn Administration and all other business concerns holding offices at the
building known as 'Doa Petra Building,' through their proper representative ... to
channel or pay directly to herein respondent Meralco Steel Corporation, at its main
office at Malabon, Rizal the rents for the use of the said building, offices, and/or
premises," as well as the orders dated April 3, 1968, May 14, 1968, and December 19,
1968, all affirming the said order of December 23, 1967.
It appears that on October 29, 1964, the spouses Petra R. Farin and Benjamin Farin
obtained a loan from the Marcelo Steel Corporation in the amount of P600,000.00,
and as security therefor, the said spouses constituted, in favor of the said corporation,
a real estated mortgage upon their parcel of land situated at Quezon City covered by
TCT No. 42589 of the Registry of Deeds of Quezon City.
1
On July 24, 1965, the
mortgagee wrote the Sheriff of Quezon City requesting the extrajudicial foreclosure of
the aforesaid mortgage.
2
Accordingly, the sheriff advertised and scheduled the extra-
judicial foreclosure sale of the mortgaged property for August 26, 1965. However, on
August 21, 1965, the mortgagors filed a petition for prohibition with injunction and
damages against Benito Macrohon, as sheriff of Quezon City, and the Marcelo Steel
Corporation, with the Court of First Instance of Rizal docketed therein as Civil Case
No. Q-9384, wherein they prayed that the respondent Sheriff be permanently enjoined
from proceeding with the scheduled sale at public auction of the mortgaged property,
and that the respondent Corporation be condemned to pay the petitioners
P200,000.00 as actual and moral damages and P50,000.00 as penal and
compensatory damages and P30,000.00 as attorney's fees, upon the ground that they
have not been in default in the payment of their obligation.
3
Acting upon the petition,
the herein respondent Judge Walfrido de los Angeles, issued an order commanding the
respondent Sheriff and the respondent Corporation to desist from proceeding with the
public auction sale of the property scheduled on August 26, 1965.
4

While the above case was pending, Petra Farin lease portions of the "Doa Petra
Building situated on the mortgaged premises, to the Rice and Corn Administration,
(RCA, for short), for the amount of P11,500.00 per month, payable on or before the 5th
day of the incoming month.
5

On December 9, 1967, the Meralco Steel Corporation invoking paragraph 5 of the
mortgage contract,
6
filed a motion praying that an order be issued directing and/or
authorizing the Rice and Corn Administration (RCA) and an other business concerns
holding offices at the Doa Petra Building to channel or pay directly to it the rents for
the use of the building.
7

On December 23, 1967, the respondent Judge of first instance issued the questioned
order, the dispositive portion of which reads, as follows:
AS PRAYED FOR, the Rice and Corn Administration and all other
business concerns holding offices at the be known as 'Doa Petra
Building', through their proper representative and the petitioners as well
are ordered to channel or pay directly to herein respondent, Marcelo
Steel Corporation, at its main office at Malabon, Rizal the rents for the
use of the said building, offices, and/or premisee.
8

The RCA filed a motion for the reconsideration of said order, praying that it be
excluded therefrom, for the reasons that (a) the rents due Petra Farin had been
assigned by her, with the conformity with the RCA, to Vidal A. Tan; (b) Petra Farin has
an outstanding obligation with the RCA in the amount of P263,062.40, representing
rice shortages incurred by her as a bonded warehouse under contract with the RCA,
which should be compensated with the rents due and may be due; and (c) RCA was
never given an opportunity to be heard on these matters.
9

Petra and Benjamin Farin filed a similar motion for the reconsideration of the disputed
order of December 23, 1967, alleging that (a) the lessees of the Doa Petra Building
are not such amounts collected and received in payment of the interest on the
obligation of all expenses of whatever kind and nature by the MORTGAGEE in
connection with this mortgage, and on the principal obligation in the order they are
enumerated and all acts done in conformity with the power herein granted are hereby
ratified."
Parties to the case and were not served with a copy of the motion of Marcelo Steel
Corporation, filed on December 9, 1967, so that the Court has no jurisdiction over
them; (b) Petra Farin has assigned a portion of the monthly rental due from RCA to
Vidal A. Tan, who has acquired proprietary rights thereto, and (c) under the power of
attorney provided for in the real estate mortgage contract, the rents collected shall be
applied to the interest on he obligation, and the legality of the additional interest at
the rate of 12% per annum of the total amount of the mortgage indebtedness in
addition to the 12% annual interest being charged by the Marcelo Steel Corporation on
said indebtedness is directly at issue in the case, so that to enforce the disputed
portion of the real estate mortgage contract and allow the Marcelo Steel Corporation to
collect rents and apply the same to the interests on the loan would be premature.
10

The trial court denied both motions for reconsideration on April 3, 1968,
11
and on
April 17, 1968 the RCA filed a second motion for reconsideration, insisting that the
claim of Marcelo Steel Corporation for rents has no legal basis because even a
mortgagee who has successfully foreclosed a mortgage is not entitled to the fruits and
rents of the property during the one-year redemption period, and that Marcelo Steel
Corporation, after it had chosen to foreclose the mortgage, cannot resort to the
provision of the mortgage contract authorizing the mortgagee to collect and receive
rents and to apply said amounts to the payment of the principal obligation and the
interests thereon; and that no rents are due Petra Farin because she has an
accountability with the RCA in the amount of P263,062.40, which amount should be
compensated with the rents due.
12
No action appears to have been taken on this
motion.
On May 10, 1968, Petra Farin filed an urgent ex parte motion to authorize the RCA to
release the rentals corresponding to the months of December, 1967, January and
February, 1968, amounting to P37,500.00 so as to enable her to make the necessary
repairs on the air conditioning system of the Doa Petra Building, stating, among
others, that "That RCA is ready, willing and able to release to the petitioners the
rentals mentioned above.
13

The respondent Judge granted the motion, saying.
Considering the urgent ex-parte motion, etc. dated May 10, 1968 filed by
the plaintiff, thru counsel and finding the reasons alleged therein to be
well-founded;
AS PRAYED FOR, the Rice and Corn Administration (RCA) is hereby
authorized to deliver to the herein Petitioners their rentals for the use of
portions of the Dofia Petra Building corresponding to December, 1967;
January 30, February, 1968, all amounting to P37,500.00, to enable the
petitioners to forthwith effect the necessary repairs of the air-
conditioning system of the said building Doa Petra Building. However,
all succeeding rentals should be delivered to the Marcelo Steel
Corporation as previously ordered in the order of December 23, 1967.
14

On May 17, 1968, the RCA filed a motion to set aside the said order, c g that the
allegations contained in the motion dated May 10, 1968, that "The RCA is ready,
willing and able to release to the petitioners the rentals mentioned above is
unauthorized and gratuitous, and the delivery of the withheld rentals to Petra R. Farin
would defeat its claim without giving the corporation its day in court.
15
But, the trial
court denied the motion, saying:
Considering the motion to set aside the order of May 14, 1968, filed by
the Rice and Corn Administration and finding the same to be without
merit, the same is thereby DENIED. The records does not show any proof
that the plaintiff, Petra Farin, is indebted to the aforesaid movant, RCA,
as allegedly in the said motion and assuming that the herein plaintiff is
really indebted to the RCA, the records further does not show that a case
has been filed against her for the payment of such obligation, and
therefore, there is no apparent legal ground to hold the payment of the
rentals due the plaintiff.
16

On August 28, 1968, the RCA filed a motion to vacate the orders directing the RCA to
pay rentals to Marcelo Steel Corporation, reiterating therein the grounds alleged in its
motion for reconsideration dated January 19, 1968, and in its second motion for
reconsideration dated April 17, 1968, which has remained unacted upon. In said
motion, the RCA emphasized that it is not a party to the case; that it had been denied
due process for lack of notice and the right to be heard; that compensation took place
by operation of law pursuant to Art. 1286 of the Civil Code without the need of a case
against Petra R. Farin, or a decision rendered against her for the payment of such
obligation; and that the provisions of the Rules of Court permitting a judgment
creditor to reach money or property in the hands of third persons file the RCA, all
purpose a final judgment, and not a mere interlocutory order.
17

The motion was denied on December 19, 1968,
18
and when the RCA received a letter
from counsel for the Marcelo Steel Corporation, dated January 2, 1969, requesting
compliance with the order of December 23, 1967, and the payment of accrued rentals,
19
the petitioner instituted the present recourse.
Insofar as it recognized the right of the herein private respondent, Marcelo Steel
Corporation, to collect and receive rentals from the lessees of the Doa Petra Building,
the order of December 23, 1967 was within the competence of the respondent Judge,
since the lessor-mortgagor, Petra Farin, had empowered the said corporation to collect
and receive any interest, dividend, rents, profits or other income or benefit produced
by or derived from the mortgaged property under the terms of the real estate mortgage
contract executed by them. But, the respondent Judge exceeded his jurisdiction in
ordering or compelling the lessees of the said building, the RCA among others, to pay
the rentals to the respondent Corporation, without giving the lessees an opportunity to
be heard. The said lessees are not parties to the case between the lessor and the
Marcelo Steel Corporation. The RCA, in particular, was not furnished with a copy of
the motion of the respondent Corporation, dated December 9, 1967, praying that an
order be issued directing and/or authorizing the RCA and other lessees to channel or
pay directly to the said corporation the rents for the use of the Doa Petra Building, so
that the RCA was deprived of its day in court and precluded it from presenting the
defenses that it has against the lessor which, in this case, are: (1) that the rents due to
Petra Farin had been assigned by her to Vidal A. Tan with the acquiescence of the
RCA, who has acquired proprietary rights thereto and would be deprived of his
property without due process of law; and (2) that the lessor Petra R. Farin has an
outstanding obligation to the RCA in the amount of P263,062.40 which should be
compensated with the rentals already due or may be due. The said order clearly
violated the constitutional provision against depriving a person of his property without
due process of law.
20
While there may be rents due the lessor for the use of portions
of the Doa Petra Building, otherwise there would be no claim of compensation, the
collection of said rents should not be done in an arbitrary and illegal manner. Certain
ruled should be observed and justice accorded the parties whose property rights would
be adversely affected thereby. Since the order of December 23, 1967 was issued in
executive s of jurisdiction, the said order is null and void and of no legal t effect.
The respondent Judge also erred in denying the claim of the RCA that compensation of
debts had taken place allegedly because "The records does not show any proof that the
plaintiff is indebted to the aforesaid movant, RCA, as alleged in the said motion and
assuming that the herein plaintiff is really indebted to the RCA, the records further
does not show that a case has been filed against her, or a decision has been rendered
against her for the payment of such obligation." Proof of the liquidation of a claim, in
order that there be compensation of debts, is proper if such claim is disputed. But, if
the claim is undisputed, as in the case at bar, the statement is sufficient and no other
proof may be required. In the instant case, the claim of the RCA that Petra R. Farin
has an outstanding obligation to the RCA in the amount of P263,062.40 which should
be compensated against the rents already due or may be due, was raised by the RCA
in its motion for the reconsideration of the order of December 23, 1967. A copy of said
motion was duly furnished counsel for Petra R. Farin and although the said Petra R.
Farin subsequently filed a similar motion for the reconsideration of the order of
December 23, 1967, she did not dispute nor deny such claim Neither did the Marcelo
Steel Corporation dispute such claim of compensation in its opposition to the motion
for the reconsideration of the order of December 23, 1967.
21
The silence of Petra R.
Farin, order of December 23, 1967. although the declaration is such as naturally one
to call for action or comment if not true, could be taken as an admission of the
existence and validity of such a claim. Therefore, since the claim of the RCA is
undisputed, proof of its liquidation is not necessary. At any rate, if the record is bereft
of the proof mentioned by the respondent Judge of first instance, it is because the
respondent Judge did not call for the submission of such proof. Had the respondent
Judge issued an order calling for proof, the RCA would have presented sufficient
evidence to the satisfaction of the court.
WHEREFORE, the petition is granted and the order issued on December 23, 1967 in
Civil Case No. Q-9384 of the Court of First Instance of Rizal, Quezon City, Branch IV,
entitled: Petra R. Farin, et al. petitioners, versus Benito Macrohon, et al., respondents,"
as well as the orders dated April 3, 1968, May 14, 1968, and December 19, 1968, all
affirming the said order of December 23, 1967, should be, as they are hereby,
annulled and set aside. With costs against the respondent Marcelo Steel Corporation.
Guerrero, ** Abad Santos and De Castro, *** JJ., concur.
Barredo, * J., Chairman (Did not take part)


Separate Opinions

AQUINO, J., concurrence:
I concur in the result and on the understanding that the trial court should hold a
hearing to determine the merits of the claim of petitioner RCA that it is entitled to
retain the rentals by way of compensation. RCA should be considered impleaded as a
party in the case since it had already intervened therein.
The claim of Marcelo Steel Corporation on the rentals is based on the contractual
stipulation and on article 2127 of the Civil Code which provides that the mortgage
extends to the rents or income not yet received when the obligation falls due (See Hijos
de I. de la Rama vs. Betia 54 Phil 991; National Bank vs. Alejano 55 Phil. 811; Afable
vs. Belando 55 Phil. 64).

Separate Opinions
AQUINO, J., concurrence:
I concur in the result and on the understanding that the trial court should hold a
hearing to determine the merits of the claim of petitioner RCA that it is entitled to
retain the rentals by way of compensation. RCA should be considered impleaded as a
party in the case since it had already intervened therein.
The claim of Marcelo Steel Corporation on the rentals is based on the contractual
stipulation and on article 2127 of the Civil Code which provides that the mortgage
extends to the rents or income not yet received when the obligation falls due (See Hijos
de I. de la Rama vs. Betia 54 Phil 991; National Bank vs. Alejano 55 Phil. 811; Afable
vs. Belando 55 Phil. 64).
Footnotes
1 Rollo, P. 19.
2 Id, p. 25.
3 Id, p. 26.
4 Id, p. 34.
5 Id, p 43.
6 The said paragraph reads, as follows:
5. That effective immediately upon the execution of this mortgage, the
MORTGAGEE is hereby constituted and appointed attorney-in- fact of
the MORTGAGOR with full Power and authority to collect and receive any
interests, dividends, rents, profits or other income or benefits produced
by or derived from the mortgaged property, without, however, any
responsibility on its part for its failure to do so, and apply such amounts
collected and received in payment of the interest accruing on the
obligation, of all the expenses of whatever kind and nature incurred by
the MORTGAGE in connection with this mortgage, and the principal
obligation, in/the order they are enumerated and all acts done in
conformity with the power herein granted are hereby ratified."
7 Rollo, p. 49.
8 Id, p. 51.
9 Id, p. 53.
10 Id, p. 55.
11 Id, p. 70.
12 Id, p. 71.
13 Id, p. 75.
14 Id, p. 78.
15 Id, p. 79.
16 Id, p. 81.
17 Id, p. 82.
18 No. 22, Petition.
19 Rollo, p. 88.
20 Art. IV, Sec. 1, 1973 Constitution.
21 Rollo, p. 61.
* Mr. Justice Antonio P. Barredo, took no part being the Solicitor General
at the time.
** Mr. Justice Juvenal K. Guerrero, a member of the First Division, was
designated to sit in the Second Division in lieu of Mr. Justice Antonio P.
Barredo.
*** Mr. Justice Pacifica P. de Castro, a member of the First Division, was
designated to sit in the Second Division.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50638 July 25, 1983
LORETO J. SOLINAP, petitioner,
vs.
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First
Instance of Iloilo, SPOUSES JUANITO and HARDEVI R. LUTERO, and THE
PROVINCIAL SHERIFF OF ILOILO, respondents.
Espeleta & Orleans Law Office for petitioner.
Simplicia Magahum, Offemaria & Sixto Demaisip Law Office for private respondents.

ESCOLIN; J.:
Posed for resolution in this petition is the issue of whether or not the obligation of
petitioners to private respondents may be compensated or set- off against the amount
sought to be recovered in an action for a sum of money filed by the former against the
latter.
The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and
Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda to
petitioner Loreto Solinap for a period of ten [10] years for the stipulated rental of
P50,000.00 a year. It was further agreed in the lease contract that out of the aforesaid
annual rental, the sum of P25,000.00 should be paid by Solinap to the Philippine
National Bank to amortize the indebtedness of the spouses Lutero with the said bank.
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate
estate proceedings of the deceased, docketed as Sp. Proc. No. 1870 of the Court of
First Instance of Iloilo, presided by respondent Judge Amelia K. del Rosario. In the
course of the proceedings, the respondent judge, upon being apprized of the mounting
interest on the unpaid account of the estate, issued an order, stating, among others,
"that in order to protect the estate, the administrator, Judge Nicolas Lutero, is hereby
authorized to scout among the testamentary heirs who is financially in a position to
pay all the unpaid obligations of the estate, including interest, with the right of
subrogation in accordance with existing laws."
On the basis of this order, respondents Juanito Lutero [grandson and heir of the late
Tiburcio] and his wife Hardivi R. Lutero paid the Philippine National Bank the sum of
P25,000.00 as partial settlement of the deceased's obligations. Whereupon the
respondents Lutero filed a motion in the testate court for reimbursement from the
petitioner of the amount thus paid. They argued that the said amount should have
been paid by petitioner to the PNB, as stipulated in the lease contract he had entered
into with the deceased Tiburcio Lutero; and that such reimbursement to them was
proper, they being subrogees of the PNB.
Before the motion could be resolved by the court, petitioner on April 28, 1978 filed in
the Court of First Instance of Iloilo a separate action against the spouses Juanito
Lutero and Hardivi R. Lutero for collection of the total amount of P71,000.00, docketed
as Civil Case No. 12397. Petitioner alleged in the complaint that on April 25, 1974 the
defendants Lutero borrowed from him the sum of P45,000.00 for which they executed
a deed of real estate mortgage; that on July 2, 1974, defendants obtained an
additional loan of P3,000.00, evidenced by a receipt issued by them; that defendants
are further liable to him for the sum of P23,000.00, representing the value of certain
dishonored checks issued by them to the plaintiff; and that defendants refused and
failed to settle said accounts despite demands.
In their answer, the respondents Lutero traversed the material averments of the
complaint and set up legal and factual defenses. They further pleaded a counterclaim
against petitioners for the total sum of P 125,000.00 representing unpaid rentals on
Hacienda Tambal. Basis of the counterclaim is the allegation that they had purchased
one-half [1/2] of Hacienda Tambal, which their predecessors, the spouses Tiburcio
Lutero and Asuncion Magalona, leased to the plaintiff for a rental of P50,000.00 a
year; and that plaintiffs had failed to pay said rentals despite demands.
At the pre-trial, the parties defined the issues in that case as follows:
(1) Whether or not the defendants [Luteros] are indebted to the plaintiff
and, if so, the amount thereof;
(2) Whether or not the defendants are the owners of one-half [1/2] of that
parcel of land known as 'Hacienda Tambal' presently leased to the
plaintiff and, therefore, entitled to collect from the latter one-half [1/2] of
its lease rentals; and in the affirmative, the amount representing the
unpaid rental by plaintiff in favor of the defendant.
1

On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870,
granting the respondent Lutero's motion for reimbursement from petitioner of the sum
of P25,000.00 plus interest, as follows:
WHEREFORE, Mr. Loreto Solinap is hereby directed to pay spouses
Juanito Lutero and Hardivi R. Lutero the sum of P25,000.00 with
interest at 12% per annum from June 17, 1975 until the same shall have
been duly paid.
Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L-
48776, assailing the above order. This Court, however, in a resolution dated January
4, 1979 dismissed the petition thus:
L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition in this
case as well as the comment thereon of respondents and the reply of
petitioner to said comment, the Court Resolved to DISMISS the petition
for lack of merit, anyway, the P25,000.00 to be paid by the petitioner to
the private respondent Luteros may well be taken up in the final
liquidation of the account between petitioner as and the subject estate as
lessor.
Thereafter the respondent Luteros filed with the respondent court a "Motion to
Reiterate Motion for Execution of the Order dated June 14, 1978." Petitioner filed a
rejoinder to said motion, raising for the first time the thesis that the amount payable
to private respondents should be compensated against the latter's indebtedness to him
amounting to P71,000.00. Petitioner attached to his rejoinder copies of the pleadings
filed in Civil Case No. 12397, then pending before Branch V of the Court of First
Instance of Iloilo. This motion was denied by respondent judge on the ground that "the
claim of Loreto Solinap against Juanito Lutero in Civil Case No. 12397 is yet to be
liquidated and determined in the said case, such that the requirement in Article 1279
of the New Civil Code that both debts are liquidated for compensation to take place
has not been established by the oppositor Loreto Solinap."
Petition filed a motion for reconsideration of this order, but the same was denied.
Hence, this petition.
The petition is devoid of merit. Petitioner contends that respondent judge gravely
abused her discretion in not declaring the mutual obligations of the parties
extinguished to the extent of their respective amounts. He relies on Article 1278 of the
Civil Code to the effect that compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. The argument fails to consider
Article 1279 of the Civil Code which provides that compensation can take place only if
both obligations are liquidated. In the case at bar, the petitioner's claim against the
respondent Luteros in Civil Case No. 12379 is still pending determination by the
court. While it is not for Us to pass upon the merits of the plaintiffs' cause of action in
that case, it appears that the claim asserted therein is disputed by the Luteros on both
factual and legal grounds. More, the counterclaim interposed by them, if ultimately
found to be meritorious, can defeat petitioner's demand. Upon this premise, his claim
in that case cannot be categorized as liquidated credit which may properly be set-off
against his obligation. As this Court ruled in Mialhe vs. Halili,
2
" compensation cannot
take place where one's claim against the other is still the subject of court litigation. It
is a requirement, for compensation to take place, that the amount involved be certain
and liquidated."
WHEREFORE, the petition is dismissed, with costs against petitioner.
SO ORDERED.
Makasiar (Chairman), Aquino and Concepcion, Jr., JJ., concur.
De Castro, Guerrero, J., are on leave.



Separate Opinions

ABAD SANTOS, J., concurring:
The petition is not only devoid of merit but it is also frivolous and petitioner should be
assessed treble costs.


Separate Opinions
ABAD SANTOS, J., concurring:
The petition is not only devoid of merit but it is also frivolous and petitioner should be
assessed treble costs.

Footnotes
1 Pre-trial Order, Annex M, pp- 72-78, Rollo.
2 6 SCRA 453.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-38711 January 31, 1985
FRANCISCO SYCIP, petitioner,
vs.
HONORABLE COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,
respondents.

RELOVA, J.:
On August 25, 1970, the then Court of First Instance of Manila rendered a decision
convicting the herein petitioner Francisco Sycip of the crime of estafa and sentencing
him to an indeterminate penalty of three (3) months of arresto mayor, as minimum to
one (1) year and eight (8) months of prision correccional, as maximum; to indemnify
complainant Jose K. Lapuz the sum of P5,000.00, with subsidiary imprisonment in
case of insolvency; and to pay the costs.
The then Court of Appeals affirmed the trial court's decision but deleted that part of
the sentence imposing subsidiary imprisonment.
The facts of the case as found by respondent appellate court read:
... [I]n April 1961, Jose K. Lapuz received from Albert Smith in Manila
2,000 shares of stock of the Republic Flour Mills, Inc., covered by
Certificate No. 57 in the name of Dwight Dill who had left for Honolulu.
Jose K. Lapuz "was supposed to sell his (the shares) at present market
value out of which I (he) was supposed to get certain commission."
According to Jose K. Lapuz, the accused-appellant approached him and
told him that he had good connections in the Stock Exchange, assuring
him that he could sent them at a good price. Before accepting the offer of
the accused-appellant to sent the shares of stock, Jose K. Lapuz made it
clear to him that the shares of stock did not belong to him and were
shortly entrusted to him for sale. He then gave the shares of stock to the
accused-appellant who put them in the market.
Thereafter, Jose K. Lapuz received a letter from the accused-appellant,
dated April 25, 1961 (Exhibit "A"), the latter informing him that "1,758
shares has been sold for a net amount of P29,000.00," but that the
transaction could not be concluded until they received the Power of
Attorney duly executed by Dwight Dill, appointing a person to endorse
the certificate of stock, and a resolution from the Biochemical Research
Laboratory, Inc., authorizing the transfer of the certificate. Jose K. Lapuz
signed his conformity to the contents of the letter.
Jose K. Lapuz declared that he "was able to secure a power of attorney of
Dr. Dwight Dill, and gave it to the accused-appellant." The power of
attorney authorized the sale of 1,758 shares only; the difference of 242
shares were given back to Biochemical Research Laboratory, Inc.
Of the 1,758 shares of stock, the accused-appellant sold 758 shares for
P12,128.00 at P16.00 a share, for which Jose K. Lapuz issued a receipt,
dated May 23, 1961 (Exhibit "C"). On the same day, Jose K. Lapuz
turned over to Albert Smith the sum of P9,981.40 in payment of 758
shares of P14.00 a share (Exhibits "D" and "E").
On May 30, 1961, Jose K. Lapuz received a letter from the accused-
appellant (Exhibit "F"), the latter informing him that "although the deal
(relative to the 1,000 shares) has been closed, actual delivery has been
withheld pending receipt of payment ..., I have chose(n) to return the
shares ...," enclosing Certificate No. 955 for 500 shares, Certificate No.
952 for 50 shares in name of Felix Gonzales, and the photostat of
Certificate No. 953 for 208 shares, which had been sold to Trans Oceanic
Factors and Company, for which a check would be issued "within the
next few days." He promised to deliver the 242 shares as soon as he
would have received them from one Vicente Chua. "The next day (May
31, 1961), Jose K. Lapuz wrote a letter to the accused-appellant (Exhibit
"C"), stating therein, "Per our conversation this morning, I hereby
authorize you to sell 1,000 shares of Republic Flour Mills."
Later, the accused-appellant wrote a letter to Jose K. Lapuz, dated June
1, 1961 (Exhibit "I"), confirming their conversation on that date that "500
shares out of the 1,000 shares of the Republic Flour ... has been sold,"
and stating further that "pending receipt of the payment, expected next
week, we are enclosing herewith our draft to cover the full value of 500
shares." He asked in that letter, "Please give me the 50 shares in the
name of Mr. Felix Gonzales and the photostat of 208 shares in the name
of Trans Oceanic Factors and Company."
The date of the letter (Exhibit "I") is disputed, the prosecution contending
that it should be July 1, 1961, not June 1, 1961. The contention of the
prosecution has the support of the date of the draft (Exhibit "J")
mentioned in the letter.
The accused-appellant sold and paid for the other 500 shares of stock,
for the payment of which Jose K. Lapuz issued in his favor a receipt,
dated June 9, 1961 (Exhibit "H").
The draft (Exhibit "J") for P8,000.00, "the full value of the 500 shares'
mentioned in the letter of the accused-appellant (Exhibit "I"), was
dishonored by the bank, for lack of funds. Jose K. Lapuz then
"discovered from the bookkeeper that he got the money and he pocketed
it already, so I (he) started hunting for Mr. Sycip" (accused-appellant).
When he found the accused-appellant, the latter gave him a check in the
amount of P5,000.00, issued by his daughter on July 12, 1961 (Exhibit
"K"). This also was dishonored by the bank for lack of sufficient funds to
cover it (Exhibits "K-l" and "K-2").
When Jose K. Lapuz sent a wire to him, telling him that he would "file
estafa case (in the) fiscals office ... against him' unless he raise [the]
balance left eight thousand" (Exhibit "L"), the accused-appellant
answered him by sending a wire, "P5,000 remitted ask boy check
Equitable (Exhibit "M"). But "the check was never made good," so Jose K.
Lapuz testified. He had to pay Albert Smith the value of the 500 shares of
stock." (Petitioner's brief, pp. 58-62)
Coming to this Court on a petition for review on certiorari, petitioner claims that
respondent appellate court erred (1) in denying petitioner of a hearing, as provided
under Section 9, Rule 124, Rules of Court; (2) in not upholding due process of law
(Sections 1 and 17), Article IV, Bill of Rights, Constitution; (3) in refusing to uphold
the provisions on compensation, Articles 1278 and 1279, Civil Code; (4) in not
dismissing the complaint, even granting arguendo, that compensation does not apply;
(5) in not ruling that a consummated contract (Deed of Sale, Exhibit '10') is not
covered by the Statute of Frauds and that its decision is not in accordance with
Section 4, Rule 51, Rules of Court; and, (6) in ignoring the ruling case promulgated by
this Honorable Supreme Court in People vs. Benitez, G.R. No. L-15923, June 29, 1960,
in its applicability to offenses under Article 315, paragraph 1 (b) of the Penal Code.
Petitioner in his first and second assigned errors argues that respondent Court of
Appeals erred in denying him his day in court notwithstanding his motion praying that
the appealed case be heard. He invokes Section 9 of Rule 124 of the Revised Rules of
Court and relates it to Sections 1 and 17 of Article IV of the New Constitution. This
contention is devoid of merit. Petitioner was afforded the right to be present during
every step in the trial before the Court of First Instance, that is, from the arraignment
until the sentence was promulgated. On appeal, he cannot assert as a matter of right
to be present and to be heard in connection with his case. It is the procedure in
respondent court that within 30 days from receipt of the notice that the evidence is
already attached to the record, the appellant shall file 40 copies of his brief with the
clerk accompanied by proof of service of 5 copies upon the appellee (Section 3, Rule
124 of the Revised Rules of Court). Within 30 days from receipt of appellant's brief, the
appellee shall file 40 copies of his brief with the clerk accompanied by proof of service
of 5 copies upon the appellant (Section 4, Rule 124 of the Revised Rules of Court).
Each party may be allowed extensions of time to file brief for good and sufficient
cause. Thereafter, the appellate court may reverse, affirm or modify the judgment,
increase or reduce the penalty imposed, remand the case for new trial or re-trial or
dismiss the case (Section 11, Rule 124 of the Revised Rules of Court). It is
discretionary on its part whether or not to set a case for oral argument. If it desires to
hear the parties on the issues involved, motu propio or upon petition of the parties, it
may require contending parties to be heard on oral arguments. Stated differently, if
the Court of Appeals chooses not to hear the case, the Justices composing the division
may just deliberate on the case, evaluate the recorded evidence on hand and then
decide it. Accused-appellant need not be present in the court during its deliberation or
even during the hearing of the appeal before the appellate court; it will not be heard in
the manner or type of hearing contemplated by the rules for inferior or trial courts.
In his third and fourth assigned errors, petitioner contends that respondent Court of
Appeals erred in not applying the provisions on compensation or setting-off debts
under Articles 1278 and 1279 of the New Civil Code, despite evidence showing that
Jose K. Lapuz still owed him an amount of more than P5,000.00 and in not dismissing
the appeal considering that the latter is not legally the aggrieved party. This
contention is untenable. Compensation cannot take place in this case since the
evidence shows that Jose K. Lapuz is only an agent of Albert Smith and/or Dr. Dwight
Dill. Compensation takes place only when two persons in their own right are creditors
and debtors of each other, and that each one of the obligors is bound principally and
is at the same time a principal creditor of the other. Moreover, as correctly pointed out
by the trial court, Lapuz did not consent to the off-setting of his obligation with
petitioner's obligation to pay for the 500 shares.
Anent the fifth assigned error, petitioner argues that the appellate court erred in not
ruling that the deed of sale is a consummated contract and, therefore, not covered by
the Statute of Frauds. It must be pointed out that the issue on whether or not the
alleged contract of sale is covered by the Statute of Frauds has not been raised in the
trial court or with the Court of Appeals. It cannot now be raised for the first time in
this petition. Thus, there is no need for respondent court to make findings of fact on
this matter.
With respect to the sixth assigned error, petitioner points out that the Court of
Appeals erred in affirming the decision of the trial court convicting him of the crime
charged. Petitioner mentions that in People vs. Benitez, G.R. No. L-15923, June 30,
1960 (108 Phil. 920), We have ruled that to secure conviction under Article 315,
paragraph 1 (b), Revised Penal Code, it is essential that the following requirements be
present: (a) existence of fraud; (b) failure to return the goods on demand; and (c)
failure to give any reason or explanation to the foregoing. He claims that nowhere in
the decision was he found to have any particular malice or intent to commit fraud, or,
that he failed to return the shares on any formal demand made by Jose K. Lapuz to
him, and/or was he unable to make any explanation thereto. On this score, We only
have to quote from the decision of the respondent court, as follows:
The "malice or intent to commit fraud" is indicated in that part of the
decision herein before quoted, that is, the accused- appellant "received
from Jose K. Lapuz the 500 shares in question (a part of 1,758 shares)
for sale, and that, although the same had already been sold, the accused
... failed to turn over the proceeds thereof to Jose K. Lapuz." The abuse of
confidence in misappropriating the funds or property after they have
come to the hands of the offender may be said to be a fraud upon the
person injured thereby (U.S. vs. Pascual, 10 Phil. 621).
xxx xxx xxx
The accused-appellant having informed Jose K. Lapuz that the "500
shares out of the 1000 shares ... has been sold" (Exhibit "I"), for which he
issued a draft for P8,000.00 (Exhibit "J"), the latter cannot be expected to
make a demand for the return of the 500 shares. His demand was for the
payment of the shares when the draft was dishonored by the bank.
The delivery of a worthless check in the amount of P5,000.00 by the
accused-appellant to Jose K, Lapuz, after the latter's "hunting" for him is
even a circumstance indicating intent to commit fraud. (pp. 48-49, Rollo)
xxx xxx xxx
His explanation of his inability to return the 500 shares of stock is not
satisfactory. ... If it is true that he gave the 500 shares of stock to his
creditor, Tony Lim, he is nonetheless liable for the crane of estafa, he
having received the 500 shares of stock to be sold on commission. By
giving the shares to his creditor, he thereby committed estafa by
conversion. (pp. 49-50, Rollo)
Indeed, Jose K. Lapuz demanded from petitioner the amount of P5,000.00 with a
notice that in the event he (petitioner) would fail to pay the amount, Lapuz would file
an estafa case against him.
By and large, respondent Court of Appeals has not overlooked facts of substance and
value that, if considered, would alter the result of the judgment.
WHEREFORE, for lack of merit the petition is hereby DISMISSED.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Gutierrez, Jr. and De la Fuente, JJ., concur.
Plana and Alampay, JJ., took no part.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-50900 April 9, 1985
COMPAIA MARITIMA, petitioner,
vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.
G.R. No. L-51438 April 9, 1985
REPUBLIC OF THE PHILIPPINES (BOARD OF LlQUIDATORS), petitioner,
vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.
G.R. No. L-51463 April 9, 1985
PAN ORIENTAL SHIPPING CO., petitioner,
vs.
COURT OF APPEALS, COMPAIA MARITIMA and THE REPUBLIC OF THE
PHILIPPINES (BOARD OF LIQUIDATORS), respondents.
Quisumbing, Caparas, Tobias, Alcantara y Mosqueda for Pan Oriental Shipping Co.
Rafael Dinglasan for Compania Maritima.

MELENCIO-HERRERA, J.:
The above-entitled three (3) cases stemmed from the Decision of this Court, dated
October 31, 1964, entitled "Fernando A. Froilan vs. Pan-Oriental Shipping Co., et al.
1

and our four (4) subsequent Resolutions of August 27, 1965, November 23, 1966,
December 16, 1966, and January 5, 1967, respectively.
The antecedental background is narrated in the aforestated Decision, the pertinent
portions of which read:

On March 7, 1947, Fernando A. Froilan purchased from the Shipping
Administration a boat described as MV/FS-197 for the sum of
P200,000.00, with a down payment of P50,000.00. To secure payment of
the unpaid balance of the purchase price, a mortgage was constituted on
the vessel in favor of the Shipping Administration ....
xxx xxx xxx
Th(e) contract was duly approved by the President of the Philippines.
Froilan appeared to have defaulted in spite of demands, not only in the
payment of the first installment on the unpaid balance of the purchase
price and the interest thereon when they fell due, but also failed in his
express undertaking to pay the premiums on the insurance coverage of
the vessel obliging the Shipping Administration to advance such payment
to the insurance company. ...
Subsequently, FROILAN appeared to have still incurred a series of defaults
notwithstanding reconsiderations granted, so much so that:
On February 21, 1949, the General Manager (of the Shipping
Administration) directed its officers ... to take immediate possession of
the vessel and to suspend the unloading of all cargoes on the same until
the owners thereof made the corresponding arrangement with the
Shipping Administration. Pursuant to these instructions, the boat was,
not only actually repossessed, but the title thereto was registered again in
the name of the Shipping Administration, thereby re-transferring the
ownership thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to
as Pan Oriental, offered to charter said vessel FS-197 for a monthly rent
of P3,000.00. Because the government was then spending for the
guarding of the boat and subsistence of the crew members since
repossession, the Slopping Administration on April 1, 1949, accepted
Pan Oriental's offer "in principle" subject to the condition that the latter
shag cause the repair of the vessel advancing the cost of labor and
drydocking thereof, and the Shipping Administration to furnish the
necessary spare parts. In accordance with this charter contract, the vessel
was delivered to the possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to explain his
failure to comply with the obligations he assumed and asked that he be
given another extension up to March 15, 1949 to file the necessary bond.
Then on March 8, Froilan offered to pay all his overdue accounts.
However, as he failed to fulfill even these offers made by him in these two
communications, the Shipping Administration denied his petition for
reconsideration (of the rescission of the contract) on March 22, 1949. It
should be noted that while his petition for reconsideration was denied on
March 22, it does not appear when he formally formulated his appeal. In
the meantime, as already stated, the boat has been repossessed by the
Shipping Administration and the title thereto re-registered in the name of
the government, and delivered to the Pan Oriental in virtue of the charter
agreement. On June 2, 1949, Froilan protested to the President against
the charter of the vessel.
xxx xxx xxx
On June 4, 1949, the Shipping Administration and the Pan Oriental
formalized the charter agreement and signed a bareboat contract with
option to purchase, containing the following pertinent provisions:
III. CHARTER HIRE, TIME OF PAYMENT. The CHARTERER shall pay
to the owner a monthly charter hire of THREE THOUSAND (P3,000.00)
PESOS from date of delivery of the vessel, payable in advance on or
before the 5th of every current month until the return of the vessel to
OWNER or purchase of the vessel by CHARTERER.
IV. RIGHT OF OPTION TO PURCHASE. The right of option to purchase
the vessel at the price of P150,000.00 plus the amount expended for its
present repairs is hereby granted to the CHARTERER within 120 days
from the execution of this Contract, unless otherwise extended by the
OWNER. This right shall be deemed exercised only if, before the
expiration of the said period, or its extension by the OWNER, the
CHARTERER completes the payment, including any amount paid as
Charter hire, of a total sum of not less than twenty-five percentum (25%)
of said price of the vessel.
The period of option may be extended by the OWNER without in any way
affecting the other provisions, stipulations, and terms of this contract.
If, for any reason whatsoever, the CHARTERER fails to exercise its option
to purchase within the period stipulated, or within the extension thereof
by the OWNER, its right of option to purchase shall be deemed
terminated, without prejudice to the continuance of the Charter Party
provisions of this contract. The right to dispose of the vessel or terminate
the Charter Party at its discretion is reserved to the OWNER.
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. After the
CHARTERER has exercised his right of option as provided in the
preceding paragraph (XII), the vessel shall be deemed conditionally sold
to the purchaser, but the ownership thereof shag not be deemed
transferred unless and until all the price of the vessel, together with the
interest thereon, and any other obligation due and payable to the
OWNER under this contract, have been fully paid by the CHARTERER.
xxx xxx xxx
XXI. APPROVAL OF THE PRESIDENT. This contract shall take effect
only upon approval of His Excellency, the President.
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's
contract of sale and restored to him all his rights thereunder, on
condition that he would give not less than P1,000.00 to settle partially as
overdue accounts and that reimbursement of the expenses incurred for
the repair and drydocking of the vessel performed by Pan Oriental was to
be made in accordance with future adjustment between him and the
Shipping Administration (Exh. I). Later, pursuant to this reservation,
Froilan's request to the Executive Secretary that the Administration
advance the payment of the expenses incurred by Pan Oriental in the
drydocking and repair of the vessel, was granted on condition that
Froilan assume to pay the same and file a bond to cover said
undertaking (EXH. III).
On September 7, 1949, the formal bareboat charter with option to
purchase filed on June 4, 1949, in favor of the Pan Oriental was returned
to the General Manager of the Shipping Administration without action
(not disapproval), only because of the Cabinet resolution of September 6,
1949 restoring Froilan to his rights under the conditions set forth
therein, namely, the payment of P10,000.00 to settle partially his
overdue accounts and the filing of a bond to guarantee the
reimbursement of the expenses incurred by the Pan Oriental in the
drydocking and repair of the vessel But Froilan again failed to comply
with these conditions. And so the Cabinet, considering Froilan's
consistent failure to comply with his obligations, including those imposed
in the resolution of September 6, 1949, resolved to reconsider said
previous resolution restoring him to his previous rights. And, in a letter
dated December 3, 1949, the Executive Secretary authorized the
Administration to continue its charter contract with Pan Oriental in
respect to FS-197 and enforce whatever rights it may still have under the
original contract with Froilan (Exh. 188).
xxx xxx xxx
On August 25, 1950, the Cabinet resolved once more to restore Froilan to
his rights under the original contract of sale, on condition that he shall
pay the sum of P10,000.00 upon delivery of the vessel to him, said
amount to be credited to his outstanding accounts; that he shall
continue paying the remaining installments due, and that he shall
assume the expenses incurred for the repair and drydocking of the vessel
(Exh. 134). Pan Oriental protested to this restoration of Froilan's rights
under the contract of sale, for the reason that when the vessel was
delivered to it, the Shipping Administration had authority to dispose of
the said property, Froilan having already relinquished whatever rights he
may have thereon. Froilan paid the required cash of P10,000.00, and as
Pan Oriental refused to surrender possession of the vessel, he filed an
action for replevin in the Court of First Instance of Manila (Civil Case No.
13196) to recover possession thereof and to have him declared the
rightful owner of said property.
Upon plaintiff's filing a bond of P400,000.00, the court ordered the
seizure of the vessel from Pan Oriental and its delivery to the plaintiff.
Pan Oriental tried to question the validity of this order in a petition for
certiorari filed in this Court (G.R. No. L-4577), but the same was
dismissed for lack of merit by resolution of February 22, 1951.
Defendant accordingly filed an answer, denying the averments of the
complaint.
The Republic of the Philippines, having been allowed to intervene in the
proceeding, also prayed for the possession of the vessel in order that the
chattel mortgage constituted thereon may be foreclosed. Defendant Pari
Oriental resisted said intervention, claiming to have a better right to the
possession of the vessel by reason of a valid and subsisting contract in
its favor, and of its right of retention, in view of the expenses it had
incurred for the repair of the said vessel. As counterclaim, defendant
demanded of the intervenor to comply with the latter's obligation to
deliver the vessel pursuant to the provisions of the charter contract.
xxx xxx xxx
Subsequently, Compaia Maritima, as purchaser of the vessel from
Froilan, was allowed to intervene in the proceedings (in the lower court),
said intervenor taking common cause with the plaintiff Froilan. In its
answer to the complaint in intervention, defendant set-up a counterclaim
for damages in the sum of P50,000.00, alleging that plaintiff secured the
Cabinet resolutions and the writ of replevin, resulting in its deprivation
of possession of the vessel, at the instigation and inducement of
Compania Maritima. This counterclaim was denied by both plaintiff and
intervenor Maritima.
On September 28, 1956, the lower court rendered a decision upholding
Froilan's (and Compaia Maritima's) right to the ownership and
possession of the FS-197.
xxx xxx xxx
It is not disputed that appellant Pan Oriental took possession of the
vessel in question after it had been repossessed by the Shipping
Administration and title thereto reacquired by the government, and
operated the same from June 2, 1949 after it had repaired the vessel until
it was dispossessed of the property on February 3, 1951, in virtue of a
bareboat charter contract entered into between said company and the
Shipping Administration. In the same agreement, appellant as charterer,
was given the option to purchase the vessel, which may be exercised
upon payment of a certain amount within a specified period. The
President and Treasurer of the appellant company, tendered the
stipulated initial payment on January 16, l950. Appellant now contends
that having exercised the option, the subsequent Cabinet resolutions
restoring Froilan's rights on the vessel, violated its existing rights over
the same property. To the contention of plaintiff Froffan that the charter
contract never became effective because it never received presidential
approval as required therein, Pan Oriental answers that the letter of the
Executive Secretary dated December 3, 1949 (Exh. 118), authorizing the
Shipping Administration to continue its charter contract with appellant,
satisfies such requirement (of presidential approval). It is to be noted,
however, that said letter was signed by the Executive Secretary only and
not under authority of the President. The same, therefore, cannot be
considered to have attached unto the charter contract the required
consent of the Chief Executive for its validity.
xxx xxx xxx
(Emphasis supplied)
This Court then held:
In the circumstances of this case, therefore, the resulting situation is
that neither Froilan nor the Pan Oriental holds a valid contract over the
vessel. However, since the intervenor Shipping Administration,
representing the government practically ratified its proposed contract
with Froilan by receiving the full consideration of the sale to the latter,
for which reason the complaint in intervention was dismissed as to
Froilan, and since Pan Oriental has no capacity to question this
actuation of the Shipping Administration because it had no valid
contract in its favor, the of the lower court adjudicating the vessel to
Froilan and its successor Maritima, must be sus Nevertheless, under the
already adverted to, Pan Oriental cannot be considered as in bad faith
until after the institution of the case. However, since it is not disputed
that said made useful and necessary expenses on the vessel, appellant is
entitled to the refund of such expenses with the light to retain the vessel
until he has been reimbursed therefor (Art. 546, Civil Code). As it is by the
concerted acts of defendants and intervenor Republic of the Philippines
that appellant was deprived of the possession of the vessel over which
appellant had a lien for his expenses, appellees Froilan, Compaia
Maritima, and the Republic of the Philippines are declared liable for the
reimbursement to appellant of its legitimate expenses, as allowed by law,
with legal interest from the time of disbursement.
Modified in this manner, the decision appealed from is affirmed, without
costs. Case is remanded to the lower court for further proceedings in the
matter of expenses. So ordered. (Emphasis supplied).
On August 27, 1965, this Court, in resolving a Motion for Reconsideration filed by
FROILAN and MARITIMA, ruled:
In G.R. No. L-11897 (Fernando A. Froilan vs. Pan Oriental Shipping Co.);
before us are (1) a motion, filed by appellant Pan Oriental to reconsider
the ruling made in this case sustaining Froilan's right to ownership and
possession of the vessel FS-197, and holding that there was never a
perfected contract between said movant and the intervenor Republic of
the Philippines; and (2) a motion by plaintiff-appellee Fernando A.
Froilan, and intervenor-appellee Compaia Maritima, for reconsideration
of the decision insofar as it declared said movants, together with
intervenor Republic of the Philippines, liable for reimbursement to
appellant Pan Oriental of the latter's legitimate necessary expenses made
on the vessel in question.
1. .Appellant Pan Oriental's Motion must be denied.
It may be remembered that in the instant case, the alleged approval of
the charter contract or permission to proceed with said contract was
given by the Executive Secretary in his own name and not under the
authority of the President.
xxx xxx xxx
2. Anent, appellant's motion, considering that the writ of replevin, by
virtue of which appellant Pan Oriental was divested of possession of the
vessel FS-197, was issued by the lower court on February 8, 1951 at the
instance of plaintiff Froilan and with the cooperation of intervenor
Republic of the Philippines, which accepted the payment tendered by him
(Froilan) notwithstanding its previous dealings with Pan Oriental; and
whereas, the intervenor Compaia Maritima acquired the same property
only on December 1, 1951, it is clear that only plaintiff Froilan and the
intervenor Republic of the Philippines may be held responsible for the
deprivation of defendant of its right to the retention of the property until
fully reimbursed of the necessary expenditure made on the vessel. For
this reason, Froilan and the Republic of the Philippines are declared
jointly and severally liable, not only for reimbursement to Pan Oriental of
the legitimate necessary expenses incurred on the vessel but also for
payment of legal interest thereon, computed from the date of the
defendant's dispossession of the property. However, as defendant was in
actual possession of the vessel from April 1, 1949 to February 7, 1951, it
must be required to pay reasonable rental for the use thereof, at the rate of
P3,000.00 a month the same rate specified as rental in the imperfected
charter contract which shall be deductible from whatever may be due
and owing the said party by way of reimbursable necessary expenses and
interest. This rental shall commence from the time defendant Pan
Oriental actually operated the vessel, which date shall be determined by
the lower court.
Case is remanded to the court of origin for further proceedings on the
matter of necessary expenses, interest and rental, as directed in our
decision and this resolution. (Emphasis supplied).
On November 23, 1966, acting on a second Motion for Reconsideration filed by PAN
ORIENTAL, this Court resolved:
In case G.R. No. L-11817, Fernando A, Froilan, et al., appellees, vs. Pan
Oriental Shipping Company, appellant, the latter filed a .second motion
for reconsideration, alleging that the Resolution of this Court of August
27, 1965 denying its motion for reconsideration of December 16, 1964 is
not in accordance with law; and that the modification of the judgment
following the ex-parte motion for reconsideration of appellee Froilan is
contrary to due process.
Considering that foregoing motion as well as the opposition thereto by
plaintiff-appellee and intervenor-appellee Compaia Maritima, the Court
RESOLVED to amend the ruling in this case by holding intervenor-
appellee Compaia Maritima, because of its actual knowledge of the
circumstances surrounding the purchase by Froilan of the vessel in
question from the Shipping Administrator, jointly and severally liable
with the other appellees, for reimbursement to appellant of the necessary
expenses incurred and expended by the latter on the said vessel, minus
the amount of rentals due from the appellant for the use thereof for the
period it was actually operated by Pan Oriental. The period of actual
operation shall not include the time when the vessel was drydocked.
On December 16,1966, acting on PAN ORIENTAL's Motion for Reconsideration or
Application for Damages on account of the wrongful issuance of the Writ of Replevin,
this Court issued a Resolution as follows:
Before us again in Case G.R. No. 11897 (Fernando A. Froilan vs. Pan
Oriental Shipping Co. et al) is a motion for reconsideration or Application
for damages filed by respondent Pan Oriental Shipping Co., allegedly on
account of the wrongful issuance of the writ of replevin, pursuant to Rule
60, Section 10, in relation to Rule 57, Section 20 of the Revised Rules of
Court. Considering that by virtue of our resolution dated August 27,
1965, this case has been ordered to be remanded to the Court of origin
for further proceedings on the matter of necessary expenses, interest and
rentals, and since evidence would have to be presented if the application
for damages is allowed, the Court resolved, first, to deny the present
motion for reconsideration and, second, to refer the application to the
trial court, there to be heard and decided as prescribed by law and the
Rules. (See last sentence, Section 20, Rule 57).
Pursuant thereto, the case was remanded to the Court of First Instance of Manila,
Branch VI (Civil Case No. 13196). After the evidence of the parties was received and
assessed by a Commissioner, said Court issued an Order, dated June 4, 1975, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing consideration, the Court orders
the intervenor Compaia (plaintiff Fernando A. Froilan's successor-in-
interest) and intervenor Republic of the Philippines (Board of Liquidators)
jointly and severally to pay defendant Pan Oriental Shipping Company
the sum of P6,937.72 a month from the time 'it was dispossessed on
February 3, 1951' until it is paid its useful and necessary expenses; the
sum of P40,797.54 actual amount expended for the repairs and
improvements prior to the operation of the vessel on June 1, 1949 with
legal interest from the time of disbursement of said legitimate expenses.
The Court also orders the intervenor Republic of the Philippines to return
the sum of P15,000.00 tendered by defendant Pan Oriental Shipping
Company as provided in the option with legal interest from January 16,
1950, the date it was paid by the latter.
SO ORDERED.
2

The amount of P6,937.72 ordered to be paid monthly represented the lower Court's
computation of damages of PAN ORIENTAL for deprivation of the right to retain the
vessel.
3

On appeal by REPUBLIC and MARITIMA to the then Court of Appeals, judgment was
promulgated decreeing.
WHEREFORE, in the light of the foregoing pronouncements, the
judgment appealed from is hereby MODIFIED as follows:
Ordering intervenors-appellants Republic and Compaia Maritima,
jointly and severally, to pay appellee Pan Oriental Shipping Company the
sum of P40,797.54 with legal interest from February 3, 1951 until fully
paid but there shah be deducted therefrom the amount of P59,500.00
representing the unpaid rentals due the Republic of the Philippines; and
AFFIRMED in all other respects.
In other words, (a) the date from which interest is to be paid on the amount of
P40,797.54 is from February 3, 1951, the date of dispossession, and not from the time
of disbursement and (b) the unpaid rentals due the Republic are deductible from the
amount of expenses payable to PAN-ORIENTAL. It should be recalled that the
deduction of rentals from the amount payable to PAN-ORIENTAL by REPUBLIC was
pursuant to this Court's Resolutions of August 27, 1965 and November 23, 1966,
supra,
From the foregoing Decision, the parties filed their respective Petitions for Review now
before us.
For clarity, the sums ordered to be paid by MARITIMA and the REPUBLIC, jointly and
severally, to PAN-ORIENTAL are: (a) the sum of P6,937.72 a month from February 3,
1951, the date of PAN-ORIENTAL's dispossession, in the concept of damages for the
deprivation of its right to retain the vessel, it until it is paid its useful and necessary
expenses";
4
(b) the sum of P15,000.00, representing PAN-ORIENTAL's deposit with
REPUBLIC for the purchase of the vessel, "with legal interest from January 16, 1950,"
the date PAN-ORIENTAL had paid the same;
5
and (c) the sum of P40,797.54
representing the expenses for repairs incurred by PAN-ORIENTAL, "with legal interest
from February 3, 1951 until fully paid," minus the amount of P59,500.00 representing
the unpaid rentals due the REPUBLIC
6
The legal rate of interest is made payable only
on the last two amounts (b) and (c).
REPUBLIC attributes the following errors to the Appellate Court: (1) in not holding
that compensation by operation of law took place as between REPUBLIC and PAN-
ORIENTAL as of the date of dispossession; (2) in not holding that the obligation of the
REPUBLIC to pay legal interest on the amount of useful and necessary expenses from
February 3, 1951 had become stale and ineffective; (3) in affirming the Order of the
Trial Court that MARITIMA and REPUBLIC, jointly and severally, pay to PAN-
ORIENTAL the sum of P6,937.72 a month from the time it was dispossessed of the
vessel on February 3, 1951 until it is paid its useful and necessary expenses; and (4)
in not holding that the Trial Court had no jurisdiction to order the return of
P15,000.00 to PAN-ORIENTAL. MARITIMA, for its part, aside from assailing the sums
it was ordered to pay PAN-ORIENTAL, jointly and severally, with REPUBLIC, echoed
the theory of compensation and added that the question of damages on account of
alleged wrongful replevin was not a proper subject of inquiry by the Trial Court when
it determined the matter of necessary expenses, interest and rentals.
REPUBLIC's Submissions
1) REPUBLIC maintains that compensation or set-off took place between it and PAN-
ORIENTAL as of February 3, 1951, the date the latter was dispossessed of the vessel
For compensation to take place, one of the elements necessary is that the debts be
liquidated.
7
In this case, all the elements for Compensation to take place were not
present on the date of dispossession, or on February 3, 1951. The amount expended
for repairs and improvements had yet to be determined by the Trial Court pursuant to
the Decision of this Court promulgated on October 31, 1964. At the time of
dispossession also, PAN-ORIENTAL was still insisting on its right to purchase the
vessel. The obligation of REPUBLIC to reimburse PAN-ORIENTAL for expenses arose
only after this Court had so ruled. Rentals for the use of the vessel by PAN- ORIENTAL
were neither due and demandable at the time of dispossession but only after this
Court had issued its Resolution of August 27, 1965.
More, the legal interest payable from February 3, 1951 on the sum of P40,797.54,
representing useful expenses incurred by PAN-ORIENTAL, is also still unliquidated
8

since interest does not stop accruing "until the expenses are fully paid."
9
Thus, we
find without basis REPUBLIC's allegation that PAN- ORIENTAL's claim in the amount
of P40,797.54 was extinguished by compensation since the rentals payable by PAN-
ORIENTAL amount to P59,500.00 while the expenses reach only P40,797.54.
Deducting the latter amount from the former, REPUBLIC claims that P18,702.46
would still be owing by PAN-ORIENTAL to REPUBLIC. That argument loses sight of the
fact that to the sum of P40,797.54 will still have to be added the legal rate of interest
"from February 3, 1951 until fully paid."
But although compensation by operation of law cannot take place as between
REPUBLIC and PAN-ORIENTAL, by specific pronouncement of this Court in its
Resolution of November 23, 1966, supra, the rentals payable by PAN-ORIENTAL in the
amount of P59,500.00 should be deducted from the sum of useful expenses plus legal
interest due, assuming that the latter amount would still be greater. Otherwise, the
corresponding adjustments can be made depending on the totality of the respective
amounts.
2) Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to PAN-
ORIENTAL was not extinguished by compensation, the obligation of REPUBLIC to pay
legal interest on said amount has neither become stale as REPUBLIC contends. Of
special note is the fact that payment of that interest was the specific ruling of this
Court in its Resolution of August 27, 1965, thus:
... For this reason, Froilan and the REPUBLIC of the Philippines are
declared jointly and severally liable, not only for reimbursement to Pan
Oriental, of the legitimate necessary expenses incurred on the vessel, but
also for payment of legal interest thereon, computed from the date of the
defendant's dispossession of the property ... .
3) The amount of P6,937.72 a month ordered to be paid by REPUBLIC and MARITIMA
to PAN-ORIENTAL until the latter is paid its useful and necessary expenses is likewise
in order. That amount represents the damages for the wrongful issuance of the Writ of
Replevin and was computed as follows: P4,132.77 for loss of income by PAN-
ORIENTAL plus P2,804.95 as monthly depreciation of the vessel in lieu of the charter
hire.
It should further be recalled that this Court, in acting on PAN- ORIENTAL's
application for damages in its Resolution of December 16, 1966, supra, did not deny
the same but referred it instead to the Trial Court "there to be heard and decided"
since evidence would have to be presented. Moreover, this Court found that PAN-
ORIENTAL was "deprived of the possession of the vessel over which (it) had a lien for
these expenses"
10
and that FROILAN and REPUBLIC "may be held responsible for the
deprivation of defendant (PANORIENTAL) of its right to retention of the property until
fully reimbursed on the necessary expenditures made on the vessel. "
11

4) There return of Pl5,000.00 ordered by the Trial Court and affirmed by the Appellate
Court was but just and proper. As this Court found, that sum was tendered to
REPUBLIC "which together with its (PAN-ORIENTAL's) alleged expenses already made
on the vessel, cover 25% of the cost of the vessel, as provided in the option granted in
the bareboat contract (Exhibit "C"). This amount was accepted by the Administration
as deposit ...." Since the purchase did not eventually materialize for reasons
attributable to REPUBLIC, it is but just that the deposit be returned.
12
It is futile to
allege that PAN-ORIENTAL did not plead for the return of that amount since its prayer
included other reliefs as may be just under the premises. Courts may issue such
orders of restitution as justice and equity may warrant.
MARITIMA's Position
We find no merit in MARITIMA's contention that the alleged damages on account of
wrongful replevin was barred by res judicata, and that the application for damages
before the lower Court was but a mere adoption of a different method of presenting
claims already litigated. For the records show that an application for damages for
wrongful replevin was filed both before this Court and thereafter before the Trial Court
after this Tribunal specifically remanded the issue of those damages to the Trial Court
there to be heard and decided pursuant to Rule 60, Section 10 in relation to Rule 57,
Section 20.
13

The matter of legal compensation which MARITIMA has also raised has been
previously discussed.
Parenthetically, PAN-ORIENTAL can no longer raise the alleged error of the Trial Court
in computing the necessary and useful expenses at only P40,797.54 when they should
be P87,267.30, since it did not appeal from that Court's Decision.
In a nutshell, we find that the appealed Decision of the Trial Court and of the then
Court of Appeals is in consonance with the Decision and Resolutions of this Court.
ACCORDINGLY, the judgment appealed from is hereby affirmed. No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente and Alampay, JJ.,
concur.


Footnotes
1 SCRA 276 [1964].
2 Pp. 114-115, Amended Record on Appeal.
3 P. 53, Original Record on Appeal.
4 Trial Court's Order on June 4, 1975.
5 Ibid.
6 Decision, Court of Appeals.
7 Article 1279, Civil Code.
8 Article 1279, Civil Code.
9 Decision, Court of Appeals.
10 Decision of October 31, 1964.
11 Resolution of August 27, 1965.
12 Article 1988, Civil Code.
13 Resolution of December 16, 1966.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-69560 June 30, 1988
THE INTERNATIONAL CORPORATE BANK INC., petitioner,
vs.
THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding
Judge of the Regional Trial Court of Makati, Branch 143, NATIVIDAD M.
FAJARDO, and SILVINO R. PASTRANA, as Deputy and Special Sheriff,
respondents.

PARAS, J.:
This is a petition for review on certiorari of the Decision of the Court of Appeals dated
October 31, 1984 in AC-G.R. SP No. 02912 entitled "THE INTERNATIONAL
CORPORATE BANK, INC. v. Hon. ZOILO AGUINALDO, et al.," dismissing petitioner's
petition for certiorari against the Regional Trial Court of Makati (Branch 143) for lack
of merit, and of its Resolution dated January 7, 1985, denying petitioner's motion for
reconsideration of the aforementioned Decision.
Petitioner also prays that upon filing of the petition, a restraining order be issued ex-
parte, enjoining respondents or any person acting in their behalf, from enforcing or in
any manner implementing the Order of the respondent trial court dated February 13
and March 9, 1984, and January 10 and January 11, 1985.
The facts of this case, as found by the trial court and subsequently adopted by the
Court of Appeals, are as follows:
In the early part of 1980, private respondent secured from petitioner's predecessors-
in-interest, the then Investment and Underwriting Corp. of the Philippines and Atrium
Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan, private
respondent mortgaged her real properties in Quiapo, Manila and in San Rafael,
Bulacan, which she claimed have a total market value of P110,000,000.00. Of this
loan, only the amount of P20,000,000.00 was approved for release. The same amount
was applied to pay her other obligations to petitioner, bank charges and fees. Thus,
private respondent's claim that she did not receive anything from the approved loan.
On September 11, 1980, private respondent made a money market placement with
ATRIUM in the amount of P1,046,253.77 at 17% interest per annum for a period of 32
days or until October 13, 1980, its maturity date. Meanwhile, private respondent
allegedly failed to pay her mortgaged indebtedness to the bank so that the latter
refused to pay the proceeds of the money market placement on maturity but applied
the amount instead to the deficiency in the proceeds of the auction sale of the
mortgaged properties. With Atrium being the only bidder, said properties were sold in
its favor for only P20,000,000.00. Petitioner claims that after deducting this amount,
private respondent is still indebted in the amount of P6.81 million.
On November 17, 1982, private respondent filed a complaint with the trial court
against petitioner for annulment of the sheriff's sale of the mortgaged properties, for
the release to her of the balance of her loan from petitioner in the amount of
P30,000,000,00, and for recovery of P1,062,063.83 representing the proceeds of her
money market investment and for damages. She alleges in her complaint, which was
subsequently amended, that the mortgage is not yet due and demandable and
accordingly the foreclosure was illegal; that per her loan agreement with petitioner she
is entitled to the release to her of the balance of the loan in the amount of
P30,000,000.00; that petitioner refused to pay her the proceeds of her money market
placement notwithstanding the fact that it has long become due and payable; and that
she suffered damages as a consequence of petitioner's illegal acts.
In its answer, petitioner denies private respondent's allegations and asserts among
others, that it has the right to apply or set off private respondent's money market
claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of
P5,763,741.23, representing the balance of its deficiency claim after deducting the
proceeds of the money market placement, and for damages.
The trial court subsequently dismissed private respondent's cause of action
concerning the annulment of the foreclosure sale, for lack of jurisdiction, but left the
other causes of action to be resolved after trial. Private respondent then filed separate
complaints in Manila and in Bulacan for annulment of the foreclosure sale of the
properties in Manila and in Bulacan, respectively.
On December 15, 1983, private respondent filed a motion to order petitioner to release
in her favor the sum of P1,062,063.83, representing the proceeds of the money market
placement, at the time when she had already given her direct testimony on the merits
of the case and was being cross-examined by counsel. On December 24, 1983,
petitioner filed an opposition thereto, claiming that the proceeds of the money market
investment had already been applied to partly satisfy its deficiency claim, and that to
grant the motion would be to render judgment in her favor without trial and make the
proceedings moot and academic. However, at the hearing on February 9, 1984,
counsel for petitioner and private respondent jointly manifested that they were
submitting for resolution said motion as well as the opposition thereto on the basis of
the pleadings and of the evidence which private respondent had already presented.
On February 13, 1984, respondent judge issued an order granting the motion, as
follows:
IN VIEW OF THE FOREGOING, the defendant International Corporate
Bank is hereby ordered to deliver to the plaintiff Natividad M. Pajardo the
amount of P1,062,063.83 covered by the repurchase agreement with
Serial No. AOY-14822 (Exhibit "A'), this amount represented the principal
of P1,046,253.77 which the plaintiff held including its interest as of
October 13, 1980, conditioned upon the plaintiff filing a bond amount to
P1,062,063.83 to answer for all damages which the said defendant bank
may suffer in the event that the Court should finally decide that the
plaintiff was not entitled to the said amount.
Petitioner filed a motion for reconsideration to the aforesaid order, asserting among
other things that said motion is not verified, and therefore a mere scrap of paper.
Private respondent however manifested that since she testified in open court and was
cross-examined by counsel for petitioner on the motion for release of the proceeds of
the money market placement, the defect had already been cured. On March 9, 1984,
the respondent judge issued an order denying petitioner's motion for reconsideration.
(CA Decision, Rollo, pp. 109-111).
On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition
with preliminary injunction with the Court of Appeals, (a) for the setting aside and
annulment of the Orders dated February 13, 1984 and March 9,1984, issued by the
respondent trial court, and (b) for an order commanding or directing the respondent
trial judge to desist from enforcing and/or implementing and/or executing the
aforesaid Orders. The temporary restraining order prayed for was issued by
respondent Court of Appeals on March 22, 1984. (Please see CA Decision, Rollo, p.
114, last paragraph).
In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the Court of Appeals
dismissed said petition finding(a) that while the Motion for the release of the
proceeds of the money market investment in favor of private respondent was not
verified by her, that defect was cured when she testified under oath to substantiate
her allegations therein: (b) that, petitioner cannot validly claim it was denied due
process for the reason that it was given ample time to be heard, as it was in fact heard
when it filed an Opposition to the motion and a motion for reconsideration; (c) that the
circumstances of this case prevent legal compensation from taking place because the
question of whether private respondent is indebted to petitioner in the amount of 6.81
million representing the deficiency balance after the foreclosure of the mortgage
executed to secure the loan extended to her, is vigorously disputed; (d) that the release
of the proceeds of the money market investment for private respondent will not make
the causes of action of the case pending before the trial court moot and academic nor
will it cause irreparable damage to petitioner, private respondent having filed her bond
in the amount of P1,062,063.83 to answer for all damages which the former may
suffer in the event that the court should finally decide that private respondent is not
entitled to the return of said amount (CA Decision, Rello, pp. 112-114).
The dispositive portion of the aforementioned Decision reads:
... We hold that the respondent court cannot be successfully charged
with grave abuse of discretion amounting to lack of jurisdiction when it
issued its Orders of February 13, 1984 and March 9, 1984, based as
they are on a correct appreciation of the import of the parties' evidence
and the applicable law.
IN VIEW WHEREOF, the petition is dismissed for lack of merit and the
temporary restraining order issued by this Court on March 22, 1984 is
lifted. (Ibid., p. 114).
Petitioner moved for the reconsideration of the above decision (Annex "S", Rollo, pp.
116-124), but for the reason that the same failed to raise any issue that had not been
considered and passed upon by the respondent Court of Appeals, it was denied in a
Resolution dated January 7, 1985 (CA Resolution, Rollo, p. 126).
Having been affirmed by the Court of Appeals, the trial court issued a Writ of
Execution to implement its Order of February 13, 1984 (Annex "BB", Rollo, p. 188)
and by virtue thereof, a levy was made on petitioner's personal property consisting of
20 motor vehicles (Annex "U", Rollo, p. 127).
On January 9, 1985, herein private respondent (then plaintiff) filed in the trial court
an ex-parte motion praying that the four branches of the petitioner such as: Baclaran
Branch, Paranaque, Metro Manila; Ylaya Branch, Divisoria, Metro Manila; Cubao
Branch, Quezon City and Binondo Branch, Sta. Cruz, Manila, be ordered to pay the
amount of P250,000.00 each, and the main office of the petitioner bank at Paseo de
Roxas, Makati, Metro Manila, be ordered to pay the amount of P62,063.83 in order to
answer for the claim of private respondent amounting to P1,062,063.83.
Thereupon, on January 10, 1985, the trial court issued an Order (Annex "V", Rollo, p.
129) granting the above-mentioned prayers.
Acting on the ex-parte motion by the plaintiff (now private respondent), the trial court,
on January 11, 1984, ordered the President of defendant International Corporate
Bank (now petitioner) and all its employees and officials concemed to deliver to the
sheriff the 20 motor vehicles levied by virtue of the Writ of Execution dated December
12, 1984 (Annex "W", Rollo, p. 131).
The petitioner having failed to comply with the above-cited Order, the respondent trial
court issued two (2) more Orders: the January 16, 1985 (Annex "CC," Rollo, p. 190)
and January 21, 1985 Orders (Annex "DD", Rollo, p. 191), directing several employees
mentioned therein to show cause wily they should not be cited in contempt.
Hence, this petition for review on certiorari with prayer for a restraining order and for
a writ of preliminary injunction.
Three days after this petition was filed, or specifically on January 18, 1985, petitioner
filed an urgent motion reiterating its prayer for the issuance of an ex-parte restraining
order (Rollo, p. 132).
Simultaneous with the filing of the present petition, petitioner, as defendant, filed with
the trial court an ex-parte motion to suspend the implementation of any and all orders
and writs issued pursuant to Civil Case No. 884 (Annex "A", Rollo, p. 135).
This Court's resolution dated January 21, 1985, without giving due course to the
petition, resolved (a) to require the respondents to comment: (b) to issue, effective
immediately and until further orders from this Court, a Temporary Restraining Order
enjoining the respondents from enforcing or in any manner implementing the
questioned Orders dated February 13, 1984, March 9, 1984, January 10, 1985 and
January 11 and 16, 1985, issued in Civil Case No. 884.
The corresponding writ was issued on the same day (Rollo, pp. 139-140).
As required, the Comment of private respondent was filed on January 28, 1985 (Rollo,
pp. 141- 150).
Thereafter, petitioner moved for leave to file a supplemental petition on the ground
that after it had filed this present petition, petitioner discovered that the bond filed
with, and approved by, the respondent lower court showed numerous material
erasures, alterations and/or additions (Rollo, p. 151), which the issuing insurance
company certified as having been done without its authority or consent (Annex "Z",
Rollo, p. 178).
The Supplemental Petition was actually filed on February 1, 1985 (Rollo, pp. 154-171).
It pointed out the erasures, alterations and/or additions in the bond as follows:
a. below "Civil Case No. 884" after the words, "Plaintiff's Bond," the
phrase "For Levying of Attachment" was erased or deleted;
b. in lines 2 and 3 after the word "order," the phrase "approving plaintiff's
motion dated Dec. 15, 1983, was inserted or added;
c. in line 3, the phrases "Of attachment" and "ordered that a writ of
attachment issue' were erased or deleted;
d also in line 3 after the words "the court has" the phrase "approved the
Motion was likewise inserted or added;
e. in line 9, the phrase "and of the levying of said attachment" was also
erased or deleted;
f. in line 13, the word "attachment" was likewise erased or deleted;
g. also in line 13 after the deletion of word "attachment" the phrase
"release of the P1,062,063.83 to the plaintiff was similarly inserted or
added."
Petitioner contended therein that in view of the foregoing facts, the genuineness, due
execution and authenticity as well as the validity and enforceability of the bond (Rello,
p. 174) is now placed in issue and consequently, the bond may successfully be
repudiated as falsified and, therefore, without any force and effect and the bonding
company may thereby insist that it has been released from any hability thereunder.
Also, petitioner pointed as error the respondent trial court's motu proprio transferring
Civil Case No. 884 to the Manila Branch of the same Court arguing that improper
venue, as a ground for, and unless raised in, a Motion to Dismiss, may be waived by
the parties and the court may not pre-empt the right of the parties to agree between or
among themselves as to the venue of their choice in litigating their justiciable
controversy (Supplemental Petition, Rollo, p. 160).
On being required to comment thereon, (Rollo, p. 192) private respondent countered
(Rollo, pp. 193-198) that bond forms are ready-prepared forms and the bonding
company used the form for "Levying of Attachment" because the company has no
ready-prepared form for the kind of bond called for or required in Civil Case 884.
Whatever deletions or additions appear on the bond were made by the Afisco
Insurance Corporation itself for the purpose of accomplishing what was required or
intended.
Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs Bond" in the
respondent trial court in the amount of P1,062,063.83 a xerox copy of which was
furnished this Court (Rollo, p. 219), and noted in the Court's Resolution dated May
29,1985 (Rollo, p. 225).
On March 11, 1985, petitioner was required to file a Consolidated Reply (Rollo, p. 199)
which was filed on April 10, 1985 (Rollo, p. 201).
Thereafter, a Rejoinder (Rollo, p. 238) was filed by private respondent on September
18, 1985 after Atty. Advincula, counsel for private respondents was required by this
Court to show cause why he should not be disciplinarily dealt with or held in
contempt for his failure to comply on time (Rollo, p. 226) and on August 19, 1985 said
lawyer was finally admonished (Rollo, p. 229) for his failure to promptly apprise the
Court of his alleged non-receipt of copy of petitioner's reply, which alleged non-receipt
was vehemently denied by petitioner in its Counter Manifestation (Rollo, p. 230) filed
on August 5, 1985.
Finally, on October 7, 1985, this petition was given due course and both parties were
required to submit simultaneous memoranda (Rollo, p. 249) but before the same were
filed, petitioner moved for leave to file sur-rejoinder (Rollo, p. 250), the sur-rejoinder
was filed on October 14,1985 (Rollo, pp. 252-254).
Petitioner's memorandum was filed on December 28, 1985 (Rollo, pp. 264-292) while
that of private respondent was submitted on January 10, 1986 (Rollo, pp. 295-304).
Petitioner again moved for leave to file a Reply Memorandum (Rollo, p. 307) which,
despite permission from this Court, was not filed and on August 22, 1986, private
respondent prayed for early resolution of the petition (Rollo, p. 311).
In a resolution dated October 13, 1986 (Rollo, p. 314) this case was transferred to the
Second Division of this Court, the same being assigned to a member of that Division.
The crucial issue to be resolved in this case is whether or not there can be legal
compensation in the case at bar.
Petitioner contends that after foreclosing the mortgage, there is still due from private
respondent as deficiency the amount of P6.81 million against which it has the right to
apply or set off private respondent's money market claim of P1,062,063.83.
The argument is without merit.
As correctly pointed out by the respondent Court of Appeals
Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. (Art. 1278, Civil Code). "When all the
requisites mentioned in Art. 1279 of the Civil Code are present,
compensation takes effect by operation of law, even without the consent
or knowledge of the debtors." (Art. 1290, Civil Code). Article 1279 of the
Civil Code requires among others, that in order that legal compensation
shall take place, "the two debts be due" and "they be liquidated and
demandable." Compensation is not proper where the claim of the person
asserting the set-off against the other is not clear nor liquidated;
compensation cannot extend to unliquidated, disputed claim arising from
breach of contract. (Compaia General de Tabacos vs. French and
Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17 Phil. 29).
There can be no doubt that petitioner is indebted to private respondent
in the amount of P1,062,063.83 representing the proceeds of her money
market investment. This is admitted. But whether private respondent is
indebted to petitioner in the amount of P6.81 million representing the
deficiency balance after the foreclosure of the mortgage executed to
secure the loan extended to her, is vigorously disputed. This
circumstance prevents legal compensation from taking place. (CA
Decision, Rollo, pp. 112-113).
It must be noted that Civil Case No. 83-19717 is still pending consideration at the
RTC Manila, for annulment of Sheriffs sale on extra-judicial foreclosure of private
respondent's property from which the alleged deficiency arose. (Annex "AA", Rollo, pp.
181-189). Therefore, the validity of the extrajudicial foreclosure sale and petitioner's
claim for deficiency are still in question, so much so that it is evident, that the
requirement of Article 1279 that the debts must be liquidated and demandable has
not yet been met. For this reason, legal compensation cannot take place under Article
1290 of the Civil Code.
Petitioner now assails the motion of the plaintiff (now private respondent) filed in the
trial court for the release of the proceeds of the money market investment, arguing
that it is deficient in form, the same being unverified (petitioner's Memorandum, Rollo,
p. 266). On this score, it has been held that "as enjoined by the Rules of Court and the
controlling jurisprudence, a liberal construction of the rules and the pleadings is the
controlling principle to effect substantial justice." (Maturan v. Araula, 111 SCRA 615
[1982]).
Finally, the filing of insufficient or defective bond does not dissolve absolutely and
unconditionally the injunction issued. Whatever defect the bond possessed was cured
when private respondent filed another bond in the trial court.
PREMISES CONSIDERED, the questioned Decision and Resolution of the respondent
Court of Appeals are hereby AFFIRMED.
SO ORDERED.
Yap, C.J., Melencio-Herrera and Padilla, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-62169 February 28, 1983
MINDANAO PORTLAND CEMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P.
LAQUIHON respondents.
Tolentino, Garcia, Cruz Reyes Law Office for petitioner.
Casiano P. Laquihon for respondents.


TEEHANKEE, J.:
The Court of Appeals (now Intermediate Appellate Court) certified petitioner's appeal
therein as defendant-appellant, docketed as C.A.-G.R. No. 65102 thereof, to this Court
as involving only questions of law in its Resolution of August 31, 1982, reading as
follows:
The 'Statement of the Case and the Statement of Facts' contained in
appellant's brief follow:
STATEMENT OF FACTS
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-
party defendant Pacweld Steel Corporation (Pacweld for short) as the
latter's attorney, filed a pleading addressed to the defendant & Third-
Party Plaintiff Mindanao Portland Cement Corporation (MPCC) for short),
herein appellant, entitled 'motion to direct payment of attorney's fee to
counsel' (himself ), invoking in his motion the fact that in the decision of
the court of Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum
of P10,000.00 as attorney's fees (Record on Appeal, pp. 1, 6-9).
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's
motion, stating, as grounds therefor, that said amount is set-off by a like
sum of P10,000.00 which it MPCC has collectible in its favor from
Pacweld also by way of attorney's fees which MPCC recovered from the
same Court of First Instance of Manila (Branch XX) in Civil Case No.
68346, entitled Pacweld Steel Corporation, et al. writ of execution to this
effect having been issued by said court (Record on Appeal, pp, 2,10- 14).
On June 26, 1978 the court issued the order appealed from (Record on
Appeal, pp. 24-25) and despite MPCCs motion for reconsideration of said
order, citing the law applicable and Supreme Court decisions (Record on
Appeal, pp. 26-33), denied the same in its order of August 28, 1978
(Record on Appeal, p. 37), also subject matter of this appeal.
The writ of execution referred to above which MPCC has invoked to set-
off the amount sought to be collected by Pacweld through the latter's
lawyer, Atty. Casiano P. Laquihon, is hereunder quoted in full.
In his brief, appellee comments that the statements in appellant's brief
are 'substantially correct,' as follows:
STATEMENT OF THE CASE
This is an appeal from the Order of the Court of First Instance of Manila
(Branch X dated June 26, 1978 ordering the appellant (MINDANAO
PORTLAND CEMENT CORPORATION) to pay the amount of P10,000.00
attorney's fees directly to Atty. Casiano B. Laquihon (Record on Appeal,
pp. 24-25) and from the Order dated August 28, 1978 denying
appellant's motion for reconsideration (Record on Appeal, p. 37).
There was no trial or submission of documentary evidence. Against the
orders of June 26. 1978, and August 28, 1978, appellant has brought
this appeal to this Court, contending that:
The lower court erred in not holding that the two obligations are
extinguished reciprocally by operation of law.' (p. 6, Appellant's Brief)
This appeal calls for the application of Arts. 1278, 1279 and 1290 of the
Civil Code, as urged by the appellant. Another question is: The judgment
in Civil Case No. 75179 being already final at the time the motion under
consideration was filed, does not the order of June 26, 1976 constitute a
change or alteration of the said judgment, though issued by the very
same court that rendered the judgment?
WHEREFORE, since only questions of law are involved and there is no
factual issue left for us to determine, let the records of the appeal in this
case be certified to the Honorable Supreme Court for determination.
After considering the briefs of the parties in the appellate court and the additional
pleadings required of them by this Court, the Court finds merit in the appeal and sets
aside the appealed orders of June 26 and August 28, 1978 of the Court of First
Instance (now Regional Trial Court) of Manila, Branch XX.
It is clear from the record that both corporations, petitioner Mindanao Portland
Cement Corporation (appellant) and respondent Pacweld Steel Corporation (appellee),
were creditors and debtors of each other, their debts to each other consisting in final
and executory judgments of the Court of First Instance in two (2) separate cases,
ordering the payment to each other of the sum of P10,000.00 by way of attorney's fees.
The two (2) obligations, therefore, respectively offset each other, compensation having
taken effect by operation of law and extinguished both debts to the concurrent amount
of P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the Civil
Code, since all the requisites provided in Art. 1279 of the said Code for automatic
compensation "even though the creditors and debtors are not aware of the
compensation" were duly present.**
Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's motion for
amendment of the judgment of September 14, 1976 against Mindanao Portland
Cement Corporation so as to make the award therein of P10,000.00 as attorney's fees
payable directly to himself as counsel of Pacweld Steel Corporation instead of payable
directly to said corporation as provided in the judgment, which had become final and
executory long before the issuance of said "amendatory" order was a void alteration of
judgment. It was a substantial change or amendment beyond the trial court's
jurisdiction and authority and it could not defeat the compensation or set-off of the
two (2) obligations of the corporations to each other which had already extinguished
both debts by operation of law.
ACCORDINGLY. the appealed orders are hereby annulled and set aside. No costs.
Melencio-Herrera, Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Footnotes
** Art. 1278. Compensation shall take place when two persons, in their
own right, are creditors and debtors of each other.
"ART. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated:
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
ART. 1290. When all the requisites mentioned in Art. 1279 are present,
compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors
are not aware of the compensation.
Republic of the Philippines
SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 170141 April 22, 2008
JAPAN AIRLINES, petitioner,
vs.
JESUS SIMANGAN, respondent.
D E C I S I O N
REYES R.T., J.:
WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a
certain date, a contract of carriage arises, and the passenger has every right to expect
that he would fly on that flight and on that date. If he does not, then the carrier opens
itself to a suit for breach of contract of carriage.
1

The power to admit or not an alien into the country is a sovereign act which cannot be
interfered with even by Japan Airlines (JAL).
2

In this petition for review on certiorari,
3
petitioner JAL appeals the: (1) Decision
4
dated
May 31, 2005 of the Court of Appeals (CA) ordering it to pay respondent Jesus
Simangan moral and exemplary damages; and (2) Resolution
5
of the same court dated
September 28, 2005 denying JAL's motion for reconsideration.
The Facts
In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin,
Loreto Simangan, in UCLA School of Medicine in Los Angeles, California, U.S.A. Upon
request of UCLA, respondent undertook a series of laboratory tests at the National
Kidney Institute in Quezon City to verify whether his blood and tissue type are
compatible with Loreto's.
6
Fortunately, said tests proved that respondent's blood and
tissue type were well-matched with Loreto's.
7

Respondent needed to go to the United States to complete his preliminary work-up
and donation surgery. Hence, to facilitate respondent's travel to the United States,
UCLA wrote a letter to the American Consulate in Manila to arrange for his visa. In
due time, respondent was issued an emergency U.S. visa by the American Embassy in
Manila.
8

Having obtained an emergency U.S. visa, respondent purchased a round trip plane
ticket from petitioner JAL for US$1,485.00 and was issued the corresponding boarding
pass.
9
He was scheduled to a particular flight bound for Los Angeles, California, U.S.A.
via Narita, Japan.
10

On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino
International Airport in the company of several relatives and friends.
11
He was allowed
to check-in at JAL's counter.
12
His plane ticket, boarding pass, travel authority and
personal articles were subjected to rigid immigration and security routines.
13
After
passing through said immigration and security procedures, respondent was allowed by
JAL to enter its airplane.
14

While inside the airplane, JAL's airline crew suspected respondent of carrying a
falsified travel document and imputed that he would only use the trip to the United
States as a pretext to stay and work in Japan.
15
The stewardess asked respondent to
show his travel documents. Shortly after, the stewardess along with a Japanese and a
Filipino haughtily ordered him to stand up and leave the plane.
16
Respondent
protested, explaining that he was issued a U.S. visa. Just to allow him to board the
plane, he pleaded with JAL to closely monitor his movements when the aircraft stops
over in Narita.
17
His pleas were ignored. He was then constrained to go out of the
plane.
18
In a nutshell, respondent was bumped off the flight.
Respondent went to JAL's ground office and waited there for three hours. Meanwhile,
the plane took off and he was left behind.
19
Afterwards, he was informed that his travel
documents were, indeed, in order.
20
Respondent was refunded the cost of his plane
ticket less the sum of US$500.00 which was deducted by JAL.
21
Subsequently,
respondent's U.S. visa was cancelled.
22

Displeased by the turn of events, respondent filed an action for damages against JAL
with the Regional Trial Court (RTC) in Valenzuela City, docketed as Civil Case No.
4195-V-93. He claimed he was not able to donate his kidney to Loreto; and that he
suffered terrible embarrassment and mental anguish.
23
He prayed that he be awarded
P3 million as moral damages, P1.5 million as exemplary damages and P500,000.00 as
attorney's fees.
24

JAL denied the material allegations of the complaint. It argued, among others, that its
failure to allow respondent to fly on his scheduled departure was due to "a need for his
travel documents to be authenticated by the United States Embassy"
25
because no one
from JAL's airport staff had encountered a parole visa before.
26
It posited that the
authentication required additional time; that respondent was advised to take the flight
the following day, July 30, 1992. JAL alleged that respondent agreed to be rebooked
on July 30, 1992.
27

JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution
of the complaint. It prayed for litigation expenses, exemplary damages and attorney's
fees.
28

On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its
decision in favor of respondent (plaintiff), disposing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff the amount of P1,000,000.00 as moral damages, the amount of
P500,000.00 as exemplary damages and the amount of P250,000.00 as
attorney's fees, plus the cost of suit.
29

The RTC explained:
In summarily and insolently ordering the plaintiff to disembark while the latter
was already settled in his assigned seat, the defendant violated the contract of
carriage; that when the plaintiff was ordered out of the plane under the pretext
that the genuineness of his travel documents would be verified it had caused
him embarrassment and besmirched reputation; and that when the plaintiff
was finally not allowed to take the flight, he suffered more wounded feelings
and social humiliation for which the plaintiff was asking to be awarded moral
and exemplary damages as well as attorney's fees.
The reason given by the defendant that what prompted them to investigate the
genuineness of the travel documents of the plaintiff was that the plaintiff was
not then carrying a regular visa but just a letter does not appear satisfactory.
The defendant is engaged in transporting passengers by plane from country to
country and is therefore conversant with the travel documents. The defendant
should not be allowed to pretend, to the prejudice of the plaintiff not to know
that the travel documents of the plaintiff are valid documents to allow him entry
in the United States.
The foregoing act of the defendant in ordering the plaintiff to deplane while
already settled in his assigned seat clearly demonstrated that the defendant
breached its contract of carriage with the plaintiff as passenger in bad faith and
as such the plaintiff is entitled to moral and exemplary damages as well as to
an award of attorney's fees.
30

Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not
guilty of breach of contract of carriage, hence, not liable for damages.
31
It posited that
it is the one entitled to recover on its counterclaim.
32

CA Ruling
In a Decision
33
dated May 31, 2005, the CA affirmed the decision of the RTC with
modification in that it lowered the amount of moral and exemplary damages and
deleted the award of attorney's fees. The fallo of the CA decision reads:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION.
Appellant JAPAN AIR LINES is ordered to pay appellee JESUS SIMANGAN the
reduced sums, as follows: Five Hundred Thousand Pesos (P500,000.00) as
moral damages, and Two Hundred Fifty Thousand Pesos (P250,000.00) as
exemplary damages. The award of attorney's fees is hereby DELETED.
34

The CA elucidated that since JAL issued to respondent a round trip plane ticket for a
lawful consideration, "there arose a perfected contract between them."
35
It found that
respondent was "haughtily ejected"
36
by JAL and that "he was certainly embarrassed
and humiliated"
37
when, in the presence of other passengers, JAL's airline staff
"shouted at him to stand up and arrogantly asked him to produce his travel papers,
without the least courtesy every human being is entitled to";
38
and that "he was
compelled to deplane on the grounds that his papers were fake."
39

The CA ratiocinated:
While the protection of passengers must take precedence over convenience, the
implementation of security measures must be attended by basic courtesies.
In fact, breach of the contract of carriage creates against the carrier a
presumption of liability, by a simple proof of injury, relieving the injured
passenger of the duty to establish the fault of the carrier or of his employees;
and placing on the carrier the burden to prove that it was due to an unforeseen
event or to force majeure.
That appellee possessed bogus travel documents and that he might stay
illegally in Japan are allegations without substantiation. Also, appellant's
attempt to rebook appellee the following day was too late and did not relieve it
from liability. The damage had been done. Besides, its belated theory of
novation, i.e., that appellant's original obligation to carry appellee to Narita and
Los Angeles on July 29, 1992 was extinguished by novation when appellant and
appellant agreed that appellee will instead take appellant's flight to Narita on
the following day, July 30, 1992, deserves little attention. It is inappropriate at
bar. Questions not taken up during the trial cannot be raised for the first time
on appeal.
40
(Underscoring ours and citations were omitted)
Citing Ortigas, Jr. v. Lufthansa German Airlines,
41
the CA declared that "(i)n contracts
of common carriage, inattention and lack of care on the part of the carrier resulting in
the failure of the passenger to be accommodated in the class contracted for amounts
to bad faith or fraud which entitles the passengers to the award of moral damages in
accordance with Article 2220 of the Civil Code."
42

Nevertheless, the CA modified the damages awarded by the RTC. It explained:
Fundamental in the law on damages is that one injured by a breach of a
contract, or by a wrongful or negligent act or omission shall have a fair and just
compensation commensurate to the loss sustained as consequence of the
defendant's act. Being discretionary on the court, the amount, however, should
not be palpably and scandalously excessive.
Here, the trial court's award of P1,000,000.00 as moral damages appears to be
overblown. No other proof of appellee's social standing, profession, financial
capabilities was presented except that he was single and a businessman. To Us,
the sum of 500,000.00 is just and fair. For, moral damages are emphatically
not intended to enrich a complainant at the expense of the defendant. They are
awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone,
by reason of the defendant's culpable action.
Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced
to a reasonable level. The award of exemplary damages is designed to permit
the courts to mould behavior that has socially deleterious consequences and its
imposition is required by public policy to suppress the wanton acts of the
offender. Hence, the sum of P250,000.00 is adequate under the circumstances.
The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was
definitely compelled to litigate in protecting his rights and in seeking relief from
appellant's misdeeds. Yet, the record is devoid of evidence to show the cost of
the services of his counsel and/or the actual expenses incurred in prosecuting
his action.
43
(Citations were omitted)
When JAL's motion for reconsideration was denied, it resorted to the petition at bar.
Issues
JAL poses the following issues -
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
RESPONDENT WAS ENTITLED TO MORAL DAMAGES, CONSIDERING THAT:
A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT
CASES ONLY WHEN THE BREACH IS ATTENDED BY FRAUD OR BAD
FAITH. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH,
JAL DID NOT ACT FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE
RESPONDENT TO MORAL DAMAGES.
C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN
GOOD FAITH FROM ONE ATTENDED BY BAD FAITH.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
RESPONDENT WAS ENTITLED TO EXEMPLARY DAMAGES CONSIDERING
THAT:
A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF
CONTRACT OF CARRIAGE UNLESS THE CARRIER IS GUILTY OF
WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT
CONDUCT.
B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL
DID NOT ACT IN A WANTON FRAUDULENT, RECKLESS, OPPRESSIVE
OR MALEVOLENT MANNER AS TO ENTITLE RESPONDENT TO
EXEMPLARY DAMAGES.
III.
ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD
OF DAMAGES, WHETHER OR NOT THE COURT OF APPEALS AWARD OF
P750,000 IN DAMAGES WAS EXCESSIVE AND UNPRECEDENTED.
IV.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR
JAL ON ITS COUNTERCLAIM.
44
(Underscoring Ours)
Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of
contract of carriage; (2) whether or not respondent is entitled to moral and exemplary
damages; and (3) whether or not JAL is entitled to its counterclaim for damages.
Our Ruling
This Court is not a trier of facts.
Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The
CA also gave its nod to the reasoning of the RTC except as to the awards of damages,
which were reduced, and that of attorney's fees, which was deleted.
We are not a trier of facts. We generally rely upon, and are bound by, the conclusions
on this matter of the lower courts, which are better equipped and have better
opportunity to assess the evidence first-hand, including the testimony of the
witnesses.
45

We have repeatedly held that the findings of fact of the CA are final and conclusive
and cannot be reviewed on appeal to the Supreme Court provided they are based on
substantial evidence.
46
We have no jurisdiction, as a rule, to reverse their findings.
47

Among the exceptions to this rule are: (a) when the conclusion is a finding grounded
entirely on speculations, surmises or conjectures; (b) when the inference made is
manifestly mistaken, absurd or impossible; (c) where there is grave abuse of
discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the
findings of facts are conflicting; (f) when the CA, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of both appellant
and appellee.
48

The said exceptions, which are being invoked by JAL, are not found here. There is no
indication that the findings of the CA are contrary to the evidence on record or that
vital testimonies of JAL's witnesses were disregarded. Neither did the CA commit
misapprehension of facts nor did it fail to consider relevant facts. Likewise, there was
no grave abuse of discretion in the appreciation of facts or mistaken and absurd
inferences.
We thus sustain the coherent facts as established by the courts below, there being no
sufficient showing that the said courts committed reversible error in reaching their
conclusions.
JAL is guilty of breach of
contract of carriage.
That respondent purchased a round trip plane ticket from JAL and was issued the
corresponding boarding pass is uncontroverted.
49
His plane ticket, boarding pass,
travel authority and personal articles were subjected to rigid immigration and security
procedure.
50
After passing through said immigration and security procedure, he was
allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita,
Japan.
51
Concisely, there was a contract of carriage between JAL and respondent.
Nevertheless, JAL made respondent get off the plane on his scheduled departure on
July 29, 1992. He was not allowed by JAL to fly. JAL thus failed to comply with its
obligation under the contract of carriage.
JAL justifies its action by arguing that there was "a need to verify the authenticity of
respondent's travel document."
52
It alleged that no one from its airport staff had
encountered a parole visa before.
53
It further contended that respondent agreed to fly
the next day so that it could first verify his travel document, hence, there was
novation.
54
It maintained that it was not guilty of breach of contract of carriage as
respondent was not able to travel to the United States due to his own voluntary
desistance.
55

We cannot agree. JAL did not allow respondent to fly. It informed respondent that
there was a need to first check the authenticity of his travel documents with the U.S.
Embassy.
56
As admitted by JAL, "the flight could not wait for Mr. Simangan because it
was ready to depart."
57

Since JAL definitely declared that the flight could not wait for respondent, it gave
respondent no choice but to be left behind. The latter was unceremoniously bumped
off despite his protestations and valid travel documents and notwithstanding his
contract of carriage with JAL. Damage had already been done when respondent was
offered to fly the next day on July 30, 1992. Said offer did not cure JAL's default.
Considering that respondent was forced to get out of the plane and left behind against
his will, he could not have freely consented to be rebooked the next day. In short, he
did not agree to the alleged novation. Since novation implies a waiver of the right the
creditor had before the novation, such waiver must be express.
58
It cannot be
supposed, without clear proof, that respondent had willingly done away with his right
to fly on July 29, 1992.
Moreover, the reason behind the bumping off incident, as found by the RTC and CA,
was that JAL personnel imputed that respondent would only use the trip to the United
States as a pretext to stay and work in Japan.
59

Apart from the fact that respondent's plane ticket, boarding pass, travel authority and
personal articles already passed the rigid immigration and security routines,
60
JAL, as
a common carrier, ought to know the kind of valid travel documents respondent
carried. As provided in Article 1755 of the New Civil Code: "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."
61
Thus, We find untenable JAL's defense of "verification of
respondent's documents" in its breach of contract of carriage.
It bears repeating that the power to admit or not an alien into the country is a
sovereign act which cannot be interfered with even by JAL.
62

In an action for breach of contract of carriage, all that is required of plaintiff is to
prove the existence of such contract and its non-performance by the carrier through
the latter's failure to carry the passenger safely to his destination.
63
Respondent has
complied with these twin requisites.
Respondent is entitled to moral and exemplary damages and attorney's fees
plus legal interest.
With reference to moral damages, JAL alleged that they are not recoverable in actions
ex contractu except only when the breach is attended by fraud or bad faith. It is
contended that it did not act fraudulently or in bad faith towards respondent, hence, it
may not be held liable for moral damages.
As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract for it is not one of the items enumerated under
Article 2219 of the Civil Code.
64
As an exception, such damages are recoverable: (1) in
cases in which the mishap results in the death of a passenger, as provided in Article
1764, in relation to Article 2206(3) of the Civil Code; and (2) in the cases in which the
carrier is guilty of fraud or bad faith, as provided in Article 2220.
65

The acts committed by JAL against respondent amounts to bad faith. As found by the
RTC, JAL breached its contract of carriage with respondent in bad faith. JAL
personnel summarily and insolently ordered respondent to disembark while the latter
was already settled in his assigned seat. He was ordered out of the plane under the
alleged reason that the genuineness of his travel documents should be verified.
These findings of facts were upheld by the CA, to wit:
x x x he was haughtily ejected by appellant. He was certainly embarrassed and
humiliated when, in the presence of other passengers, the appellant's airline
staff shouted at him to stand up and arrogantly asked him to produce his travel
papers, without the least courtesy every human being is entitled to. Then, he
was compelled to deplane on the grounds that his papers were fake. His
protestation of having been issued a U.S. visa coupled with his plea to appellant
to closely monitor his movements when the aircraft stops over in Narita, were
ignored. Worse, he was made to wait for many hours at the office of appellant
only to be told later that he has valid travel documents.
66
(Underscoring ours)
Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are
recoverable in suits predicated on breach of a contract of carriage where it is proved
that the carrier was guilty of fraud or bad faith, as in this case. Inattention to and lack
of care for the interests of its passengers who are entitled to its utmost consideration,
particularly as to their convenience, amount to bad faith which entitles the passenger
to an award of moral damages. What the law considers as bad faith which may furnish
the ground for an award of moral damages would be bad faith in securing the contract
and in the execution thereof, as well as in the enforcement of its terms, or any other
kind of deceit.
67

JAL is also liable for exemplary damages as its above-mentioned acts constitute
wanton, oppressive and malevolent acts against respondent. Exemplary damages,
which are awarded by way of example or correction for the public good, may be
recovered in contractual obligations, as in this case, if defendant acted in wanton,
fraudulent, reckless, oppressive, or malevolent manner.
68

Exemplary damages are designed by our civil law to permit the courts to reshape
behaviour that is socially deleterious in its consequence by creating negative
incentives or deterrents against such behaviour. In requiring compliance with the
standard of extraordinary diligence, a standard which is, in fact, that of the highest
possible degree of diligence, from common carriers and in creating a presumption of
negligence against them, the law seeks to compel them to control their employees, to
tame their reckless instincts and to force them to take adequate care of human beings
and their property.
69

Neglect or malfeasance of the carrier's employees could give ground for an action for
damages. Passengers have a right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration and are entitled to be protected
against personal misconduct, injurious language, indignities and abuses from such
employees.
70

The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary
damages in respondent's favor is, in Our view, reasonable and realistic. This award is
reasonably sufficient to indemnify him for the humiliation and embarrassment he
suffered. This also serves as an example to discourage the repetition of similar
oppressive acts.
With respect to attorney's fees, they may be awarded when defendant's act or omission
has compelled plaintiff to litigate with third persons or to incur expenses to protect his
interest.
71
The Court, in Construction Development Corporation of the Philippines v.
Estrella,
72
citing Traders Royal Bank Employees Union-Independent v. National Labor
Relations Commission,
73
elucidated thus:
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.
74

It was therefore erroneous for the CA to delete the award of attorney's fees on the
ground that the record is devoid of evidence to show the cost of the services of
respondent's counsel. The amount is actually discretionary upon the Court so long as
it passes the test of reasonableness. They may be recovered as actual or compensatory
damages when exemplary damages are awarded and whenever the court deems it just
and equitable,
75
as in this case.
Considering the factual backdrop of this case, attorney's fees in the amount of
P200,000.00 is reasonably modest.
The above liabilities of JAL in the total amount of P800,000.00 earn legal interest
pursuant to the Court's ruling in Construction Development Corporation of the
Philippines v. Estrella,
76
citing Eastern Shipping Lines, Inc. v. Court of Appeals,
77
to wit:
Regarding the imposition of legal interest at the rate of 6% from the time of the
filing of the complaint, we held in Eastern Shipping Lines, Inc. v. Court of
Appeals, that when an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for payment of interest in the concept of actual and compensatory
damages, 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.
78
(Emphasis supplied and citations omitted)
Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay
respondent legal interest. Pursuant to the above ruling of the Court, the legal interest
is 6% and it shall be reckoned from September 21, 2000 when the RTC rendered its
judgment. From the time this Decision becomes final and executory, the interest rate
shall be 12% until its satisfaction.
JAL is not entitled to its counterclaim for damages.
The counterclaim of JAL in its Answer
79
is a compulsory counterclaim for damages
and attorney's fees arising from the filing of the complaint. There is no mention of any
other counter claims.
This compulsory counterclaim of JAL arising from the filing of the complaint may not
be granted inasmuch as the complaint against it is obviously not malicious or
unfounded. It was filed by respondent precisely to claim his right to damages against
JAL. Well-settled is the rule that the commencement of an action does not per se make
the action wrongful and subject the action to damages, for the law could not have
meant to impose a penalty on the right to litigate.
80

We reiterate case law that if damages result from a party's exercise of a right, it is
damnum absque injuria.
81
Lawful acts give rise to no injury. Walang perhuwisyong
maaring idulot ang paggamit sa sariling karapatan.
During the trial, however, JAL presented a witness who testified that JAL suffered
further damages. Allegedly, respondent caused the publications of his subject
complaint against JAL in the newspaper for which JAL suffered damages.
82

Although these additional damages allegedly suffered by JAL were not incorporated in
its Answer as they arose subsequent to its filing, JAL's witness was able to testify on
the same before the RTC.
83
Hence, although these issues were not raised by the
pleadings, they shall be treated in all respects as if they had been raised in the
pleadings.
As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by
the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings."
Nevertheless, JAL's counterclaim cannot be granted.
JAL is a common carrier. JAL's business is mainly with the traveling public. It invites
people to avail themselves of the comforts and advantages it offers.
84
Since JAL deals
with the public, its bumping off of respondent without a valid reason naturally drew
public attention and generated a public issue.
The publications involved matters about which the public has the right to be informed
because they relate to a public issue. This public issue or concern is a legitimate topic
of a public comment that may be validly published.
Assuming that respondent, indeed, caused the publication of his complaint, he may
not be held liable for damages for it. The constitutional guarantee of freedom of the
speech and of the press includes fair commentaries on matters of public interest. This
is explained by the Court in Borjal v. Court of Appeals,
85
to wit:
To reiterate, fair commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine of fair
comment means that while in general every discreditable imputation publicly
made is deemed false, because every man is presumed innocent until his guilt
is judicially proved, and every false imputation is deemed malicious,
nevertheless, when the discreditable imputation is directed against a public
person in his public capacity, it is not necessarily actionable. In order that such
discreditable imputation to a public official may be actionable, it must either be
a false allegation of fact or a comment based on a false supposition. If the
comment is an expression of opinion, based on established facts, then it is
immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.
86
(Citations omitted and underscoring
ours)
Even though JAL is not a public official, the rule on privileged commentaries on
matters of public interest applies to it. The privilege applies not only to public officials
but extends to a great variety of subjects, and includes matters of public concern,
public men, and candidates for office.
87

Hence, pursuant to the Borjal case, there must be an actual malice in order that a
discreditable imputation to a public person in his public capacity or to a public official
may be actionable. To be considered malicious, the libelous statements must be
shown to have been written or published with the knowledge that they are false or in
reckless disregard of whether they are false or not.
88

Considering that the published articles involve matters of public interest and that its
expressed opinion is not malicious but based on established facts, the imputations
against JAL are not actionable. Therefore, JAL may not claim damages for them.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals
is AFFIRMED WITH MODIFICATION. As modified, petitioner Japan Airlines is
ordered to pay respondent Jesus Simangan the following: (1) P500,000.00 as moral
damages; (2) P100,000.00 as exemplary damages; and (3) P200,000.00 as attorney's
fees.
The total amount adjudged shall earn legal interest at the rate of 6% per annum from
the date of judgment of the Regional Trial Court on September 21, 2000 until the
finality of this Decision. From the time this Decision becomes final and executory, the
unpaid amount, if any, shall earn legal interest at the rate of 12% per annum until its
satisfaction.
SO ORDERED.
RUBEN T. REYES
Associate Justice

WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-
MARTINEZ
Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice

A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court's
Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1
Yu Eng Cho v. Pan American World Airways, Inc., G.R. No. 123560, March 27,
2000, 328 SCRA 717, 735, citing Alitalia Airways v. Court of Appeals, G.R. No.
77011, July 24, 1990, 187 SCRA 763, 770.
2
Japan Airlines v. Asuncion, G.R. No. 161730, January 28, 2005, 449 SCRA
544, 548.
3
Under Rule 45 of the 1997 Rules of Civil Procedure. The petition contains a
prayer for the issuance of a temporary restraining order and/or preliminary
injunction.
4
Rollo, pp. 58-65. Penned by Associate Justice Magdangal M. De Leon, with
Associate Justices Salvador J. Valdez, Jr. (now deceased) and Mariano C. Del
Castillo, concurring.
5
Id. at 66-67.
6
Id. at 126-127.
7
Id.
8
Id.
9
Id. at 59, 128.
10
Id.
11
Id. at 127.
12
Id. at 59.
13
Id. at 62.
14
Id. at 59, 128.
15
Id.
16
Id.
17
Id. at 62.
18
Id. at 62, 127-128.
19
Id. at 59, 127.
20
Id.
21
Id. at 60, 127.
22
Id.
23
Id.
24
Id.
25
Id. at 85.
26
Id.
27
Id.
28
Id. at 86-87.
29
Id. at 60, 129.
30
Id. at 128-129.
31
Id. at 61.
32
Id.
33
Id. at 58-65.
34
Id. at 65.
35
Id. at 62.
36
Id.
37
Id.
38
Id.
39
Id.
40
Id. at 63.
41
G.R. No. L-28773, June 30, 1975, 64 SCRA 610.
42
Rollo, p. 63.
43
Id. at 64.
44
Id. at 23-24.
45
Malaysian Airline System v. Court of Appeals, G.R. No. L-78015, December
11, 1987, 156 SCRA 321, 323.
46
Id., citing Alsua-Betts v. Court of Appeals, G.R. Nos. L-46430-31, July 30,
1979, 92 SCRA 332.
47
Korean Airlines Co., Ltd. v. Court of Appeals, G.R. No. L-61418, September
24, 1987, 154 SCRA 211, 213, citing Tongoy v. Court of Appeals, G.R. No. L-
45645, June 28, 1983, 123 SCRA 99; Olango v. Court of First Instance of
Misamis Oriental, G.R. No. L-55864, March 28, 1983, 121 SCRA 338.
48
Malaysian Airline System v. Court of Appeals, supra note 45, at 323-324,
citing Ramos v. Pepsi-Cola Bottling Co., G.R. No. L-22533, February 9, 1967,
19 SCRA 289.
49
Rollo, pp. 59, 128.
50
Id. at 62.
51
Id. at 59, 128.
52
Id. at 25, 85.
53
Id.
54
Id. at 25, 27.
55
Id. at 24.
56
Id. at 85.
57
Id. at 27.
58
Garcia v. Llamas, G.R. No. 154127, December 8, 2003, 417 SCRA 292, 302,
citing Babst v. Court of Appeals, G.R. No. 99398, January 26, 2001, 350 SCRA
341.
59
Rollo, pp. 59, 128.
60
Id. at 62.
61
Emphasis ours.
62
Japan Airlines v. Asuncion, supra note 2.
63
Tolentino, A.M., Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. V, 1992 ed., p. 299; Aboitiz v. Court of Appeals, G.R. No.
84458, November 6, 1989, 179 SCRA 95, 105.
64
Calalas v. Court of Appeals, G.R. No. 122039, May 31, 2000, 332 SCRA 356,
365, citing Flores v. Miranda, 105 Phil. 267 (1959).
65
Id., citing Philippine Rabbit Bus Lines, Inc. v. Esguerra, G.R. No. L-31420,
October 23, 1982, 117 SCRA 741; Sabena Belgian World Airlines v. Court of
Appeals, G.R. No. 82068, March 31, 1989, 171 SCRA 620; China Airlines, Ltd.
v. Intermediate Appellate Court, G.R. No. 73835, January 17, 1989, 169 SCRA
226.
66
Rollo, p. 62.
67
Philippine Airlines v. Court of Appeals, G.R. No. 119641, May 17, 1996, 257
SCRA 33, 43.
68
Victory Liner v. Gammad, G.R. No. 159636, November 25, 2004, 444 SCRA
370, citing Yobido v. Court of Appeals, 346 Phil. 1, 13 (1997).
69
Mecenas v. Court of Appeals, G.R. No. 88052, December 14, 1989, 180 SCRA
83.
70
See note 63, citing Zulueta v. Pan-Am Airways, G.R. No. L-28589, February
29, 1972, 43 SCRA 397.
71
Singson v. Court of Appeals, G.R. No. 119995, November 18, 1997, 282 SCRA
149, 165.
72
G.R. No. 147791, September 8, 2006, 501 SCRA 228, 243-244.
73
G.R. No. 120592, March 14, 1997, 269 SCRA 733.
74
Traders Royal Bank Employees Union-Independent v. National Labor
Relations Commission, id. at 740.
75
Vital-Gozon v. Court of Appeals, G.R. No. 129132, July 8, 1998, 292 SCRA
124; Civil Code, Art. 2208.
76
Supra note 72, at 244-245.
77
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
78
Eastern Shipping Lines, Inc. v. Court of Appeals, id. at 95-97.
79
Rollo, pp. 86-87.
80
United Coconut Planters Bank v. Basco, G.R. No. 142668, August 31, 2004,
437 SCRA 325, 344.
81
Id., citing ABS-CBN Broadcasting Corporation v. Court of Appeals, G.R. No.
128690, January 21, 1999, 301 SCRA 572.
82
Rollo, pp. 60, 128.
83
Id. at 60, 127-128.
84
Morris v. Court of Appeals, G.R. No. 127957, February 21, 2001, 352 SCRA
428, 435.
85
G.R. No. 126466, January 14, 1999, 301 SCRA 1.
86
Borjal v. Court of Appeals, id. at 23.
87
Baguio Midland Courier v. Court of Appeals, G.R. No. 107566, November 25,
2004, 444 SCRA 28.
88
Borjal v. Court of Appeals, supra note 85, at 28-29.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 171998 October 20, 2010
ANAMER SALAZAR, Petitioner,
vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.
D E C I S I O N
PERALTA, J.:
Before us is a petition for review seeking to annul and set aside the Decision
1
dated
September 29, 2005 and the Resolution
2
dated March 2, 2006 of the Court of Appeals
(CA) in CA-G.R. CV No. 83104.
The facts, as found by the Court of Appeals, are not disputed, thus:
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business
of selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a
freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew
a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros.
As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300
cavans of rice worth P214,000.00. As payment, Salazar negotiated and indorsed to
J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena
Jaucian Timario in the amount of P214,000.00 with the assurance that the check is
good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar.
However, upon presentment, the check was dishonored due to "closed account."
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y.
Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996
again issued by Nena Jaucian Timario in the amount of P214,000.00 but which, just
the same, bounced due to insufficient funds. When despite the demand letter dated
February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter
charged Salazar and Timario with the crime of estafa before the Regional Trial Court of
Legaspi City, docketed as Criminal Case No. 7474.
After the prosecution rested its case and with prior leave of court, Salazar submitted a
demurrer to evidence. On November 19, 2001, the court a quo rendered an Order, the
dispositive portion of which reads:
WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby
ACQUITTED of the crime charged but is hereby held liable for the value of the 300
bags of rice. Accused Anamer D. Salazar is therefore ordered to pay J.Y. Brothers
Marketing Corporation the sum of P214,000.00. Costs against the accused.
SO ORDERED.
Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to
allow her to present evidence thereon. The motion was denied. Accused went up to the
Supreme Court on a petition for review on certiorari under Rule 45 of the Rules of
Court. Docketed as G.R. 151931, in its Decision dated September 23, 2003, the High
Court ruled:
IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated
November 19, 2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The
Regional Trial Court of Legaspi City, Branch 5, is hereby DIRECTED to set Criminal
Case No. 7474 for the continuation of trial for the reception of the evidence-in-chief of
the petitioner on the civil aspect of the case and for the rebuttal evidence of the private
complainant and the sur-rebuttal evidence of the parties if they opt to adduce any.
SO ORDERED.
3

The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial
on the civil aspect of the criminal case.
On April 1, 2004, the RTC rendered its Decision,
4
the dispositive portion of which
reads:
WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against
Anamer D. Salazar the civil aspect of the above-entitled case. No pronouncement as to
costs.
Place into the files (archive) the record of the above-entitled case as against the other
accused Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry
dated issue for her apprehension, and fix the amount of the bail bond for her
provisional liberty at 59,000.00 pesos.
SO ORDERED.
5

The RTC found that the Prudential Bank check drawn by Timario for the amount of
P214,000.00 was payable to the order of respondent, and such check was a negotiable
order instrument; that petitioner was not the payee appearing in the check, but
respondent who had not endorsed the check, much less delivered it to petitioner. It
then found that petitioners liability should be limited to the allegation in the amended
information that "she endorsed and negotiated said check," and since she had never
been the holder of the check, petitioner's signing of her name on the face of the dorsal
side of the check did not produce the technical effect of an indorsement arising from
negotiation. The RTC ruled that after the Prudential Bank check was dishonored, it
was replaced by a Solid Bank check which, however, was also subsequently
dishonored; that since the Solid Bank check was a crossed check, which meant that
such check was only for deposit in payees account, a condition that rendered such
check non-negotiable, the substitution of a non-negotiable Solid Bank check for a
negotiable Prudential Bank check was an essential change which had the effect of
discharging from the obligation whoever may be the endorser of the negotiable check.
The RTC concluded that the absence of negotiability rendered nugatory the obligation
arising from the technical act of indorsing a check and, thus, had the effect of
novation; and that the ultimate effect of such substitution was to extinguish the
obligation arising from the issuance of the Prudential Bank check.
Respondent filed an appeal with the CA on the sole assignment of error that:
IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER
SALAZAR BY INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE
CHECK, (B) DID NOT PRODUCE THE TECHNICAL EFFECT OF AN INDORSEMENT
ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL LIABILITY.
6

After petitioner filed her appellees' brief, the case was submitted for decision. On
September 29, 2005, the CA rendered its assailed Decision, the decretal portion of
which reads:
IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged
Decision is REVERSED and SET ASIDE, and a new one entered ordering the appellee
to pay the appellant the amount of P214,000.00, plus interest at the legal rate from
the written demand until full payment. Costs against the appellee.
7

In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which
was later replaced by a Solid Bank check issued by Timario, also indorsed by
petitioner as payment for the 300 cavans of rice bought from respondent. The CA,
applying Sections 63,
8
66
9
and 29
10
of the Negotiable Instruments Law, found that
petitioner was considered an indorser of the checks paid to respondent and considered
her as an accommodation indorser, who was liable on the instrument to a holder for
value, notwithstanding that such holder at the time of the taking of the instrument
knew her only to be an accommodation party.
Respondent filed a motion for reconsideration, which the CA denied in a Resolution
dated March 2, 2006.
Hence this petition, wherein petitioner raises the following assignment of errors:
1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF
THE ISSUANCE OF THE SOLIDBANK CHECK IN REPLACEMENT OF THE
PRUDENTIAL BANK CHECK WHICH WOULD HAVE RESULTED TO THE
NOVATION OF THE OBLIGATION ARISING FROM THE ISSUANCE OF THE
LATTER CHECK.
2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE
REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS
AGAINST THE PETITIONER THE CIVIL ASPECT OF THE CRIMINAL ACTION ON
THE GROUND OF NOVATION OF OBLIGATION ARISING FROM THE ISSUANCE
OF THE PRUDENTIAL BANK CHECK.
3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED
THE MOTION FOR RECONSIDERATION OF THE PETITIONER ON THE
GROUND THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED
UPON AND CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED
WHEN IN TRUTH AND IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS
YET.
11

Petitioner contends that the issuance of the Solid Bank check and the acceptance
thereof by the respondent, in replacement of the dishonored Prudential Bank check,
amounted to novation that discharged the latter check; that respondent's acceptance
of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank,
had the effect of erasing whatever criminal responsibility, under Article 315 of the
Revised Penal Code, the drawer or indorser of the Prudential Bank check would have
incurred in the issuance thereof in the amount of P214,000.00; and that a check is a
contract which is susceptible to a novation just like any other contract.
Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her
Reply thereto.
We find no merit in this petition.
Section 119 of the Negotiable Instrument Law provides, thus:
SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of
money;
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right. (Emphasis ours)
And, under Article 1231 of the Civil Code, obligations are extinguished:
x x x x
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which
replaced the dishonored Prudential bank check resulted to novation which discharged
the latter check is unmeritorious.
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold
Insurance Co., Inc.,
12
we stated the concept of novation, thus:
x x x Novation is done by the substitution or change of the obligation by a subsequent
one which extinguishes the first, either by changing the object or principal conditions,
or by substituting the person of the debtor, or by subrogating a third person in the
rights of the creditor. Novation may:
[E]ither be extinctive or modificatory, much being dependent on the nature of the
change and the intention of the parties. Extinctive novation is never presumed; there
must be an express intention to novate; in cases where it is implied, the acts of the
parties must clearly demonstrate their intent to dissolve the old obligation as the
moving consideration for the emergence of the new one. Implied novation necessitates
that the incompatibility between the old and new obligation be total on every point
such that the old obligation is completely superceded by the new one. The test of
incompatibility is whether they can stand together, each one having an independent
existence; if they cannot and are irreconcilable, the subsequent obligation would also
extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an
existing obligation and, second, creating a new one in its stead. This kind of novation
presupposes a confluence of four essential requisites: (1) a previous valid obligation,
(2) an agreement of all parties concerned to a new contract, (3) the extinguishment of
the old obligation, and (4) the birth of a valid new obligation. Novation is merely
modificatory where the change brought about by any subsequent agreement is merely
incidental to the main obligation (e.g., a change in interest rates or an extension of
time to pay; in this instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or supplant some but not all of
its provisions.)
The obligation to pay a sum of money is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not
incompatible with the old ones or the new contract merely supplements the old one.
13

In Nyco Sales Corporation v. BA Finance Corporation,
14
we found untenable petitioner
Nyco's claim that novation took place when the dishonored BPI check it endorsed to
BA Finance Corporation was subsequently replaced by a Security Bank check,
15
and
said:
There are only two ways which indicate the presence of novation and thereby produce
the effect of extinguishing an obligation by another which substitutes the same. First,
novation must be explicitly stated and declared in unequivocal terms as novation is
never presumed. Secondly, the old and the new obligations must be incompatible on
every point.1avvphi1 The test of incompatibility is whether or not the two obligations
can stand together, each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first. In the instant case, there was
no express agreement that BA Finance's acceptance of the SBTC check will discharge
Nyco from liability. Neither is there incompatibility because both checks were given
precisely to terminate a single obligation arising from Nyco's sale of credit to BA
Finance. As novation speaks of two distinct obligations, such is inapplicable to this
case.
16

In this case, respondents acceptance of the Solid Bank check, which replaced the
dishonored Prudential Bank check, did not result to novation as there was no express
agreement to establish that petitioner was already discharged from his liability to pay
respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we
said, novation is never presumed, there must be an express intention to novate. In
fact, when the Solid Bank check was delivered to respondent, the same was also
indorsed by petitioner which shows petitioners recognition of the existing obligation to
respondent to pay P214,000.00 subject of the replaced Prudential Bank check.
Moreover, respondents acceptance of the Solid Bank check did not result to any
incompatibility, since the two checks Prudential and Solid Bank checks were
precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained
from the purchase of the 300 bags of rice from respondent. Indeed, there was no
substantial change in the object or principal condition of the obligation of petitioner as
the indorser of the check to pay the amount of P214,000.00. It would appear that
respondent accepted the Solid Bank check to give petitioner the chance to pay her
obligation.
Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable
check being a crossed check, which replaced the dishonored Prudential Bank check, a
negotiable check, is a new obligation in lieu of the old obligation arising from the
issuance of the Prudential Bank check, since there was an essential change in the
circumstance of each check.
Such argument deserves scant consideration.
Among the different types of checks issued by a drawer is the crossed check.
17
The
Negotiable Instruments Law is silent with respect to crossed checks,
18
although the
Code of Commerce

makes reference to such instruments.
19
We have taken judicial
cognizance of the practice that a check with two parallel lines in the upper left hand
corner means that it could only be deposited and could not be converted into cash.
20

Thus, the effect of crossing a check relates to the mode of payment, meaning that the
drawer had intended the check for deposit only by the rightful person, i.e., the payee
named therein.
21
The change in the mode of paying the obligation was not a change in
any of the objects or principal condition of the contract for novation to take place.
22

Considering that when the Solid Bank check, which replaced the Prudential Bank
check, was presented for payment, the same was again dishonored; thus, the
obligation which was secured by the Prudential Bank check was not extinguished and
the Prudential Bank check was not discharged. Thus, we found no reversible error
committed by the CA in holding petitioner liable as an accommodation indorser for the
payment of the dishonored Prudential Bank check.
WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and
the Resolution dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104,
are AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ANTONIO EDUARDO B. NACHURA
Associate Justice
TERESITA J. LEONARDO-DE
CASTRO
*

Associate Justice
JOSE CATRAL MENDOZA
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Second Division, Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
RENATO C. CORONA
Chief Justice

Footnotes
*
Designated as an additional member in lieu of Associate Justice Roberto A.
Abad, per Special Order No. 905, dated October 5, 2010.
1
Penned by Associate Justice Conrado M. Vasquez, Jr., with Associate Justices
Juan Q. Enriquez, Jr. and Japar B. Dimaampao, concurring; rollo, pp. 23-28.
2
Id. at 30-31.
3
Rollo, pp. 23-25.
4
Penned by Judge Pedro R. Soriao; id. at 38-40.
5
Id. at 40.
6
Rollo, p. 46.
7
Id. at 28.
8
Sec. 63. When a person deemed indorser. - A person placing his signature
upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to
be indorser unless he clearly indicates by appropriate words his intention to be
bound in some other capacity.
9
Sec. 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of
the next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and
subsisting;
And, in addition, he engages that, on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its tenor, and
that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
10
Sec. 29. Liability of accommodation party. - An accommodation party is one
who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a holder for
value, notwithstanding such holder, at the time of taking the instrument, knew
him to be only an accommodation party.
11
Rollo, p. 14.
12
G.R. No. 170674, August 24, 2009, 596 SCRA 697.
13
Id. at 706-708.
14
G.R. No. 71694, August 16, 1991, 200 SCRA 637.
15
Dishonored when presented for payment.
16
Supra note 14, at 642. (Citations omitted.)
17
See Bank of America, NT & SA v. Associated Citizens Bank, G.R. Nos. 141001
and 141018, May 21, 2009, 588 SCRA 51, 59.
18
Id.; Art. 541 of the Code of Commerce states: "The maker or any legal holder
of a check shall be entitled to indicate therein that it be paid to a certain banker
or institution, which he shall do by writing across the face the name of said
banker or institution, or only the words and company.'"
19
Id., citing Yang v. Court of Appeals, 456 Phil. 378, 395 (2003); Bataan Cigar
and Cigarette Factory, Inc. v. Court of Appeals, G.R. No. 93048, March 3, 1994,
230 SCRA 643, 647.
20
Id., citing State Investment House v. Intermediate Appellate Court, G.R. No.
72764, July 13, 1989, 175 SCRA 310, 315.
21
Id.
22
See Diongzon v. Court of Appeals, 378 Phil. 1090, 1097 (1999).
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 159097 July 5, 2010
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
RURAL BANK OF GERONA, INC. Respondent.
D E C I S I O N
BRION, J.:
Petitioner Metropolitan Bank and Trust Company (Metrobank) filed this Petition for
Review on Certiorari
1
under Rule 45 of the Rules of Court to challenge the Court of
Appeals (CA) decision dated December 17, 2002
2
and the resolution dated July 14,
2003
3
in CA-G.R. CV No. 46777. The CA decision set aside the July 7, 1994 decision
4

of the Regional Trial Court (RTC) of Tarlac, Branch 65, in Civil Case No. 6028 (a
collection case filed by Metrobank against respondent Rural Bank of Gerona, Inc.
[RBG]), and ordered the remand of the case to include the Central Bank of the
Philippines
5
(Central Bank) as a necessary party.
THE FACTUAL ANTECEDENTS
RBG is a rural banking corporation organized under Philippine laws and located in
Gerona, Tarlac. In the 1970s, the Central Bank and the RBG entered into an
agreement providing that RBG shall facilitate the loan applications of farmers-
borrowers under the Central Bank-International Bank for Reconstruction and
Developments (IBRDs) 4th Rural Credit Project. The agreement required RBG to open
a separate bank account where the IBRD loan proceeds shall be deposited. The RBG
accordingly opened a special savings account with Metrobanks Tarlac Branch. As the
depository bank of RBG, Metrobank was designated to receive the credit advice
released by the Central Bank representing the proceeds of the IBRD loan of the
farmers-borrowers; Metrobank, in turn, credited the proceeds to RBGs special savings
account for the latters release to the farmers-borrowers.
On September 27, 1978, the Central Bank released a credit advice in Metrobanks
favor and accordingly credited Metrobanks demand deposit account in the amount of
P178,652.00, for the account of RBG. The amount, which was credited to RBGs
special savings account represented the approved loan application of farmer-borrower
Dominador de Jesus. RBG withdrew the P178,652.00 from its account.
On the same date, the Central Bank approved the loan application of another farmer-
borrower, Basilio Panopio, for P189,052.00, and credited the amount to Metrobanks
demand deposit account. Metrobank, in turn, credited RBGs special savings account.
Metrobank claims that the RBG also withdrew the entire credited amount from its
account.
On October 3, 1978, the Central Bank approved Ponciano Lagmans loan application
for P220,000.00. As with the two other IBRD loans, the amount was credited to
Metrobanks demand deposit account, which amount Metrobank later credited in favor
of RBGs special savings account. Of the P220,000.00, RBG only withdrew
P75,375.00.
On November 3, 1978, more than a month after RBG had made the above withdrawals
from its account with Metrobank, the Central Bank issued debit advices, reversing all
the approved IBRD loans.
6
The Central Bank implemented the reversal by debiting
from Metrobanks demand deposit account the amount corresponding to all three
IBRD loans.
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn, debited the
following amounts from RBGs special savings account: P189,052.00, P115,000.00,
and P8,000.41. Metrobank, however, claimed that these amounts were insufficient to
cover all the credit advices that were reversed by the Central Bank. It demanded
payment from RBG which could make partial payments. As of October 17, 1979,
Metrobank claimed that RBG had an outstanding balance of P334,220.00. To collect
this amount, it filed a complaint for collection of sum of money against RBG before the
RTC, docketed as Civil Case No. 6028.
7

In its July 7, 1994 decision,
8
the RTC ruled for Metrobank, finding that legal
subrogation had ensued:
[Metrobank] had allowed releases of the amounts in the credit advices it credited in
favor of [RBGs special savings account] which credit advices and deposits were under
its supervision. Being faulted in these acts or omissions, the Central Bank [sic] debited
these amounts against [Metrobanks] demand [deposit] reserve; thus[, Metrobanks]
demand deposit reserves diminished correspondingly, [Metrobank as of this time,]
suffers prejudice in which case legal subrogation has ensued.
9

It thus ordered RBG to pay Metrobank the sum of P334,200.00, plus interest at 14%
per annum until the amount is fully paid.
On appeal, the CA noted that this was not a case of legal subrogation under Article
1302 of the Civil Code. Nevertheless, the CA recognized that Metrobank had a right to
be reimbursed of the amount it had paid and failed to recover, as it suffered loss in an
agreement that involved only the Central Bank and the RBG. It clarified, however, that
a determination still had to be made on who should reimburse Metrobank. Noting that
no evidence exists why the Central Bank reversed the credit advices it had previously
confirmed, the CA declared that the Central Bank should be impleaded as a necessary
party so it could shed light on the IBRD loan reversals. Thus, the CA set aside the RTC
decision, and remanded the case to the trial court for further proceedings after the
Central Bank is impleaded as a necessary party.
10
After the CA denied its motion for
reconsideration, Metrobank filed the present petition for review on certiorari.
THE PETITION FOR REVIEW ON CERTIORARI
Metrobank disagrees with the CAs ruling to implead the Central Bank as a necessary
party and to remand the case to the RTC for further proceedings. It argues that the
inclusion of the Central Bank as party to the case is unnecessary since RBG has
already admitted its liability for the amount Metrobank failed to recover. In two
letters,
11
RBGs President/Manager made proposals to Metrobank for the repayment of
the amounts involved. Even assuming that no legal subrogation took place, Metrobank
claims that RBGs letters more than sufficiently proved its liability.
Metrobank additionally contends that a remand of the case would unduly delay the
proceedings. The transactions involved in this case took place in 1978, and the case
was commenced before the RTC more than 20 years ago. The RTC resolved the
complaint for collection in 1994, while the CA decided the appeal in 2002. To implead
Central Bank, as a necessary party in the case, means a return to square one and the
restart of the entire proceedings.
THE COURTS RULING
The petition is impressed with merit.
A basic first step in resolving this case is to determine who the liable parties are on the
IBRD loans that the Central Bank extended. The Terms and Conditions of the IBRD
4th Rural Credit Project
12
(Project Terms and Conditions) executed by the Central
Bank and the RBG shows that the farmers-borrowers to whom credits have been
extended, are primarily liable for the payment of the borrowed amounts. The loans
were extended through the RBG which also took care of the collection and of the
remittance of the collection to the Central Bank. RBG, however, was not a mere
conduit and collector.1avvphil While the farmers-borrowers were the principal debtors,
RBG assumed liability under the Project Terms and Conditions by solidarily binding
itself with the principal debtors to fulfill the obligation.1awphi1
How RBG profited from the transaction is not clear from the records and is not part of
the issues before us, but if it delays in remitting the amounts due, the Central Bank
imposed a 14% per annum penalty rate on RBG until the amount is actually remitted.
The Central Bank was further authorized to deduct the amount due from RBGs
demand deposit reserve should the latter become delinquent in payment. On these
points, paragraphs 5 and 6 of the Project Terms and Conditions read:
5. Collection received representing repayments of borrowers shall be immediately
remitted to the Central Bank, otherwise[,] the Rural Bank/SLA shall be charged a
penalty of fourteen [percent] (14%) p.a. until date of remittance.
6. In case the rural bank becomes delinquent in the payment of amortizations due[,]
the Central Bank is authorized to deduct the corresponding amount from the rural
banks demand deposit reserve
13
at any time to cover any delinquency. [Emphasis
supplied.]
Based on these arrangements, the Central Banks immediate recourse, therefore
should have been against the farmers-borrowers and the RBG; thus, it erred when it
deducted the amounts covered by the debit advices from Metrobanks demand deposit
account. Under the Project Terms and Conditions, Metrobank had no responsibility
over the proceeds of the IBRD loans other than serving as a conduit for their transfer
from the Central Bank to the RBG once credit advice has been issued. Thus, we agree
with the CAs conclusion that the agreement governed only the parties involved the
Central Bank and the RBG. Metrobank was simply an outsider to the agreement. Our
disagreement with the appellate court is in its conclusion that no legal subrogation
took place; the present case, in fact, exemplifies the circumstance contemplated under
paragraph 2, of Article 1302 of the Civil Code which provides:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtors knowledge;
(2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion
as to the latters share. [Emphasis supplied.]
As discussed, Metrobank was a third party to the Central Bank-RBG agreement, had
no interest except as a conduit, and was not legally answerable for the IBRD loans.
Despite this, it was Metrobanks demand deposit account, instead of RBGs, which the
Central Bank proceeded against, on the assumption perhaps that this was the most
convenient means of recovering the cancelled loans. That Metrobanks payment was
involuntarily made does not change the reality that it was Metrobank which effectively
answered for RBGs obligations.
Was there express or tacit approval by RBG of the payment enforced against
Metrobank? After Metrobank received the Central Banks debit advices in November
1978, it (Metrobank) accordingly debited the amounts it could from RBGs special
savings account without any objection from RBG.
14
RBGs President and Manager, Dr.
Aquiles Abellar, even wrote Metrobank, on August 14, 1979, with proposals regarding
possible means of settling the amounts debited by Central Bank from Metrobanks
demand deposit account.
15
These instances are all indicative of RBGs approval of
Metrobanks payment of the IBRD loans. That RBGs tacit approval came after
payment had been made does not completely negate the legal subrogation that had
taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining, either against the debtor
or against third persons. As the entity against which the collection was enforced,
Metrobank was subrogated to the rights of Central Bank and has a cause of action to
recover from RBG the amounts it paid to the Central Bank, plus 14% per annum
interest.
Under this situation, impleading the Central Bank as a party is completely
unnecessary. We note that the CA erroneously believed that the Central Banks
presence is necessary "in order x x x to shed light on the matter of reversals made by it
concerning the loan applications of the end users and to have a complete
determination or settlement of the claim."
16
In so far as Metrobank is concerned,
however, the Central Banks presence and the reasons for its reversals of the IBRD
loans are immaterial after subrogation has taken place; Metrobanks interest is simply
to collect the amounts it paid the Central Bank. Whatever cause of action RBG may
have against the Central Bank for the unexplained reversals and any undue
deductions is for RBG to ventilate as a third-party claim; if it has not done so at this
point, then the matter should be dealt with in a separate case that should not in any
way further delay the disposition of the present case that had been pending before the
courts since 1980.
While we would like to fully and finally resolve this case, certain factual matters
prevent us from doing so. Metrobank contends in its petition that it credited RBGs
special savings account with three amounts corresponding to the three credit advices
issued by the Central Bank: the P178,652.00 for Dominador de Jesus; the
P189,052.00 for Basilio Panopio; and the P220,000.00 for Ponciano Lagman.
Metrobank claims that all of the three credit advices were subsequently reversed by
the Central Bank, evidenced by three debit advices. The records, however, contained
only the credit and debit advices for the amounts set aside for de Jesus and Lagman;
17

nothing in the findings of fact by the RTC and the CA referred to the amount set aside
for Panopio.
Thus, what were sufficiently proven as credited and later on debited from Metrobanks
demand deposit account were only the amounts of P178,652.00 and P189,052.00.
With these amounts combined, RBGs liability would amount to P398,652.00 the
same amount RBG acknowledged as due to Metrobank in its August 14, 1979 letter.
18

Significantly, Metrobank likewise quoted this amount in its July 11, 1979
19
and July
26, 1979
20
demand letters to RBG and its Statement of Account dated December 23,
1982.
21

RBG asserts that it made partial payments amounting to P145,197.40,
22
but neither
the RTC nor the CA made a conclusive finding as to the accuracy of this claim.
Although Metrobank admitted that RBG indeed made partial payments, it never
mentioned the actual amount paid; neither did it state that the P145,197.40 was part
of the P312,052.41 that, it admitted, it debited from RBGs special savings account.
Deducting P312,052.41 (representing the amounts debited from RBGs special savings
account, as admitted by Metrobank) from P398,652.00 amount due to Metrobank from
RBG, the difference would only be P86,599.59. We are, therefore, at a loss on how
Metrobank computed the amount of P334,220.00 it claims as the balance of RBGs
loan. As this Court is not a trier of facts, we deem it proper to remand this factual
issue to the RTC for determination and computation of the actual amount RBG owes
to Metrobank, plus the corresponding interest and penalties.
WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the
decision and the resolution of the Court of Appeals, in CA-G.R. CV No. 46777,
promulgated on December 17, 2002 and July 14, 2003, respectively. We AFFIRM the
decision of the Regional Trial Court, Branch 65, Tarlac, promulgated on July 7, 1994,
insofar as it found respondent liable to the petitioner Metropolitan Bank and Trust
Company, but order the REMAND of the case to the trial court to determine the actual
amounts due to the petitioner. Costs against respondent Rural Bank of Gerona, Inc.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES
Associate Justice
Chairperson
LUCAS P. BERSAMIN
Associate Justice
ROBERTO A. ABAD
*

Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONCHITA CARPIO MORALES
Associate Justice
Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
*
Designated additional Member of the Third Division, in view of the retirement
of former Chief Justice Reynato S. Puno, per Special Order No. 843 dated May
17, 2010.
1
Rollo, pp. 3-32.
2
Id. at 37-45; penned by Associate Justice Eugenio S. Labitoria, with Associate
Justice Renato C. Dacudao and Associate Justice Danilo B. Pine concurring.
3
Id. at 35-36.
4
Id. at 81-96; penned by Judge Miguel G. Sta. Romana.
5
Now the Bangko Sentral ng Pilipinas.
6
Rollo, pp. 61.
7
Id. at 59-62.
8
Supra note 4.
9
Id. at 95.
10
Id. at 44-45.
11
Id. at 97-98. The August 14, 1979 letter read:
This is in connection with the P398,652.00 which was debited by the
Central Bank of the Philippines from your bank.
We would like to make the following proposals as agreed upon during our
conference with Central Bank and [Metrobank] Officials:
1. Pending the re-consideration of the Central bank regarding the
loan of Dominador de Jesus in the amount of P178,652.00, we
would like to ask for a Plan of Payment for a period of six (6)
months starting August, 1979;
2. With [regard to] the P220,000.00 balance plus interest, we
would like to reiterate our request for a personal loan from your
bank, the proceeds of which will be used to pay our capital build-
up, to enable the bank to settle the said amount.
Considering that you have been our depository bank for a long time, we
hope you will not fail us on our proposals especially now that we are
badly in need of your help.
Thanking you in advance.
The August 27, 1979 letter read:
This will acknowledge receipt of your letter on August 26, 1979,
informing me about the decision of Metrobanks management rejecting
my proposals on August 14, 1979.
Please be informed that I am going to Manila today to confer with
Director Consolacion Odra regarding the matter.
I will also try to get an appointment with your Executive Vice-President
and if necessary, I will refer the matter to our legal counsel, the
[Siguion]-Reyna Law Office, Soriano Building, Ayala Avenue, Makati,
Metro Manila for [advice].
I have great hopes that this problem will be settled within five (5) days.
12
Id. at 74.
13
Section 94 of the New Central Bank Act (Republic Act No. 7653) states:
In order to control the volume of money created by the credit operations
of the banking system, all banks operating in the Philippines shall be
required to maintain reserves against their deposit liabilities: Provided,
That the Monetary Board may, at its discretion, also require all banks
and/or quasi-banks to maintain reserves against funds held in trust and
liabilities for deposit substitutes as defined in this Act. The required
reserves of each bank shall be proportional to the volume of its deposit
liabilities and shall ordinarily take the form of a deposit in the Bangko
Sentral. Reserve requirements shall be applied to all banks of the same
category uniformly and without discrimination.
14
Rollo, p. 15.
15
Id. at 97.
16
Id. at 44.
17
Id. at 63-64.
18
Supra note 15.
19
Exhibits for the Plaintiff, p. 8.
20
Id. at 10.
21
Id. at 23.
22
Rollo, pp. 67-68.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-48797 July 30, 1943
FUA CAM LU, plaintiff-appellee,
vs.
YAP FAUCO and YAP SINGCO, defendants-appellants.
Vicente J. Francisco for petitioner.
M.H. de Joya for respondents.
The plaintiff-appellee, Fua Cam Lu, obtained in civil case No. 42125 of the Court of
First Instance of Manila a judgment sentencing the defendants-appellants, Yap Fauco
and Yap Singco, to pay P1,538.04 with legal interest and costs. By virtue of a writ of
execution, a certain parcel of land belonging to the appellants, assessed at P3,550 and
situated in Donsol, Sorsogon was levied upon the provincial sheriff of Sorsogon who,
on November 15, 1933, made a notice, duly posted in three conspicuous places in the
municipalities of Donsol and Sorsogon and published in the Mamera Press, that said
land would be sold at public auction on December 12, 1933. On December 16, 1933,
the appellants executed a mortgage in favor of the appellee, wherein it was stipulated
that their obligation under the judgment in civil case No. 41225 was reduced to
P1,200 which was made payable in four installments of P300 during the period
commencing on February 8, 1934, and ending on August 8, 1935l that to secure the
payment of the said P1,200, a camarin belonging to the appellants and built on the
above-mentioned land, was mortgaged to the appellee; that in case the appellants
defaulted in the payment of any of the installments, they would pay ten per cent of the
unpaid balance as attorney's fees. plus the costs of the action to be brought by the
appellee by reason of such default, and the further amount of P338, representing the
discount conceded to the appellants. As a result of the agreement thus reached by the
parties, the sale of the land advertised by the provincial sheriff did not take place.
However, pursuant to an alias writ of execution issued by the Court of First instance
of manila in civil case No. 42125 on March 31, 1934, the provincial sheriff, without
publishing a new notice, sold said land at a public auction held on May 28, 1934, to
the appellee for P1,923.32. On June 13, 1935, the provincial sheriff executed a final
deed in favor of the appellee. On August 29, 1939, the appellee instituted the present
action in the Court of First Instance of Sorsogon against the appellants in view of their
refusal to recognize appellee's title and to vacate the land. The appellants relied on the
legal defenses that their obligation under the judgment in civil case No. 42125 was
novated by the mortgage executed by them in favor of the appellee and that the
sheriffs sale was void for lack of necessary publication. These contentions were
overruled by the lower court which rendered judgment declaring the appellee to be the
owner of the land and ordering the appellants to deliver the same to him, without
special pronouncement as to costs. The appellants seek the reversal of this judgment.
We concur in the theory that appellants liability under the judgment in civil case No.
42125 had been extinguished by the settlement evidenced by the mortgage executed
by them in favor of the appellee on December 16, 1933. Although said mortgage did
not expressly cancel the old obligation, this was impliedly novated by reason of
incompatibly resulting from the fact that, whereas the judgment was for P1,538.04
payable at one time, did not provide for attorney's fees, and was not secured, the new
obligation is or P1,200 payable in installments, stipulated for attorney's fees, and is
secured by a mortgage. The appellee, however, argues that the later agreement merely
extended the time of payment and did not take away his concurrent right to have the
judgment executed. This court not have been the purpose for executive the mortgage,
because it was therein recited that the appellants promised to pay P1,200 to the
appellee as a settlement of the judgment in civil case No. 42125 (en forma de
transaccion de la decision . . . en el asunto civil No. 42125). Said judgment cannot be
said to have been settled, unless it was extinguished.
Moreover, the sheriff's sale in favor of the appellee is void because no notice thereof
was published other than that which appeared in the Mamera Press regarding the sale
to be held on December 12, 1933. Lack of new publication is shown by appellee's own
evidence and the issue, though not raised in the pleadings, was thereby tried by
implied consent of the parties, emphasized by the appellants in the memorandum filed
by them in the lower court and squarely threshed out in this Court by both the
appellants and the appellee. The latter had, besides, admitted that there was no new
publication, and so much so that in his brief he merely resorted to the argument that
"section 460 of Act 190 authorized the sheriff to adjourn any sale upon execution to
any date agreed upon in writing by the parties . . . and does not require the sheriff to
publish anew the public sale which was adjourned." The appellee has correctly stated
the law but has failed to show that it supports his side, for it is not pretended that
there was any written agreement between the parties to adjourn the sale advertised for
December 12, 1933, to May 28, 1934. Neither may it be pretended that the sale in
favor of the appellee was by virtue of a mere adjournment, it appearing that it was
made pursuant to an alias writ of execution. Appellee's admission has thus destroyed
the legal presumption that official duty was regularly performed.
The appealed judgment is, therefore, reversed and the defendants-appellants, who are
hereby declared to be the owners of the land in question are absolved from the
complaint, with costs against the appellee. So ordered.
Yulo, C.J., Ozaeta and Bocobo, JJ., concur.

Separate Opinions
MORAN, J., dissenting:
I dissent.
By virtue of a judgment for P1,538.04 which appellee obtained against appellants, a
writ of execution was issued in pursuance of which a parcel of land belonging to
appellants was levied upon and its sale at public auction duly advertised. The sale
was, however, suspended as a result of an agreement between the parties, by the
terms of which the obligation under the judgment was reduced to P1,200 payable in
four installments, and to secure the payment of this amount, the land levied upon
with its improvement was mortgaged to appellee with the condition that in the event of
appellants' default in the payment of any installment, they would pay 10 per cent of
any unpaid balance as attorney's fees as well as the difference between the full
judgment credit and the reduced amount thus agreed. Appellants failed to comply with
the terms of the settlement, whereupon, appellee sought the execution of the
judgment, and by virtue of an alias writ of execution, the land was sold at public
auction to appellee and a final deed was executed in his favor. Appellants refused,
however, to vacate the land and to recognize appellee's title thereto; hence, the latter
instituted the present action for recovery.
The majority sustained appellants' theory upon two grounds: (1) that their liability
under the judgment has been extinguished by the agreement and that accordingly
there was legally no judgment to execute; and (2) that the auction sale was void not
only because the judgment sought to be executed has been extinguished but also
because there was no publication thereof as required by law.
The first ground is contrary to a doctrine laid down by this Court in a previous case.
In Zapanta vs. De Rotaeche (21 Phil., 154), plaintiff obtained judgment against
defendant for a sum of money. Thereafter, the parties entered into an agreement by
virtue of which the obligation under the judgment was to be paid in installments and
that, upon default of defendant to comply with the terms of one agreement, plaintiff
shall be at liberty to enter suit against him. Defendant defaulted and plaintiff sued out
a writ of execution to recover the balance due upon the judgment credit and by virtue
thereof defendant's property was levied upon and sold at public auction. Upon the
issue of whether the agreement extinguished the judgment and plaintiff's right to an
execution thereunder, this Court held:
A final judgment is one of the most solemn obligations incurred by parties
known to law. The Civil Code, in article 1156, provides the method by which all
civil obligations may be extinguished. One of the methods recognized by said
code for the extinguishment of obligations is that by novation. (Civil Code, arts.
1156, 1203, 1213.) In order, however, that an obligation shall be extinguished
by another obligation (novation) which substitutes it, the law requires that the
novation or extinguishment shall be expressly declared or that the old and the
new obligations shall be absolutely incompatible. (Civil Code, art. 1204.) In the
present case, the contract referred to does not expressly extinguish the
obligations existing in said judgment. Upon the contrary, it expressly recognizes
the obligation existing between the parties in said judgment and expressly
provides a method by which the same shall be extinguished which method is,
as is expressly indicated in said contract, by monthly payments. The contract,
instead of containing provisions "absolutely incompatible" with the obligations
of the judgment, expressly ratifies such obligations and contains provisions for
satisfying them. The said agreement simply gave the plaintiff a method and
more time for the satisfaction of said judgment. It did not extinguish the
obligations contained in the judgment, until the terms of said contract had been
fully complied with. Had the plaintiff continued to comply with the conditions of
said contract, he might have successfully invoked its provisions against the
issuance of an execution upon said judgment. The contract and the punctual
compliance with its terms only delayed the right of the defendant to an
execution upon the judgment. The judgment was not satisfied and the
obligations existing thereunder still subsisted until the terms of the agreement
had been fully complied with. The plaintiff was bound to perform the conditions
mentioned in said contract punctually and fully, in default of which the
defendant was remitted to the original rights under his judgment. (pp. 159-
160.)
I see no reason why this decision cannot be made to control in the instant case. Here,
as in the Zapanta case, there was an agreement providing for the manner of payment
of the obligation under the judgment. In both cases plaintiff has by express
stipulation, the option to enter an independent suit against defendant should the
latter fail to comply with the terms of the settlement. If, in the Zapante case plaintiff
alternative right to execute the judgment has been upheld. I perceive no cogent reason
why plaintiff in the instant case would be denied a like option to merely execute the
judgment and be compelled, instead, to enter an independent suit on the terms of the
settlement The spirit of the new Rules which frowns upon multiplicity of suits lends
additional argument against the majority view.
The majority maintains that here there is an implied novation by "reason of
incompatibility resulting from the fact that, whereas the judgment was for P1,538.04
payable at one time, did not provide for attorney's fees, and was not secured, the new
obligation is for P1,200 payable in installments, stipulates for attorney's fees, and is
secured by a mortgage." With respect to the amount, it should be noted that, "while
the obligation under the judgment was reduced to P1,200, there was, however, a
stipulation to the effect that the discount would be recoverable in the event of
appellants' default to comply with the terms of the agreement. And as to attorney's
fees and the security by way of mortgage, the stipulation therefor contained in the
agreement is of no moment, for it is merely incidental to, and anticipatory of, a suit
which appellee may choose to take against appellants. Far, therefore, from
extinguishing the obligation under the judgment, the agreement ratifies it and
provides merely a new method and more time for the judgment debtor to satisfy it. If
the judgment debtor fail to comply with the terms of the agreement, the judgment
creditor shall be deemed remitted to his original rights under the judgment which he
may choose to execute or enter, instead, a separate suit on the terms of the
settlement. This is the ratio decidendi in the Zapanta case; this is the ratio decidendi
here.
Upon the question of the nullity of the auction sale, the majority appears to have
deduced the lack of publication of the necessary notice from isolated parts of the
records and from the fact that the published notice regarding the first sale which was
suspended, was merely appended to the second sheriff's sale. It should be noted,
however, that appellants have never raised this issue in their pleadings and that the
nullity of the sale by them pleaded is made to rest only upon the ground of "fraud and
deceit" or without or with false consideration." There having been no issue as to the
publication of notice, no evidence thereon has been adduced by both parties whose
attention has never been directed to the question of whether the notice appended to
the second sale is or is not the true notice published in connection therewith. Under
such circumstance, we have only to rely on the presumption of law in favor of the
regularity of official action. We cannot safely disregard this presumption of law for the
records on appeal may offer in support of one conjecture or another on matters not
expressly litigated by the parties.
I therefore, vote for the affirmance of the judgment of the trial court.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-29981 April 30, 1971
EUSEBIO S. MILLAR, petitioner,
vs.
THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL, respondents.
Fernandez Law Office and Millar and Esguerra for petitioner.
Francisco de la Fuente for respondents.

CASTRO, J.:
On February 11, 1956, Eusebio S. Millar (hereinafter referred to as the petitioner)
obtained a favorable judgment from the Court of First Instance of Manila, in civil case
27116, condemning Antonio P. Gabriel (hereinafter referred to as the respondent) to
pay him the sum of P1,746.98 with interest at 12% per annum from the date of the
filing of the complaint, the sum of P400 as attorney's fees, and the costs of suit. From
the said judgment, the respondent appealed to the Court of Appeals which, however,
dismissed the appeal on January 11, 1957.
Subsequently, on February 15, 1957, after remand by the Court of Appeals of the
case, the petitioner moved ex parte in the court of origin for the issuance of the
corresponding writ of execution to enforce the judgment. Acting upon the motion, the
lower court issued the writ of execution applied for, on the basis of which the sheriff of
Manila seized the respondent's Willy's Ford jeep (with motor no. B-192297 and plate
no. 7225, Manila, 1956).
The respondent, however, pleaded with the petitioner to release the jeep under an
arrangement whereby the respondent, to secure the payment of the judgement debt,
agreed to mortgage the vehicle in favor of the petitioner. The petitioner agreed to the
arrangement; thus, the parties, on February 22, 1957, executed a chattel mortgage on
the jeep, stipulating, inter alia, that
This mortgage is given as security for the payment to the said EUSEBIO
S. MILLAR, mortgagee, of the judgment and other incidental expenses in
Civil Case No. 27116 of the Court of First Instance of Manila against
Antonio P. Gabriel, MORTGAGOR, in the amount of ONE THOUSAND
SEVEN HUNDRED (P1,700.00) PESOS, Philippine currency, which
MORTGAGOR agrees to pay as follows:
March 31, 1957 EIGHT HUNDRED FIFTY (P850) PESOS;
April 30, 1957 EIGHT HUNDRED FIFTY (P850.00) PESOS.
Upon failure of the respondent to pay the first installment due on March 31, 1957, the
petitioner obtained an alias writ of execution. This writ which the sheriff served on the
respondent only on May 30, 1957 after the lapse of the entire period stipulated in
the chattel mortgage for the respondent to comply with his obligation was returned
unsatisfied.
So on July 17, 1957 and on various dates thereafter, the lower court, at the instance
of the petitioner, issued several alias writs, which writs the sheriff also returned
unsatisfied. On September 20, 1961, the petitioner obtained a fifth alias writ of
execution. Pursuant to this last writ, the sheriff levied on certain personal properties
belonging to the respondent, and then scheduled them for execution sale.
However, on November 10, 1961, the respondent filed an urgent motion for the
suspension of the execution sale on the ground of payment of the judgment obligation.
The lower court, on November 11, 1961, ordered the suspension of the execution sole
to afford the respondent the opportunity to prove his allegation of payment of the
judgment debt, and set the matter for hearing on November 25, 1961. After hearing,
the lower court, on January 25, 1962, issued an order the dispositive portion of which
reads:
IN VIEW WHEREOF, execution reiterated for P1,700.00 plus costs of
execution.
The lower court ruled that novation had taken place, and that the parties had
executed the chattel mortgage only "to secure or get better security for the judgment.
The respondent duly appealed the aforesaid order to the Court of Appeals, which set
aside the order of execution in a decision rendered on October 17, 1968, holding that
the subsequent agreement of the parties impliedly novated the judgment obligation in
civil case 27116.
The appellate court stated that the following circumstances sufficiently demonstrate
the incompatibility between the judgment debt and the obligation embodied in the
deed of chattel mortgage, warranting a conclusion of implied novation:
1. Whereas the judgment orders the respondent to pay the petitioner the sum of
P1,746.98 with interest at 12% per annum from the filing of the complaint, plus the
amount of P400 and the costs of suit, the deed of chattel mortgage limits the principal
obligation of the respondent to P1,700;
2. Whereas the judgment mentions no specific mode of payment of the amount due to
the petitioner, the deed of chattel mortgage stipulates payment of the sum of P1,700 in
two equal installments;
3. Whereas the judgment makes no mention of damages, the deed of chattel mortgage
obligates the respondent to pay liquidated damages in the amount of P300 in case of
default on his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be
foreclosed extrajudicially in case of default, secured the obligation.
On November 26, 1968, the petitioner moved for reconsideration of the appellate
court's decision, which motion the Court of Appeals denied in its resolution of
December 7, 1968. Hence, the present petition for certiorari to review the decision of
the Court of Appeals, seeking reversal of the appellate court's decision and affirmance
of the order of the lower court.
Resolution of the controversy posed by the petition at bar hinges entirely on a
determination of whether or not the subsequent agreement of the parties as embodied
in the deed of chattel mortgage impliedly novated the judgment obligation in civil case
27116. The Court of Appeals, in arriving at the conclusion that implied novation has
taken place, took into account the four circumstances heretofore already adverted to
as indicative of the incompatibility between the judgment debt and the principal
obligation under the deed of chattel mortgage.
1. Anent the first circumstance, the petitioner argues that this does not constitute a
circumstance in implying novation of the judgment debt, stating that in the interim
from the time of the rendition of the judgment in civil case 27116 to the time of the
execution of the deed of chattel mortgage the respondent made partial payments,
necessarily resulting in the lesser sum stated in the deed of chattel mortgage. He adds
that on record appears the admission by both parties of the partial payments made
before the execution of the deed of chattel mortgage. The erroneous conclusion arrived
at by the Court of Appeals, the petitioner argues, creates the wrong impression that
the execution of the deed of chattel mortgage provided the consideration or the reason
for the reduced judgment indebtedness.
Where the new obligation merely reiterates or ratifies the old obligation, although the
former effects but minor alterations or slight modifications with respect to the cause or
object or conditions of he latter, such changes do not effectuate any substantial
incompatibility between the two obligations Only those essential and principal changes
introduced by the new obligation producing an alteration or modification of the
essence of the old obligation result in implied novation. In the case at bar, the mere
reduction of the amount due in no sense constitutes a sufficient indictum of
incompatibility, especially in the light of (a) the explanation by the petitioner that the
reduced indebtedness was the result of the partial payments made by the respondent
before the execution of the chattel mortgage agreement and (b) the latter's admissions
bearing thereon.
At best, the deed of chattel mortgage simply specified exactly how much the
respondent still owed the petitioner by virtue of the judgment in civil case 27116. The
parties apparently in their desire to avoid any future confusion as to the amounts
already paid and as to the sum still due, decoded to state with specificity in the deed
of chattel mortgage only the balance of the judgment debt properly collectible from the
respondent. All told, therefore, the first circumstance fails to satisfy the test of
substantial and complete incompatibility between the judgment debt an the pecuniary
liability of the respondent under the chattel mortgage agreement.
2. The petitioner also alleges that the third circumstance, considered by the Court of
Appeals as indicative of incompatibility, is directly contrary to the admissions of the
respondent and is without any factual basis. The appellate court pointed out that
while the judgment made no mention of payment of damages, the deed of chattel
mortgage stipulated the payment of liquidated damages in the amount of P300 in case
of default on the part of the respondent.
However, the petitioner contends that the respondent himself in his brief filed with the
Court of Appeals admitted his obligation, under the deed of chattel mortgage, to pay
the amount of P300 by way of attorney's fees and not as liquidated damages.
Similarly, the judgment makes mention of the payment of the sum of P400 as
attorney's fees and omits any reference to liquidated damages.
The discrepancy between the amount of P400 and tile sum of P300 fixed as attorney's
fees in the judgment and the deed of chattel mortgage, respectively, is explained by the
petitioner, thus: the partial payments made by the respondent before the execution of
the chattel mortgage agreement were applied in satisfaction of part of the judgment
debt and of part of the attorney's fee fixed in the judgment, thereby reducing both
amounts.
At all events, in the absence of clear and convincing proof showing that the parties, in
stipulating the payment of P300 as attorney's fees in the deed of chattel mortgage,
intended the same as an obligation for the payment of liquidated damages in case of
default on the part of the respondent, we find it difficult to agree with the conclusion
reached by the Court of Appeals.
3. As to the second and fourth circumstances relied upon by the Court of Appeals in
holding that the montage obligation superseded, through implied novation, the
judgment debt, the petitioner points out that the appellate court considered said
circumstances in a way not in accordance with law or accepted jurisprudence. The
appellate court stated that while the judgment specified no mode for the payment of
the judgment debt, the deed of chattel mortgage provided for the payment of the
amount fixed therein in two equal installments.
On this point, we see no substantial incompatibility between the mortgage obligation
and the judgment liability of the respondent sufficient to justify a conclusion of
implied novation. The stipulation for the payment of the obligation under the terms of
the deed of chattel mortgage serves only to provide an express and specific method for
its extinguishment payment in two equal installments. The chattel mortgage simply
gave the respondent a method and more time to enable him to fully satisfy the
judgment indebtedness.
1
The chattel mortgage agreement in no manner introduced
any substantial modification or alteration of the judgment. Instead of extinguishing
the obligation of the respondent arising from the judgment, the deed of chattel
mortgage expressly ratified and confirmed the existence of the same, amplifying only
the mode and period for compliance by the respondent.
The Court of Appeals also considered the terms of the deed of chattel mortgage
incompatible with the judgment because the chattel mortgage secured the obligation
under the deed, whereas the obligation under the judgment was unsecured. The
petitioner argues that the deed of chattel agreement clearly shows that the parties
agreed upon the chattel mortgage solely to secure, not the payment of the reduced
amount as fixed in the aforesaid deed, but the payment of the judgment obligation and
other incidental expenses in civil case 27116.
The unmistakable terms of the deed of chattel mortgage reveal that the parties
constituted the chattel mortgage purposely to secure the satisfaction of the then
existing liability of the respondent arising from the judgment against him in civil case
27116. As a security for the payment of the judgment obligation, the chattel mortgage
agreement effectuated no substantial alteration in the liability of the respondent.
The defense of implied novation requires clear and convincing proof of complete
incompatibility between the two obligations.
2
The law requires no specific form for an
effective novation by implication. The test is whether the two obligations can stand
together. If they cannot, incompatibility arises, and the second obligation novates the
first. If they can stand together, no incompatibility results and novation does not take
place.
We do not see any substantial incompatibility between the two obligations as to
warrant a finding of an implied novation. Nor do we find satisfactory proof showing
that the parties, by explicit terms, intended the full discharge of the respondent's
liability under the judgment by the obligation assumed under the terms of the deed of
chattel mortgage so as to justify a finding of express novation.
ACCORDINGLY, the decision of the Court of Appeals of October 17, 1968 is set aside,
and the order of the Court of First Instance of Manila of January 25, 1962 is affirmed,
at respondent Antonio Gabriel's cost.
Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando and Makasiar,
JJ., concur.
Villamor, J., abstains.



Separate Opinions

BARREDO, J., concurring:
I concur. I would like to add the following considerations to the rationale of the main
opinion:
As evidenced by the express terms of the chattel mortgage by repondent Gabriel in
favor of petitioner Millar, it was unmistakably the intent of the parties that the said
mortgage be merely a "security for the payment to the said Eusebio Millar, mortgagee,
of the judgment and other incidental expenses in Civil Case No. 27116 of the Court of
First Instance of Manila against Antonio P. Gabriel, mortgagor," to be paid in the
amount and manner therein stated. If this can in any sense in which the parties must
be held to have newly bound themselves. In other words, by their explicit covenant,
the parties contemplated the chattel mortgage to be a security for the payment of the
judgment and not the payment itself thereof. Such being the case, and it appearing
that respondent Gabriel has not paid the judgment remains unimpaired in its full
existence and vigor, and the resort to the execution thereof thru the ordinary
procedure of a writ of execution by the petitioner is an election to which every
mortgage creditor is entitled when he decides to abandon his security.
Teehankee, J., concurs.


Separate Opinions
BARREDO, J., concurring:
I concur. I would like to add the following considerations to the rationale of the main
opinion:
As evidenced by the express terms of the chattel mortgage by repondent Gabriel in
favor of petitioner Millar, it was unmistakably the intent of the parties that the said
mortgage be merely a "security for the payment to the said Eusebio Millar, mortgagee,
of the judgment and other incidental expenses in Civil Case No. 27116 of the Court of
First Instance of Manila against Antonio P. Gabriel, mortgagor," to be paid in the
amount and manner therein stated. If this can in any sense in which the parties must
be held to have newly bound themselves. In other words, by their explicit covenant,
the parties contemplated the chattel mortgage to be a security for the payment of the
judgment and not the payment itself thereof. Such being the case, and it appearing
that respondent Gabriel has not paid the judgment remains unimpaired in its full
existence and vigor, and the resort to the execution thereof thru the ordinary
procedure of a writ of execution by the petitioner is an election to which every
mortgage creditor is entitled when he decides to abandon his security.
Teehankee, J., concurs.
Footnotes
1 Zapanta v. De Rotaeche, 21 Phil. 154.
2 Magdalena Estates, inc. v. Rodriguez and Rodriguez, L18411, Dec. 17,
1966, 18 SCRA 967; Guerrero v. Court of Appeals and Alto Surety &
Insurance Co., Inc., L-22366, Oct. 30, 1969, 29 SCRA 791.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-26115 November 29, 1971
CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners,
vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of First
Instance of Pampanga, and DESIDERIO PARAS, respondents.
Lorenzo G. Timbol for petitioners.
Abel de Ocera for respondent Desiderio Paras.

CASTRO, J.:
On April 16, 1960 the spouses Carlos Sandico and Enrica Timbol, and Teopisto P.
Timbol, administrator of the estate of the late Sixta Paras, obtained a judgment in
their favor against Desiderio Paras (hereinafter referred to as the respondent) in civil
case 1554, an action for easement and damages in the Court of First Instance of
Pampanga. On appeal, the Court of Appeals affirmed and modified the judgment, as
follows:
IN VIEW WHEREOF, judgment affirmed and modified; as a consequence,
defendant is condemned to recognize the easement which is held binding
as to him; he is sentenced to pay plaintiffs the sums of P5,000.00 actual,
and P500.00 exemplary damages, and P500.00 attorney's fees; plus costs
in both instances.
1

Thereafter, upon remand to the court a quo of civil case 1554, the Sandicos and
Timbol (hereinafter referred to as the petitioners) moved for the issuance of a writ of
execution to enforce the appellate court's judgment which had acquired finality. Acting
upon the motion, the court a quo issued a writ of execution on July 22, 1964. This
writ the provincial sheriff served upon the respondent on August 22, 1964.
Meanwhile the petitioners and the respondent reached a settlement, finally agreeing to
the reduction of the money judgment from P6,000 to P4,000. Thus, the respondent, on
August 5, 1964, paid the petitioners the sum of P3,000; he made another payment in
the amount of P1,000 as evidenced by a receipt issued by the petitioners' counsel.
This receipt is hereunder reproduced in full:
P1,000.00
RECEIVED from Mr. Desiderio Paras the sum of ONE THOUSAND
PESOS (P1,000.00), Philippine Currency, in full satisfaction of the money
judgment rendered against him in Civil Case No. 1554 of the Court of
First Instance of Pampanga, it being understood that the portion of the
final judgment rendered in the said case ordering him to reconstruct the
irrigation canal in question shall be complied with by him immediately.
City of Angeles, August 31, 1964.
(SGD.) DALMACIO P. TIMBOL
Counsel for Plaintiffs
in Civil Case No. 1554
I AGREE:
(SGD.) DESIDERIO PARAS
Subsequently, the petitioners sent the respondent a letter dated November 5, 1964
demanding compliance by the latter with the portion of the judgment in civil case
1554 relative to the reconstruction and reopening of the irrigation canal.
On February 12, 1965 the provincial sheriff returned the writ of execution issued on
July 22, 1964 unsatisfied.
Upon failure and refusal of the respondent to rebuild and reopen the irrigation canal,
the petitioners, on March 3, 1965, filed with the court a quo, with Judge Minerva R.
Inocencio Piguing (hereinafter referred to as the respondent judge) presiding, a motion
to declare the said private respondent in contempt of court, pursuant to provisions of
section 9, Rule 39 of the Rules of Court. Opposing the motion, the respondent alleged
recognition by him of the existence of the easement and compliance with the appellate
court's judgment, stating that he had dug a canal in its former place, measuring about
one and-a-half feet deep, for the petitioners' use.
On September 8, 1965 the respondent judge issued an order denying the petitioners'
motion to declare the respondents in contempt of court, ruling that.
... it appears from the dispositive part of the decision that the defendant
was only ordered to recognize the easement which is held binding as to
him and to pay the plaintiffs the sums P5,000.00 of actual, and P500.00
exemplary damages.
Apparently, it is clear from the dispositive part of the decision that there
is nothing to show that the defendant was ordered to reconstruct the
canal.
On September 16, 1965 the petitioners moved for issuance of an alias writ of
execution to enforce the judgement of the Court of Appeals. This motion the
respondent judge granted in an order dated September 25, 1965. On November 3,
1965. the respondent moved to set aside the said alias writ, alleging full satisfaction of
the judgment per agreement of the parties when the petitioner received the sum of
P4,000 in August, 1964 as evidenced by the receipt dated August 31, 1964.
The respondent judge then issued an order dated November 11, 1965 directing the
provincial sheriff to suspend the execution of the alias writ until further orders. On
February 3, 1966 the respondent judge issued an order calling, and directing the
quashal of the alias writ of execution. The respondent judge stated in her order that
the agreement of the parties "novated" the money judgment provided for in the
decision of the Court of Appeals, ruling that the said decision.
... which is sought now to be executed by this Court, has already been
fully satisfied as to the money judgment and nothing more is left to be
executed from the aforesaid Decision as it does not allege (aside from
money judgment) any other condition except for the defendants to
recognize the easement therein.
With their subsequent motion for reconsideration denied by the respondent judge, the
petitioners, on May 27, 1966, filed with this Court the present petition
2
for certiorari
seeking to set aside (1) the order of the respondent judge dated September 8, 1965
denying their motion to declare the respondent in contempt of court in civil case 1554,
and (2) the orders of the respondent judge dated February 3, 1966 and March 30,
1966 granting the respondent's motion to set aside the alias writ of execution issued
in the same civil case, on the ground that the respondent judge acted in excess of
jurisdiction or with grave abuse of discretion.
Here tendered for resolution are the following issues:
(1) Whether the respondent judge correctly constructed the judgment of the Court of
Appeals as not requiring the respondent to reconstruct and reopen the irrigation
canal, and consequently, whether the said respondent judge acted in excess of
jurisdiction or with grave abuse of discretion in denying the petitioners' motion to
declare the respondent in contempt of court for failing and refusing to comply with the
appellate court's judgment; and
(2) Whether the payment by the respondent to the petioners of the amount of P4,000
extinguished the money judgment, and, consequently, whether the respondent judge
acted in excess of jurisdiction or with grave abuse of discretion in ordering the recall
and quashal of the alias writ of execution.
1. Anent the first issue, the petitioners argue that although the dispositive portion of
the appellate court's judgment omitted any directive to the respondent to reconstruct
and reopen the irrigation canal, the Court of Appeals' order requiring recognition of
the easement on the part of the said respondent suffices to make him aware of his
obligation under the judgment. The only way of recognizing the easement, the
petitioners continue, consists in performing positive act the reconstruction and
restoration of the irrigation canal to its former condition. Moreover, to understand the
full intendment of the dispositive portion of the judgment directing the respondent "to
recognize the easement" necessitates reference to a statement in the decision of the
Court of Appeals that reads:
... the result of this must be to justify the conclusion prayed for by the
plaintiffs that the easement should be held to be existing and binding
upon defendant and he should be held to have acted without authority in
closing the canal which should be ordered reopened.
On the other hand, the respondent alleges that there is no ambiguity in the
phraseology of the portion of the Court of Appeals' judgment condemning to recognize
the easement. Said decision requires him only to "recognize" the easement and in
compliance therewith, he gives the petitioners permission to reconstruct and reopen
the irrigation canal themselves. Neither the decision a quo nor that of the appellate
court orders him to reconstruct and reopen the irrigation canal.
The agreement reached by the petitioners and the respondent in August, 1964 relative
to the judgment of the appellate court which had acquired finality and the
interpretation by the parties themselves of the said judgment, specifically its
dispositive portion, as embodied in the receipt dated August 31, 1964, constitute the
considerations of prime importance in the resolution of the first question. No doubt
exists that the parties entered into the agreement, fully aware of the judgment of the
appellate court ordering the respondent to comply with two obligations, to wit,
payment of a sum of money and recognition of the easement. The receipt evidencing
the agreement, aside from providing for the reduction of the money judgment, provides
for the reconstruction of the irrigation canal. Such constitutes the interpretation
accorded by the parties to that part of the dispositive portion of the appellate court's
judgment condemning the respondent to recognize the easement. This stipulation
one wherein the respondent clearly recognizes his obligation "to reconstruct the
irrigation canal" embodied in precise and clear terms in the receipt binds the said
respondent, a signatory to the said receipt, and requires from him full compliance. We
thus fail to perceive any reason to sustain the contention of the respondent that he
has no obligation at all to reconstruct and reopen the irrigation canal, a position
utterly inconsistent with his agreement with the petitioners as embodied in the receipt
dated August 31, 1964.
The record, however, shows that the respondent exerted efforts to reconstruct the
portion of the irrigation canal running through his land by digging a canal about one
meter wide and about one-and-a-half feet deep. This partial reconstruction of the
irrigation canal the petitioners admit. Still, the petitioners demand the reconstruction
of the irrigation canal to its former condition measuring four meters wide, five feet
deep, and one-hundred and twenty-eight meters long contending that the rebuilt
canal serves no useful purpose because the water passing through it overflows, which
overflow ultimately causes the destruction of the canal itself. Nonetheless, we believe
that need to give full force and effect to the existence of the easement demands that
the respondent reconstruct the irrigation canal to its condition before he closed and
destroyed the same. After all, the respondent himself in his answer dated June 16,
1959 filed with the court a quo admitted the original dimensions of the irrigation canal
as four meters wide and one-hundred and twenty-eight meters long. The respondent's
attempt, to rebuild the irrigation canal, partially and not in conformity with the
dimensions of the original one, does not constitute satisfactory and substantial
compliance with his obligation to recognize the easement per the appellate court's
judgment and to reconstruct the irrigation canal pursuant to his agreement with the
petitioners in August, 1964.
Due to the respondent's failure and refusal to reconstruct and reopen the irrigation
canal, the petitioners sought to declare him in contempt of court, under the provisions
of section 9 of Rule 39 of the Rules of Court. The respondent judge, however, believing
that the appellate court's judgement required the respondent merely to recognize the
equipment without doing any positive act of reconstruction and reopening of the
irrigation canal, dismissed the petition motion to declare the respondent in contempt
of court. In doing so, the petitioners allege, the respondent judge acted in excess of
jurisdiction or with grave abuse of discretion. The petitioners thus ask us now to
annul the order of the respondent judge denying their motion to declared the
respondent in contempt of court or, by way of native, to declare the respondent in
contempt of court and to punish him accordingly.
The petitioners predicate their stand mainly upon the provisions of section 9 of Rule
39 of the Rules of Court. Said section reads:
Sec. 9. Writ of execution of special judgment. When judgment requires
the performance of any other act than the payment of money, or the sale
or delivery of real or personal property, a certified copy of the judgment
shall be attached the writ of execution and shall be served by the officer
upon the party against whom the same is rendered, or upon any of
person required thereby, or by law, to obey the same, and party or
person may be punished forcontempt if he disobeys such judgment.
Section 9 applies to specific acts other than those cover by section 10 of the same rule.
Section 10 pertinently provides:
See. 10. Judgment for an acts; vesting title. If a judgment directs a
party to execute a conveyance of land, or to deliver deeds or other
documents, or to perform any other specific act, and the party fails to
comply within the time specified, the court may direct the act to be done
at the cost of disobedient party by some other person appointed by the
court and the act when so done shall have like effect as if done by the
party. ...
Section 9 refers to a judgment directing the performance of a specific act which the
said judgment requires the party or person to personally do because of his personal
qualifications and circumstances. Section 10 refers to a judgment requiring the
execution of a conveyance of land or the delivery of deeds or other documents or the
performance of any other specific act susceptible of execution by some other person or
in some other way provided by law with the same effect. Under section 10, the court
may designate some other person to do the act ordained to be done by the judgment,
the reasonable cost of its performance chargeable to the disobedient party. The act,
when so done, shall have the same effect as if performed by the party himself. In such
an instance, the disobedient party incurs no liability for contempt.
3
Under section 9,
the court may resort to proceedings for contempt in order to enforce obedience to a
judgment which requires the personal performance of a specific act other than the
payment of money, or the sale or delivery of real or personal property.
An examination of the case at bar makes it apparent that the same falls within the
contemplation of section 10, and not of section 9 as the petitioners contend. The
reconstruction and reopening of the irrigation canal may be done by same other
person designated by the court, at the cost of the respondent. In fact, the respondent
in his attempt to rebuild the irrigation canal, contracted the services of one Gerardo
Salenga. Accordingly, in conformity with the appellate court's judgment as further
mutually interpreted by the parties themselves, the court a quo, because of the failure
and refusal of the respondent to restore the irrigation canal to its former condition and
to reopen it, should have appointed some other person to do the reconstruction,
charging the expenses therefor to the said respondent.
2. As to the second question, which relates to the money judgment, the petitioners
vehemently insist on their right to recover an additional sum of P2,000 the alleged
unsatisfied portion of the appellate court's judgement requiring the respondent to pay
to the petitioners the total amount of P6,000 corresponding to damages and attorney's
fees. The petitioners allege that their agreement with the respondent in August, 1964,
reducing the amount due from the respondent, constitutes neither waiver of their
claim for the sum of P2,000 nor novation of the money judgment provided for in the
Court of Appeals' decision. They state that their agreement with the respondent
reduced the amount of the money judgment, subject to the condition that the latter
reconstruct and reopen the irrigation canal immediately. This, they argue, does not
constitute alteration of the appellate court's judgment.
For his part, the respondent contends that his payment of the sum of P4,000, received
and acknowledged by the petitioners through their counsel as "in full satisfaction of
the money judgment" in civil case 1554, extinguished his pecuniary liability. Thus,
when the petitioners, notwithstanding the admitted payment of the judgment debt in
the lesser amount of P4,000, still sought to enforce the money judgment for the full
amount of P6,000 through an alias writ of execution, the court a quo, in recalling and
quashing the alias writ previously issued, acted correctly andwithin its authority.
Parenthetically, the petitioner's application for the issuance of the alias writ of
execution dated September 16, 1965, the alias writ of execution dated September 29,
1965, and the levy on execution and the notice of sheriff's sale, both dated October 21,
1965, all refer to the amount of P6,000 and make no mention whatsoever of the true
status of the judgement debt. On this point the respondent charges the petitioners
with concealing from the court a quo the true amount, if any, still due from him. And
in effect, he alleges, the petitioners apparently seek the payment of the judgment debt
twice. The petitioners, however, emphasize that they demand payment of only the
balance of P2,000. To rebut the respondents charge of concealment, they state that
they informed the court a quo that the respondent already paid them the sum of
P4,000. Furthermore, they allege that another lawyer, a former associate of their
counsel, prepared their motion for the issuance of the alias writ of execution, received
the alias writ and delivered the same to the sheriff. Impliedly, therefore, they attribute
the inconsistency regarding the amount still allegedly due from the respondent to the
former associate of their counsel.
Reverting to the second question, the appellate court's judgment obliges the
respondent to do two things: (1) to recognize the easement, and (2) to pay the
petitioners the sums of P5,000 actual and P500 exemplary damages and P500
attorney's fees, or a total of P6,000. The full satisfaction of the said judgment requires
specific performance and payment of a sum of money by the respondent.
We adjudge the respondent's judgment debt as having been fully satisfied. We see no
valid objection to the petitioners and the respondent entering into an agreement
regarding the monetary obligation of the latter under the judgment of the Court of
Appeals, reducing the same from P6,000 to P4,000. The payment by the respondent of
the lesser amount of P4,000, accepted by the petitioners without any protest or
objection and acknowledged by them as "in full satisfaction of the money judgment" in
civil case 1554, completely extinguished the judgment debt and released the
respondent from his pecuniary liability.
Both the petitioners and the respondent take exception to the respondent judge's
ruling that their agreement of August, 1964 to reduce the judgment debt, as evidenced
by the receipt hereinbefore adverted to, "novated" the money judgment rendered by the
appellate court.
Novation results in two stipulations one to extinguish an existing obligation, the
other to substitute a new one in its place.
4
Fundamental it is that novation effects a
substitution or modification of an obligation by another or an extinguishment of one
obligation in the creation of another. In the case at hand, we fail to see what new or
modified obligation arose out of the payment by the respondent of the reduced amount
of P4,000 and substitute the monetary liability for P6,000 of the said respondent
under the appellate court's judgment. Additionally, to sustain novation necessitates
that the same be so declared in unequivocal terms clearly and unmistakably shown
by the express agreement of the parties or by acts of equivalent import or that there
is complete and substantial incompatibility between the two obligations.
5

Neither do we appreciate the petitioners' stand that, according to their agreement with
the respondent, their assent to the reduction of the money judgment was subject to
the condition that the respondent reconstruct and reopen the portion of the irrigation
canal passing through his land immediately. The petitioners even state that the receipt
of August 31, 1964 embodies this condition.
The terms of the receipt dated August 31, 1964, we find clear and definite. The receipt
neither expressly nor impliedly declares that the reduction of the money judgment was
conditioned on the respondent's reconstruction and reopening of the irrigation canal.
The receipt merely embodies the recognition by the respondent of his obligation to
reconstruct the irrigation canal. And the receipt simply requires the respondent to
comply with such obligation "immediately." The obligation of the respondent remains
as a portion of the Court of Appeals' judgment. In fact, the petitioners themselves, in
their letter dated November 5, 1964, sent to the respondent, demanding that the latter
reconstruct the irrigation canal immediately, referred to the same not as a condition
but as "the portion of the judgment" in civil case 1594.
Consequently, the respondent judge, when she granted the motion of the respondent
to set aside the alias writ of execution and issued the order dated February 3, 1966
recalling and quashing the said alias writ, acted correctly. Courts have jurisdiction to
entertain motions to quash previously issued writs of execution because courts have
the inherent power, for the advancement of justice, to correct the errors of their
ministerial officers and to control their own processes. However, this power, well
circumscribed, to quash the writ, may be exercised only in certain situations, as when
it appears that (a) the writ has been improvidently issued, or (b) the writ is defective in
substance, or (c) the writ has been issued against the wrong party, or (d) the judgment
debt has been paid or otherwise satisfied, or (e) the writ has been issued without
authority, or (f) there has been a change in the situation of the parties which renders
such execution inequitable, or (g) the controversy has never been submitted to the
judgment of the court, and, therefore, no judgment at all has ever been rendered
thereon.
6
In the instant case, the payment of the judgment debt by the respondent,
although in a reduced amount but accepted by the petitioners as "in full satisfaction of
the money judgment," warrants the quashal of the alias writ.
ACCORDINGLY, judgment is hereby rendered, (1) declaring that the respondent judge
did not act in excess of jurisdiction or with grave abuse of discretion in issuing the
order dated February 3, 1966 (granting the respondent's motion to set aside the alias
writ of execution, and recalling and guashing the said alias writ) and the order dated
March 30, 1966 (denying the petitioners' motion for reconsideration, of the order dated
February 3, 1966) ; and (2) remanding the case to the court a quo with instructions
that the respondent court (a) conduct an ocular inspection of the irrigation canal
passing through the respondent's land to determine whether or not the said canal has
been rebuilt in accordance with its original dimensions; (b) in the event that the said
canal fails to meet the measurements of the original one, order the respondent to
reconstruct the same to its former condition; and (3) in the event of the respondent's
further refusal or failure to do so, appoint some other person to reconstruct the canal
in accordance with its original dimensions, at the cost of the said respondent,
pursuant to section 10 of Rule 39 of the Rules of Court. Without pronouncement as to
costs.
Concepcion, C.J., Makalintal, Zaldivar, Fernando, Barredo, Villamor and Makasiar, JJ.,
concur.
Reyes, J.B.L., J., concurs in the result.



Separate Opinions


TEEHANKEE, J., concurring:
I concur in the result. It seems to me that any ambiguity in the receipt of August 31,
1964 prepared by Atty. Dalmacio P. Timbol as counsel for petitioners as judgment
creditors in Civil Case No. 1554 of the Court of First Instance of Pampanga, to which
respondent as judgment debtor had signed his agreement, must be construed against
petitioners as the parties responsible for the ambiguity.
The condition or clause provided in the said receipt viz, "that the portion of the final
judgment rendered in the said case ordering him (respondent Paras) to reconstruct the
irrigation canal in question shall be complied with by him immediately" (emphasis
supplied) is ambiguous being premised on an erroneous statement of fact. Besides the
money part of the judgment, all that the said judgment ordered respondent was "to
recognize the easement which is held binding as to him."
Accordingly, I submit that in the proceedings below with the remand of the case,
respondent should in fairness be permitted to present competent evidence to clarify
his contention at bar "that he has no obligation at all to reconstruct and reopen the
irrigation canal" (main opinion, at p. 5), which, as noted in the main opinion, is a
"position utterly inconsistent" with his alleged agreement to do so, as stated in the
receipt of August 31, 1964 which alleged agreement was in turn based on the
erroneous premise that the judgment in question ordered him to reconstruct the
irrigation canal. If there were in fact an agreement or recognition on respondent's part
to reconstruct the irrigation canal immediately, notwithstanding that he was not so
sentenced under the final judgment, competent evidence should likewise be permitted
in the proceedings below to determine the nature and extent of his agreement and
undertaking.
No grave abuse of discretion committed by respondent judge in issuing the orders
complained of; case remanded to court a quo with instructions.


Separate Opinions

TEEHANKEE, J., concurring:
I concur in the result. It seems to me that any ambiguity in the receipt of August 31,
1964 prepared by Atty. Dalmacio P. Timbol as counsel for petitioners as judgment
creditors in Civil Case No. 1554 of the Court of First Instance of Pampanga, to which
respondent as judgment debtor had signed his agreement, must be construed against
petitioners as the parties responsible for the ambiguity.
The condition or clause provided in the said receipt viz, "that the portion of the final
judgment rendered in the said case ordering him (respondent Paras) to reconstruct the
irrigation canal in question shall be complied with by him immediately" (emphasis
supplied) is ambiguous being premised on an erroneous statement of fact. Besides the
money part of the judgment, all that the said judgment ordered respondent was "to
recognize the easement which is held binding as to him."
Accordingly, I submit that in the proceedings below with the remand of the case,
respondent should in fairness be permitted to present competent evidence to clarify
his contention at bar "that he has no obligation at all to reconstruct and reopen the
irrigation canal" (main opinion, at p. 5), which, as noted in the main opinion, is a
"position utterly inconsistent" with his alleged agreement to do so, as stated in the
receipt of August 31, 1964 which alleged agreement was in turn based on the
erroneous premise that the judgment in question ordered him to reconstruct the
irrigation canal. If there were in fact an agreement or recognition on respondent's part
to reconstruct the irrigation canal immediately, notwithstanding that he was not so
sentenced under the final judgment, competent evidence should likewise be permitted
in the proceedings below to determine the nature and extent of his agreement and
undertaking.
No grave abuse of discretion committed by respondent judge in issuing the orders
complained of; case remanded to court a quo with instructions.

Footnotes
1 CA-GR 28414-R, November 18, 1963.
2 Amended on September 15, 1966.
3 Caluag and Garcia vs. Pecson, et al., 82 Phil. 8.
4 Tiu Siuco vs. Habana, 45 Phil. 707.
5 Article 1292, Civil Code of the Philippines.
6 Cobb-Perez and Perez vs. Lantin, et al., L-22320, May 22, 1968, 23
SCRA 637.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-62845-46 November 25, 1983
NATIONAL POWER CORPORATION, petitioner,
vs.
JUDGE ABELARDO M. DAYRIT, Court of First Instance of Manila, Branch 39, and
DANIEL R. ROXAS, doing business as United Veterans Security Agency and Foreign
Boats Watchmen, respondents.
The Solicitor General for petitioner.
William C. Arceno for respondents.

ABAD SANTOS, J.:+.wph!1
This is a petition to set aside the Order, dated September 22, 1982, of the respondent
judge. The prayer is premised on the allegation that the questioned Order was issued
with grave abuse of discretion.
In Civil Case No. 133528 of the defunct Court of First Instance of Manila, DANIEL E.
ROXAS, doing business under the name and style of United Veterans Security Agency
and Foreign Boats Watchmen, sued the NATIONAL POWER CORPORATION (NPC) and
two of its officers in Iligan City. The purpose of the suit was to compel the NPC to
restore the contract of Roxas for security services which the former had terminated.
After several incidents, the litigants entered into a Compromise Agreement on October
14, 1981, and they asked the Court to approve it. Accordingly, a Decision was
rendered on October 30, 1981, which reads as follows: t.hqw
In order to abbreviate the proceedings in this case, the parties, instead of
going into trial, submitted a compromise agreement, as follows:
t.hqw
The parties, DANIEL E. ROXAS, etc. and NATIONAL
POWER CORPORATION, ET AL., represented by its
President Mr. Gabriel Y. Itchon with due and proper
authority under NP Board Resolution No. 81-224, assisted
by their respective counsel, to this Honorable Court
respectfully submit the following compromise agreement:
1. The defendant National Power Corporation shall pay to
plaintiff the sum of P7,277.45, representing the amount
due to plaintiff for the services of one of plaintiff's
supervisors;
2. The defendant shall pay plaintiff the value of the line
materials which were stolen but recovered, by plaintiff's
agency which value is to be determined after a joint
inventory by the representatives of both parties;
3. The parties shall continue with the contract of security
services under the same terms and conditions as the
previous contract effective upon the signing thereof;
4. The parties waive all their respective claims and
counterclaims in favor of each other;
5. The parties agree to faithfully comply with the foregoing
agreement.
PRAYER
WHEREFORE, it is respectfully prayed that the Hon. Court approve the
following compromise agreement.'
Examining the foregoing agreement, the Court finds that the same is in
accordance with law and not against morals and public policy.
CONFORMABLY, the Court hereby renders judgment in accordance with
the terms and conditions thereof, enjoining the parties to strictly comply
with the terms and conditions of the compromise agreement, without
pronouncement as to cost. (Rollo, pp. 33-34.)
The judgment was not implemented for reasons which have no relevance here.
On May 14, 1982, the NPC executed another contract for security services with Josette
L. Roxas whose relationship to Daniel is not shown. At any rate Daniel has owned the
contract. The NPC refused to implement the new contract for which reason Daniel filed
a Motion for Execution in the aforesaid civil case which had been re-numbered R-82-
10787. The Motion reads: t.hqw
PLAINTIFF, by counsel, respectfully shows:
1. On October 30, 1981, this Honorable Court rendered its decision
based on compromise agreement submitted by the parties, under which
it was provided, among others, that t.hqw
3. The parties shall continue with the contract of security
services under the same terms and conditions as the
previous contract effective upon the signing thereof;
2. To date, after more than about eight (8) months since the decision of
this Honorable Court, defendant National Power Corporation, through
bad faith by reason of excuses made one after another, has yet to comply
with the aforesaid terms of the decision. It has not reinstated the
contract with the plaintiff in gross violation of the terms of the said
compromise agreement which this Honorable Court approved, 'enjoining
the parties to strictly comply with the terms and conditions of the
compromise agreement,
3. Hence, plaintiff is compelled to seek the assistance of this Honorable
Court for the execution of its decision.
PRAYER t.hqw
WHEREFORE, it is respectfully prayed that this Honorable Court order
the issuance of the writ of execution for the enforcement of the aforesaid
portion of its decision. (Rollo, pp. 35-36.)
Acting on the Motion, the respondent judge issued the following Order: t.hqw
Acting on the motion for execution dated July 14, 1982, visibly over the
objection and/or opposition to the motion for execution dated July 19,
1982, the Court, considering that the decision of October 30, 1981 was
based on a Compromise Agreement entered into by and between the
parties which decidedly, become final and executory, is inclined to grant
said action.
CONFORMABLY, let the corresponding writ of execution be issued to be
served by the Deputy Sheriff assigned to this branch. (Rollo, p. 54.)
The NPC assails the Order on the ground that it directs execution of a contract which
had been novated by that of May 14, 1982. Upon the other hand, Roxas claims that
said contract was executed precisely to implement the compromise agreement for
which reason there was no novation.
We sustain the private respondent. Article I of the May 14, 1982, agreement supports
his contention. Said article reads: t.hqw
ARTICLE I
DOCUMENTS COMPRISING THE CONTRACT
The letter proposal dated September 5, 1981; CORPORATION'S counter-
proposal dated September 11, 1981; Board Resolution No. 81-244 dated
September 28, 1981; the Compromise Agreement and Court Decision
dated October 30, 1981 in Civil Case No. 133528 CFI-Manila; other
subsequent letters and the performance bond of AGENCY to be flied in
favor of CORPORATION in the manner hereinafter provided, are hereby
expressly made integral parts of this contract by reference. (Rollo, pp. 59-
60.)
It is elementary that novation is never presumed; it must be explicitly stated or there
must be manifest incompatibility between the old and the new obligations in every
aspect. Thus the Civil Code provides: t.hqw
Art. 1292. In order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other.
In the case at bar there is nothing in the May 14, 1982, agreement which supports the
petitioner's contention. There is neither explicit novation nor incompatibility on every
point between the "old" and the "new" agreements.
WHEREFORE, the petition is denied for lack of merit with costs against the petitioner.
SO ORDERED.1wph1.t
Fernando, C.J., Teehankee, Makasiar, Concepcion Jr., Guerrero, De Castro, Melencio-
Herrera, Plana, Escolin, Relova and Gutierrez, Jr., JJ., concur.
Aquino, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41117 December 29, 1986
INTEGRATED CONSTRUCTION SERVICES, INC., and ENGINEERING
CONSTRUCTION, INC., petitioners,
vs.
THE HONORABLE LORENZO RELOVA, as Judge of the Court of First Instance of
Manila, and METROPOLITAN WATERWORKS & SEWERAGE SYSTEM, respondents.
J.R. Blanco and Bengzon, Villegas, Zarraga, Narciso & Cudala for petitioners.
Raymundo A. Armovit for petitioner Engineering Construction, Inc.

PARAS, J.:
This is a petition
1
for mandamus as a special civil action and/or, in the alternative,
an appeal from orders of the Court of First Instance of Manila under Republic Act
5440 in Civil Case No. 80390 entitled "Integrated Construction Services, Inc. and
Engineering Construction, Inc., plaintiffs, versus National Waterworks and Sewerage
Authority (now Metropolitan Waterworks & Sewerage System), defendant." Petitioners
complied with the requisites for both remedies.
The facts are not in dispute:
Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks and
Sewerage System (MWSS), formerly the National Waterworks and Sewerage Authority
(NAWASA), in the Court of First Instance of Manila for breach of contract, docketed as
Civil Case No. 80390 in that Court. Meanwhile, the parties submitted the case to
arbitration.
The Arbitration Board, after extensive hearings, rendered its decision-award on August
11, 1972. Respondent Judge confirmed the Award on September 9, 1972 and the
same has long since become final and executory.
The decision-award ordered MWSS to pay petitioners P15,518,383.61-less
P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint venture in
connection with the projector a net award of P13,188,950.20 with interest thereon
from the filing of the complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS some discounts in
consideration of an early payment of the award. Thus, on September 21, 1972, MWSS
adopted Board Resolution No. 132-72, embodying the terms and conditions of their
agreement. On October 2, 1972, MWSS sent a letter-agreement to petitioners, quoting
Board Resolution No. 13272, granting MWSS some discounts from the amount
payable under the decision award (consisting of certain reductions in interests, in the
net principal award and in the trust fund), provided that MWSS would pay the
judgment, less the said discounts, within fifteen days therefrom or up to October 17,
1972.
Upon MWSS' request, the petitioners signed their "Conforme" to the said letter-
agreement, and extended the period to pay the judgment less the discounts aforesaid
to October 31, 1972. MWSS, however, paid only on December 22, 1972, the amount
stated in the decision but less the reductions provided for in the October 2, 1972
letter-agreement.
Three years thereafter, or on June, 1975, after the last balance of the trust fund had
been released and used to satisfy creditors' claims, the petitioners filed a motion for
execution in said civil case against MWSS for the balance due under the decision-
award. Respondent MWSS opposed execution setting forth the defenses of payment
and estoppel. (p. 174, Rollo)
On July 10, 1975, respondent judge denied the motion for execution on the ground
that the parties had novated the award by their subsequent letter-agreement.
Petitioners moved for reconsideration but respondent judge, likewise, denied the same
in his Order dated July 24, 1975.
Hence, this Petition for Mandamus, alleging that respondent judge unlawfully refused
to comply with his mandatory duty-to order the execution of the unsatisfied portion of
the final and executory award.
In a Resolution dated October 17, 1975, the Supreme Court dismissed the Petition for
lack of merit. (p. 107, Rollo )and denied petitioners' Motion for Reconsideration of the
same. (p. 131, Rollo)
At the hearing on petitioners' Second Motion for Reconsideration, however, respondent
MWSS asserted new matters, (p. 186, Rollo) arguing that: the delay in effecting
payment was caused by an unforeseen circumstance the declaration of martial law,
thus, placing MWSS under the management of the Secretary of National Defense,
which impelled MWSS to refer the matter of payment to the Auditor General and/or
the Secretary of National Defense; and that the 15-day period was merely intended to
pressure MWSS officials to process the voucher. Petitioners, however, vehemently deny
these matters which are not supported by the records.
We agree with the petitioners.
While the tenor of the subsequent letter-agreement in a sense novates the judgment
award there being a shortening of the period within which to pay (Kabangkalan Sugar
Co. vs. Pacheco, 55 Phil. 555), the suspensive and conditional nature of the said
agreement (making the novation conditional) is expressly acknowledged and stipulated
in the 14th whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo) which
states:
WHEREAS, all the foregoing benefits and advantages secured by the MWSS out
of said conferences were accepted by the Joint Venture provided that the
remaining net amount payable to the Joint Venture will be paid by the MWSS
within fifteen (15) days after the official release of this resolution and a written
CONFORME to be signed by the Joint Venture; (Emphasis supplied)
MWSS' failure to pay within the stipulated period removed the very cause and reason
for the agreement, rendering some ineffective. Petitioners, therefore, were remitted to
their original rights under the judgment award.
The placing of MWSS under the control and management of the Secretary of National
Defense thru Letter of Instruction No. 2, dated September 22, 1972 was not an
unforeseen supervening factor because when MWSS forwarded the letter-agreement to
the petitioners on October 2, 1972, the MWSS was already aware of LOI No. 2.
MWSS' contention that the stipulated period was intended to pressure MWSS officials
to process the voucher is untenable. As aforestated, it is apparent from the terms of
the agreement that the 15-day period was intended to be a suspensive condition.
MWSS, admittedly, was aware of this, as shown by the internal memorandum of a
responsible MWSS official, stating that necessary steps should be taken to effect
payment within 15 days, for otherwise, MWSS would forego the advantages of the
discount. " (p. 426, Rollo)
As to whether or not petitioners are now in estoppel to question the subsequent
agreement, suffice it to state that petitioners never acknowledged full payment; on the
contrary, petitioners refused MWSS' request for a conforme or quitclaim. (p. 125, Rollo)
Accordingly, the award is still subject to execution by mere motion, which may be
availed of as a matter of right any time within (5) years from entry of final judgment in
accordance with Section 5, Rule 39 of the Rules of Court.
WHEREFORE, We hereby set aside the assailed orders, and issue the writ of
mandamus directing the present Regional Trial Judge of the Branch that handled this
case originally to grant the writ of execution for the balance due under the award.
SO ORDERED.
Teehankee, C.J., Feria, Yap, Fernan, Narvasa, Melencio-Herrera, Alampay, Gutierrez,
Jr., Cruz and Feliciano, JJ., concur.

Footnotes
1 The parties submitted their memoranda on January 4, 1977.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-47369 June 30, 1987
JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners,
vs.
R & B SURETY AND INSURANCE COMPANY, INC., respondent.

FELICIANO, J.:
This case was certified to us by the Court of Appeals in its resolution dated 11
November 1977 as one involving only questions of law and, therefore, falling within the
exclusive appellate jurisdiction of this Court under Section 17, Republic Act 296, as
amended.
In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was
granted an increase in its line of credit from P400,000.00 to P800,000.00 (the
"Principal Obligation"), with the Philippine National Bank (PNB). To secure PNB's
approval, PAGRICO had to give a good and sufficient bond in the amount of
P400,000.00, representing the increment in its line of credit, to secure its faithful
compliance with the terms and conditions under which its line of credit was increased.
In compliance with this requirement, PAGRICO submitted Surety Bond No. 4765,
issued by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the
specified amount in favor of the PNB. Under the terms of the Surety Bond, PAGRICO
and R & B Surety bound themselves jointly and severally to comply with the "terms
and conditions of the advance line [of credit] established by the [PNB]." PNB had the
right under the Surety Bond to proceed directly against R & B Surety "without the
necessity of first exhausting the assets" of the principal obligor, PAGRICO. The Surety
Bond also provided that R & B Surety's liability was not to be limited to the principal
sum of P400,000.00, but would also include "accrued interest" on the said amount
"plus all expenses, charges or other legal costs incident to collection of the obligation
[of R & B Surety]" under the Surety Bond.
In consideration of R & B Surety's issuance of the Surety Bond, two Identical
indemnity agreements were entered into with R & B Surety: (a) one agreement dated
23 December 1963 was executed by the Catholic Church Mart (CCM) and by petitioner
Joseph Cochingyan, Jr, the latter signed not only as President of CCM but also in his
personal and individual capacity; and (b) another agreement dated 24 December 1963
was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K. Villanueva
and Liu Tua Ben Mr. Villanueva signed both as Manager of PAGRICO and in his
personal and individual capacity; Mr. Liu signed both as President of PACOCO and in
his individual and personal capacity.
Under both indemnity agreements, the indemnitors bound themselves jointly and
severally to R & B Surety to pay an annual premium of P5,103.05 and "for the faithful
compliance of the terms and conditions set forth in said SURETY BOND for a period
beginning ... until the same is CANCELLED and/or DISCHARGED." The Indemnity
Agreements further provided:
(b) INDEMNITY: TO indemnify the SURETY COMPANY for any damage,
prejudice, loss, costs, payments, advances and expenses of whatever
kind and nature, including [of] attorney's fees, which the CORPORATION
may, at any time, become liable for, sustain or incur as consequence of
having executed the above mentioned Bond, its renewals, extensions or
substitutions and said attorney's fees [shall] not be less than twenty
[20%] per cent of the total amount claimed by the CORPORATION in each
action, the same to be due, demandable and payable, irrespective of
whether the case is settled judicially or extrajudicially and whether the
amount has been actually paid or not;
(c) MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH:
The said indemnities will be paid to the CORPORATION as soon as
demand is received from the Creditor or upon receipt of Court order or as
soon as it becomes liable to make payment of any sum under the terms
of the above-mentioned Bond, its renewals, extensions, modifications or
substitutions, whether the said sum or sums or part thereof, have been
actually paid or not.
We authorize the SURETY COMPANY, to accept in any case and at its
entire discretion, from any of us, payments on account of the pending
obligations, and to grant extension to any of us, to liquidate said
obligations, without necessity of previous knowledge of [or] consent from
the other obligors.
xxx xxx xxx
(e) INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY. Any
payment or disbursement made by the SURETY COMPANY on account of
the above-mentioned Bonds, its renewals, extensions or substitutions,
either in the belief that the SURETY COMPANY was obligate[d] to make
such payment or in the belief that said payment was necessary in order
to avoid greater losses or obligations for which the SURETY COMPANY
might be liable by virtue of the terms of the above-mentioned Bond, its
renewals, extensions or substitutions, shall be final and will not be
disputed by the undersigned, who jointly and severally bind themselves
to indemnify the SURETY COMPANY of any and all such payments as
stated in the preceding clauses.
xxx xxx xxx
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB
demanded payment from R & B Surety of the sum of P400,000.00, the full amount of
the Principal Obligation. R & B Surety made a series of payments to PNB by virtue of
that demand totalling P70,000.00 evidenced by detailed vouchers and receipts.
R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr.
and Jose K. Villanueva for reimbursement of the payments made by it to the PNB and
for a discharge of its liability to the PNB under the Surety Bond. When petitioners
failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr.,
Jose K. Villanueva and Liu Tua Ben in the Court of First Instance of Manila, praying
principally that judgment be rendered:
b. Ordering defendants to pay jointly and severally, unto the plaintiff, the
sum of P20,412.20 representing the unpaid premiums for Surety Bond
No. 4765 from 1965 up to 1968, and the additional amount of P5,103.05
yearly until the Surety Bond No. 4765 is discharged, with interest
thereon at the rate of 12% per annum; [and]
c. Ordering the defendants to pay jointly and severally, unto the plaintiff
the sum of P400,000.00 representing the total amount of the Surety
Bond No. 4765 with interest thereon at the rate of 12% per annum on
the amount of P70,000.00 which had been paid to the Phil. National
Bank already, the interest to begin from the month of September, 1966;
xxx xxx xxx
Petitioner Joseph Cochingyan, Jr. in his answer maintained that the Indemnity
Agreement he executed in favor of R & B Surety: (i) did not express the true intent of
the parties thereto in that he had been asked by R & B Surety to execute the
Indemnity Agreement merely in order to make it appear that R & B Surety had
complied with the requirements of the PNB that credit lines be secured; (ii) was
executed so that R & B Surety could show that it was complying with the regulations
of the Insurance Commission concerning bonding companies; (iii) that R & B Surety
had assured him that the execution of the agreement was a mere formality and that he
was to be considered a stranger to the transaction between the PNB and R & B Surety;
and (iv) that R & B Surety was estopped from enforcing the Indemnity Agreement as
against him.
Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed the
Indemnity Agreement in favor of R & B Surety only "for accommodation purposes" and
that it did not express their true intention; (ii) that the Principal Obligation of
PAGRICO to the PNB secured by the Surety Bond had already been assumed by CCM
by virtue of a Trust Agreement entered into with the PNB, where CCM represented by
Joseph Cochingyan, Jr. undertook to pay the Principal Obligation of PAGRICO to the
PNB; (iii) that his obligation under the Indemnity Agreement was thereby extinguished
by novation arising from the change of debtor under the Principal Obligation; and (iv)
that the filing of the complaint was premature, considering that R & B Surety filed the
case against him as indemnitor although the PNB had not yet proceeded against R &
B Surety to enforce the latter's liability under the Surety Bond.
Petitioner Cochingyan, however, did not present any evidence at all to support his
asserted defenses. Petitioner Villanueva did not submit any evidence either on his
"accommodation" defense. The trial court was therefore constrained to decide the case
on the basis alone of the terms of the Trust Agreement and other documents
submitted in evidence.
In due time, the Court of First Instance of Manila, Branch 24 1 rendered a decision in
favor of R & B Surety, the dispositive portion of which reads as follows;
Premises considered, judgment is hereby rendered: (a) ordering the
defendants Joseph Cochingyan, Jr. and Jose K. Villanueva to pay, jointly
and severally, unto the plaintiff the sum of 400,000,00, representing the
total amount of their liability on Surety Bond No. 4765, and interest at
the rate of 6% per annum on the following amounts:
On P14,000.00 from September 27, 1966;
On P4,000.00 from November 28, 1966;
On P4,000.00 from December 14, 1966;
On P4,000.00 from January 19, 1967;
On P8,000.00 from February 13, 1967;
On P4,000.00 from March 6, 1967;
On P8,000.00 from June 24, 1967;
On P8,000. 00 from September 14, 1967;
On P8,000.00 from November 28, 1967; and
On P8,000. 00 from February 26, 1968
until full payment; (b) ordering said defendants to pay, jointly and
severally, unto the plaintiff the sum of P20,412.00 as the unpaid
premiums for Surety Bond No. 4765, with legal interest thereon from the
filing of plaintiff's complaint on August 1, 1968 until fully paid, and the
further sum of P4,000.00 as and for attorney's fees and expenses of
litigation which this Court deems just and equitable.
There being no showing the summons was duly served upon the
defendant Liu Tua Ben who has filed no answer in this case, plaintiff's
complaint is hereby dismissed as against defendant Liu Tua Ben without
prejudice.
Costs against the defendants Joseph Cochingyan, Jr. and Jose K.
Villanueva.
Not satisfied with the decision of the trial court, the petitioners took this appeal to the
Court of Appeals which, as already noted, certified the case to us as one raising only
questions of law.
The issues we must confront in this appeal are:
1. whether or not the Trust Agreement had extinguished, by novation, the obligation of
R & B Surety to the PNB under the Surety Bond which, in turn, extinguished the
obligations of the petitioners under the Indemnity Agreements;
2. whether the Trust Agreement extended the term of the Surety Bond so as to release
petitioners from their obligation as indemnitors thereof as they did not give their
consent to the execution of the Trust Agreement; and
3. whether or not the filing of this complaint was premature since the PNB had not yet
filed a suit against R & B Surety for the forfeiture of its Surety Bond.
We address these issues seriatim.
1. The Trust Agreement referred to by both petitioners in their separate briefs, was
executed on 28 December 1965 (two years after the Surety Bond and the Indemnity
Agreements were executed) between: (1) Jose and Susana Cochingyan, Sr., doing
business under the name and style of the Catholic Church Mart, represented by
Joseph Cochingyan, Jr., as Trustor[s]; (2) Tomas Besa, a PNB official, as Trustee; and
(3) the PNB as beneficiary. The Trust Agreement provided, in pertinent part, as follows:
WHEREAS, the TRUSTOR has guaranteed a bond in the amount of
P400,000.00 issued by the R & B Surety and Insurance Co. (R & B) at
the instance of Pacific Agricultural Suppliers, Inc. (PAGRICO) on
December 21, 1963, in favor of the BENEFICIARY in connection with the
application of PAGRICO for an advance line of P400,000.00 to
P800,000.00;
WHEREAS, the TRUSTOR has also guaranteed a bond issued by the
Consolacion Insurance & Surety Co., Inc. (CONSOLACION) in the
amount of P900,000.00 in favor of the BENEFICIARY to secure certain
credit facilities extended by the BENEFICIARY to the Pacific Copra
Export Co., Inc. (PACOCO);
WHEREAS, the PAGRICO and the PACOCO have defaulted in the
payment of their respective obligations in favor of the BENEFICIARY
guaranteed by the bonds issued by the R & B and the CONSOLACION,
respectively, and by reason of said default, the BENEFICIARY has
demanded compliance by the R & B and the CONSOLACION of their
respective obligations under the aforesaid bonds;
WHEREAS, the TRUSTOR is, therefore, bound to comply with his
obligation under the indemnity agreements aforementioned executed by
him in favor of R & B and the CONSOLACION, respectively and in order to
forestall impending suits by the BENEFICIARY against said companies, he
is willing as he hereby agrees to pay the obligations of said companies in
favor of the BENEFICIARY in the total amount of P1,300,000 without
interest from the net profits arising from the procurement of reparations
consumer goods made thru the allocation of WARVETS; . . .
l. TRUSTOR hereby constitutes and appoints Atty. TOMAS BESA as
TRUSTEE for the purpose of paying to the BENEFICIARY Philippine
National Bank in the manner stated hereunder, the obligations of the R
& B under the R & B Bond No. G-4765 for P400,000.00 dated December
23, 1963, and of the CONSOLACION under The Consolacion Bond No. G-
5938 of June 3, 1964 for P900,000.00 or the total amount of
P1,300,000.00 without interest from the net profits arising from the
procurement of reparations consumer goods under the Memorandum of
Settlement and Deeds of Assignment of February 2, 1959 through the
allocation of WARVETS;
xxx xxx xxx
6. THE BENEFICIARY agrees to hold in abeyance any action to enforce
its claims against R & B and CONSOLACION, subject of the bond
mentioned above. In the meantime that this TRUST AGREEMENT is
being implemented, the BENEFICIARY hereby agrees to forthwith
reinstate the R & B and the CONSOLACION as among the companies
duly accredited to do business with the BENEFICIARY and its branches,
unless said companies have been blacklisted for reasons other than
those relating to the obligations subject of the herein TRUST
AGREEMENT;
xxx xxx xxx
9. This agreement shall not in any manner release the R & B and
CONSOLACION from their respective liabilities under the bonds mentioned
above. (emphasis supplied)
There is no question that the Surety Bond has not been cancelled or fully discharged
2

by payment of the Principal Obligation. Unless, therefore, the Surety Bond has been
extinguished by another means, it must still subsist. And so must the supporting
Indemnity Agreements.
3

We are unable to sustain petitioners' claim that the Surety Bond and their respective
obligations under the Indemnity Agreements were extinguished by novation brought
about by the subsequent execution of the Trust Agreement.
Novation is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which terminates it, either by changing its object or
principal conditions, or by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.
4
Novation through a change of
the object or principal conditions of an existing obligation is referred to as objective (or
real) novation. Novation by the change of either the person of the debtor or of the
creditor is described as subjective (or personal) novation. Novation may also be both
objective and subjective (mixed) at the same time. In both objective and subjective
novation, a dual purpose is achieved-an obligation is extinguished and a new one is
created in lieu thereof.
5

If objective novation is to take place, it is imperative that the new obligation expressly
declare that the old obligation is thereby extinguished, or that the new obligation be
on every point incompatible with the old one.
6
Novation is never presumed: it must be
established either by the discharge of the old debt by the express terms of the new
agreement, or by the acts of the parties whose intention to dissolve the old obligation
as a consideration of the emergence of the new one must be clearly discernible.
7

Again, if subjective novation by a change in the person of the debtor is to occur, it is
not enough that the juridical relation between the parties to the original contract is
extended to a third person. It is essential that the old debtor be released from the
obligation, and the third person or new debtor take his place in the new relation. If the
old debtor is not released, no novation occurs and the third person who has assumed
the obligation of the debtor becomes merely a co-debtor or surety or a co-surety.
8

Applying the above principles to the instant case, it is at once evident that the Trust
Agreement does not expressly terminate the obligation of R & B Surety under the
Surety Bond. On the contrary, the Trust Agreement expressly provides for the
continuing subsistence of that obligation by stipulating that "[the Trust Agreement]
shall not in any manner release" R & B Surety from its obligation under the Surety
Bond.
Neither can the petitioners anchor their defense on implied novation. Absent an
unequivocal declaration of extinguishment of a pre-existing obligation, a showing of
complete incompatibility between the old and the new obligation (and nothing else)
would sustain a finding of novation by implication.
9
But where, as in this case, the
parties to the new obligation expressly recognize the continuing existence and validity
of the old one, where, in other words, the parties expressly negated the lapsing of the
old obligation, there can be no novation. The issue of implied novation is not reached
at all.
What the trust agreement did was, at most, merely to bring in another person or
persons-the Trustor[s]-to assume the same obligation that R & B Surety was bound to
perform under the Surety Bond. It is not unusual in business for a stranger to a
contract to assume obligations thereunder; a contract of suretyship or guarantee is
the classical example. The precise legal effect is the increase of the number of persons
liable to the obligee, and not the extinguishment of the liability of the first debtor. 10
Thus, in Magdalena Estates vs. Rodriguez, 11 we held that:
[t]he mere fact that the creditor receives a guaranty or accepts payments
from a third person who has agreed to assume the obligation, when there
is no agreement that the first debtor shall be released from responsibility,
does not constitute a novation, and the creditor can still enforce the
obligation against the original debtor.
In the present case, we note that the Trustor under the Trust Agreement, the CCM,
was already previously bound to R & B Surety under its Indemnity Agreement. Under
the Trust Agreement, the Trustor also became directly liable to the PNB. So far as the
PNB was concerned, the effect of the Trust Agreement was that where there had been
only two, there would now be three obligors directly and solidarily bound in favor of
the PNB: PAGRICO, R & B Surety and the Trustor. And the PNB could proceed against
any of the three, in any order or sequence. Clearly, PNB never intended to release, and
never did release, R & B Surety. Thus, R & B Surety, which was not a party to the
Trust Agreement, could not have intended to release any of its own indemnitors simply
because one of those indemnitors, the Trustor under the Trust Agreement, became
also directly liable to the PNB.
2. We turn to the contention of petitioner Jose K. Villanueva that his obligation as
indemnitor under the 24 December 1963 Indemnity Agreement with R & B Surety was
extinguished when the PNB agreed in the Trust Agreement "to hold in abeyance any
action to enforce its claims against R & B Surety .
The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and
severally (in solidum) to the R & B Surety] to become SURETY upon a SURETY
BOND demanded by and in favor of [PNB] in the sum of [P400,000.00] for the faithful
compliance of the terms and conditions set forth in said SURETY BOND ." This part
of the Agreement suggests that the indemnitors (including the petitioners) would
become co-sureties on the Security Bond in favor of PNB. The record, however, is
bereft of any indication that the petitioners-indemnitors ever in fact became co-
sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes,
remained simply indemnitors bound to R & B Surety but not to PNB, such that PNB
could not have directly demanded payment of the Principal Obligation from the
petitioners. Thus, we do not see how Article 2079 of the Civil Code-which provides in
part that "[a]n extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty" could apply in the instant case.
The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was
concerned and any extension of time granted by PNB to any of the first-tier obligators
(PAGRICO, R &B Surety and the trustors[s]) could not prejudice the second-tier
parties.
There is no other reason why petitioner Villanueva's contention must fail. PNB's
undertaking under the Trust Agreement "to hold in abeyance any action to enforce its
claims" against R & B Surety did not extend the maturity of R & B Surety's obligation
under the Surety Bond. The Principal Obligation had in fact already matured, along
with that of R &B Surety, by the time the Trust Agreement was entered into.
Petitioner's Obligation had in fact already matured, for those obligations were to
amture "as soon as [R & B Surety] became liable to make payment of any sum under
the terms of the [Surety Bond] whether the said sum or sums or part thereof have
been actually paid or not." Thus, the situation was that precisely envisaged in Article
2079:
[t]he mere failure on the part of the creditor to demand payment after the
debt has become due does not of itself constitute any extension of the
referred to herein.(emphasis supplied)
The theory behind Article 2079 is that an extension of time given to the principal
debtor by the creditor without the surety of his right to pay the creditor and to be
immediately subrogated to the creditor's remedies against the principal debtor upon
the original maturity date. The surety is said to be entitled to protect himself against
the principal debtor upon the orginal maturity date. The surety is said to be entitled to
protect himself against the contingency of the principal debtor or the indemnitors
becoming insolvent during the extended period. The underlying rationale is not
present in the instant case. As this Court has held,
merely delay or negligence in proceeding against the principal will not
discharge a surety unless there is between the creditor and the principal
debtor a valid and binding agreement therefor, one which tends to
prejudice [the surety] or to deprive it of the power of obtaining indemnity by
presenting a legal objection for the time, to the prosecution of an action
on the original security. 12
In the instant case, there was nothing to prevent the petitioners from tendering
payment, if they were so minded, to PNB of the matured obligation on behalf of R & B
Surety and thereupon becoming subrogated to such remedies as R & B Surety may
have against PAGRICO.
3. The last issue can be disposed of quicjly, Clauses (b) and (c) of the Indemnity
Agreements (quoted above) allow R & B Surety to recover from petitioners even before
R & B Surety shall have paid the PNB. We have previously held similar indemnity
clauses to be enforceable and not violative of any public policy. 13
The petitioners lose sight of the fact that the Indemnity Agreements are contracts of
indemnification not only against actual loss but against liability as well. 14 While in a
contract of indemnity against loss as indemnitor will not be liable until the person to
be indemnified makes payment or sustains loss, in a contract of indemnity against
liability, as in this case, the indemnitor's liability arises as soon as the liability of the
person to be indemnified has arisen without regard to whether or not he has suffered
actual loss. 15 Accordingly, R & B Surety was entitled to proceed against petitioners
not only for the partial payments already made but for the full amount owed by
PAGRICO to the PNB.
Summarizing, we hold that :
(1) The Surety Bond was not novated by the Trust Agreement. Both agreements can
co-exist. The Trust Agreement merely furnished to PNB another party obligor to the
Principal Obligation in addition to PAGRICO and R & B Surety.
(2) The undertaking of the PNB to 'hold in abeyance any action to enforce its claim"
against R & B Surety did not amount to an "extension granted to the debtor" without
petitioner's consent so as to release petitioner's from their undertaking as indemnitors
of R & B Surety under the INdemnity Agreements; and
(3) Petitioner's are indemnitors of R & B Surety against both payments to and liability
for payments to the PNB. The present suit is therefore not premature despite the fact
that the PNB has not instituted any action against R & B Surety for the collection of
its matured obligation under the Surety Bond.
WHEREFORE, the petitioner's appeal is DENIED for the lack of merit and the decision
of the trial court is AFFIRMED in toto. Costs against the petitioners.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and Sarmiento, JJ., concur.

Footnotes
1 With then Judge Ricardo C. Puno presiding.
2 R & B Surety had earlier made partial payments thereon to PNB.
3 Manila Surety & Fidelity Co. v. Villarama, 107 Phil. 891, 899 (1960).
4 De Cortes v. Venturanza, 79 SCRA 709, 722-23 (1977).
5 Id at 723.
6 Zapanta v. Rotaeche, 21 Phil. 154, 159 (1912).
7 E.g., Tui Siuco v. Habana, 45 Phil. 707, 713 (1924); Martinez v.
Cavives, 25 Phil. 581 (1913).
8 Dungo v. Lopena, 6 SCRA 1007,1015-16 (1962).
9 Guerrero v. Court of Appeals, 29 SCRA 791, 798 (1969).
10 Dungo v. Lopena, 6 SCRA 1007, at 1016 (1962).
11 18 SCRA 967, at 972 (1966).
12 Bank of the Philippine Islands v. Albaladejo y Compania, 53 Phil. 141,
at 145-146 (1929); underscoring supplied.
13 Security Bank v. Globe Assurance, 58 Off. Gaz. 3708 (30 April 1962);
Cosmopolitan Insurance v. Reyes, 15 SCRA 258, 261 (1965); Alto Surety
v. Aguilar, G.R. No. L-5625, March 16, 1954.
14 Guerrero v. Court of Appeals, 29 SCRA 791, 797 [1969], this case
involves an indemnification clause similar to the INdemnity Agreements
under consideration. See also Alto Surety & Insurance Co. v. Aguilar, L-
5625, March 16, 1954.
15 Guerrero v. Court of Appeals, 29 SCRA 791 (1969); Associated
Insurance & Surety Co. v. Chua, 7 SCRA 52, 54 (1963); Alto Surety &
Insurance Co. v. Andan, 100 Phil. 403, 406 (1956).
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68477 October 29, 1987
SPOUSES ANICETO BALILA and EDITHA S. DE GUZ MAN, SPOUSES ASTERIO DE
GUZMAN and ERLINDA CONCEPCION and ENCARNACION OCAMPO VDA. DE
CONCEPCION, petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT, HONORABLE FLORANTE S.
ABASOLO, in his capacity as Judge, Regional Trial Court, First Judicial Region,
Branch L, Villasis, Pangasinan, GUADALUPE C. VDA. DE DEL CASTILLO and WALDO
DEL CASTILLO, respondents.

PARAS, J.:
This is a Petition for Review on certiorari of (1) the decision 1 of the Intermediate
Appellate Court (IAC) affirming in toto the order
2
dated April 26, 1983 in Civil Case
No. U-3501 of the trial court which ordered the consolidation of ownership in favor of
private respondent Guadalupe C. Vda. del Castillo over two (2) parcels of land
including the improvements thereon, situated in Villasis, Pangasinan namely, Lot No.
965, with an area of 648 square meters covered by TCT No. 93407 and Lot No. 16 with
an area of 910 square meters covered by TCT No. 101794 and (2) the Order of the
Intermediate Appellate Court (IAC) dated July 25, 1984 denying petitioners' Motion for
Reconsideration.
The petition at bar began as an amicable settlement between petitioners and private
respondents as defendants and plaintiffs in Civil Case No. U-3501, which was
approved by the trial court and made as the basis of its Decision
3
dated December 11,
1980 ordering the parties to comply strictly with the terms and conditions embodied in
said amicable settlement. The salient points therein show that defendants admitted
"having sold under a pacto de retro sale the parcels of land
4
described in the
complaint in the amount of P84,000.00" and that they "hereby promise to pay the said
amount within the period of four (4) months but not later than May 15,1981."
5

On December 30, 1981 or more than seven months after the last day for making
payments, defendants redeemed from plaintiff Guadalupe (one of the private
respondents herein) Lot No. 52 with an area of 294 sq.m. covered by TCT 101352
which was one of the three parcels of land described in the complaint by paying the
amount of P20,000.00.
On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation of title
over the remaining two (2) parcels of land namely Lot 965 and Lot 16 alleging that the
court's decision dated December 11, 1980 remained unenforced for no payment of the
total obligation due from defendants. Defendants opposed said motion alleging that
they had made partial payments of their obligation through plaintiff's attorney in fact
and son, Waldo del Castillo, as well as to the Sheriff. On April 26, 1983, the lower
court issued the questioned order affirming consolidation.
On June 8, 1983, while the Order of the lower court had not yet been enforced,
defendants paid plaintiff Guadalupe Vda. del Castillo by tendering the amount of
P28,800.00 to her son Waldo del Castillo (one of the private respondents herein) thus
leaving an unpaid balance of P35,200.00. A Certification dated June 8, 1983, (Annex
D, Rollo, page 31) and signed by Waldo shows that defendants were given a period of
45 days from date or up to July 23, 1983 within which to pay the balance. Said
Certification supported defendants' motion for reconsideration and supplemental
motion for reconsideration of the Order reconsolidation of title, which motions were
both denied by the lower court, prompting defendants to file a petition for certiorari,
prohibition and mandamus with pre injunction petition with the Intermediate
Appellate Court to seeking to annul and set aside the assailed Order dated April 26,
1983 and the Order denying their motion for reconsideration. After due consideration
of the records of the case, the appellate tribunal sustained the lower court, hence the
present petition for certiorari, defendants relying on the following arguments:,
(1) The appellate court erred in not declaring that the contract between
the petitioners and private respondent Guadalupe is one of equitable
mortgage and not a pacto de retro sale,
(2) The appellate court erred in not declaring that the decision dated 11,
1980, based upon the agreement of the parties was novated upon
subsequent mutual agreements of the said parties.
Petitioners contend that despite the rendition of the said decision by the appellate
court, private respondent Guadalupe Vda. de del Castillo, represented by her son
Waldo del Castillo as for attorney-in-fact, accepted payments from petitioners and gave
petitioners several extensions of time to pay their remaining obligations thus:
5.A. On July 8, 1984, private respondents accepted the amounts of
P6,130.00 from petitioners- and gave petitioners up to August 30, 1984
to pay the latter's balance of P23,870.00; (Certification Annex "J" Petition);
5.B. On September 9, 1984, private respondents accepted the amount of
P1,100.00 from petitioners and gave petitioners up to October 30, 1984
to pay the latter's balance of P21,624.00 (Certification Annex "L" Petition);
5.C. On October 30, 1984, private respondents accepted the amount of
P2,500.00 from petitioners and gave petitioners up to November 15, 1984
to pay the latter's balance of P19,124.00 (Receipt, Annex "N" Reply);
5.D. On November 13, 1984, private respondents accepted the amount of
P3,124.00 from petitioners and gave petitioners up to December 30,
1984 to pay the latter's balance of P16,000.00 and private respondent
promised to deliver TCT Nos. 146360 and 146361 already in-the name of
private respondent Guadalupe Vda. de del Castillo, covering lots 965 and
16, respectively, in favor of petitioners (Receipt, Annex "O," Reply);
5.E. On November 23, 1984, private respondents accepted the amount of
P6,000.00 from petitioners and gave petitioners up to December 30,
1984 to pay the latter's balance of P10,000.00 and private respondents
proposed to deliver TCT Nos. 146360 and 146361, covering Lots 965 and
16, respectively, and promised to reconvey said lots in favor of petitioners
(Receipt, Annex "P," Reply).
(Memo for Petitioners, pp. 175-176, Rollo)
Petitioners likewise allege that private respondents Guadalupe Vda. de del Castillo and
son Waldo, were nowhere to be found on December 30, 1984, the last day for
petitioners to pay their balance of P10,000.00 and for private respondents to reconvey
the lands in question (Lots 965 and 16) in favor of petitioners and to deliver TCT Nos.
146360 and 146361 already in the name of private respondent Guadalupe Vda. de del
Castillo, covering said lots respectively. This incident compelled petitioners to deposit
said amount with the Regional Trial Court as per receipt OR No. 9764172 (Annex "Q")
accompanied by a motion to deposit (Annex "R") which motion was granted as per
Order dated January 9, 1985 (Annex "S"). The aforementioned titles over the two
parcels of lands are subject to Notice of Lis Pendens dated August 15, 1983 (Annex
"T").
On the other hand, some of the private respondents do not deny they received the
amounts stated in Annexes "D," "F," "J," "L," N," and "P". They aver however that the
amicable settlement entered into by and between the parties duly assisted by their
counsel was, with respect to Guadalupe, signed by her personally and that at no time
thereafter did she ever appoint Waldo del Castillo who is one of her children to receive
for her any sum of money to be paid by the petitioners for the settlement of their
obligations arising out of their amicable settlement. Guadalupe also questions the
inclusion as private respondent of Waldo del Castillo in this Court and the inclusion of
the alleged receipts of payments as these receipts were never offered in evidence before
the 'trial court or the appellate court nor were the same admitted in evidence by said
courts.
Petitioners' contentions deserve Our consideration.
The root of all the issues raised before Us is that judgment by compromise rendered by
the lower court based on the terms of the amicable settlement of the contending
parties. Such agreement not being contrary to law, good morals or public policy was
approved by the lower court and therefore binds the parties who are enjoined to
comply therewith.
However, the records show that petitioners made partial payments to private
respondent Waldo del Castillo after May 15, 1981 or the last day for making
payments, redeeming Lot No. 52 as earlier stated. (Annex "A," Petition).
There is no question that petitioners tendered several payments to Waldo del Castillo
even after redeeming lot No. 52. A total of these payments reveals that petitioners
share. fulIy paid the amount stated in the judgment by com promise. The only issue is
whether Waldo del Castillo was a person duly authorized by his mother Guadalupe
Vda. de del Castillo, as her attorney-in-fact to represent her in transactions involving
the properties in question. We believe that he was so authorized in the same way that
the appellate court took cognizance of such fact as embodied in its assailed decision.
reading as follows:
It may be mentioned that on May 25,1981, Guadalupe Vda. de Del
Castillo, represented by her attorney in fact Waldo Castillo, filed a
complaint for consolidation of ownership against the same petitioners
herein before the Court of First Instance of Pangasinan, docketed as Civil
Case No. U-3650, the allegations of which are Identical to the complaint
filed in Civil Case No. U-3501 of the same court. This case U-3650 was,
however, dismissed in an Order dated May 27, 1983, in view of the order
of consolidation issued in Civil Case No. U-350 1. (p. 37, Rollo)
(Underscoring supplied)
The fact therefore remains that the amount of P84,000.00 payable on or before May
15, 1981 decreed by the trial court in its judgment by compromise was novated and
amended by the subsequent mutual agreements and actions of petitioners and private
respondents. Petitioners paid the aforestated amount on an insatalment basis and
they were given by private respondents no less than eight extensions of time pay their
obligation. These transactions took place during the pendency of the motion for
reconsideration of the Order of the trial court dated April 26, 1983 in Civil Case No. U-
3501, during the pendency of the petition for certiorari in AC-G.R. SP-01307 before
the Intermediate Appellate Court and after the filing of the petition before us. This
answers the claim of the respondents on the failure of the petitioners to present
evidences or proofs of payment in the lower court and the appellate court. We have
touched on this issue, similarly, in the case of de los Santos vs. Rodriguez
6
wherein
We ruled that:
As early as Molina vs. De la Riva
7
the principle has been laid down that,
when, after judgment has become final, facts and circumstances
transpire which render its execution impossible or unjust, the interested
party may ask the court to modify or alter the judgment to harmonize the
same with justice and the facts.
For this reason, in Amor vs. Judge Jose,
8
we used the following
language:
The Court cannot refuse to issue a writ of execution upon a
final and executory judgment, or quash it, or order its stay,
for, as a general rule, parties will not be allowed, after final
judgment, to object to the execution by raising new issues
of fact or of law, except when there had been a change in
the situation of the parties which makes such execution in-
equitable; or when it appears that the controversy has
never been submitted to the judgment of the court, or when
it appears that the writ of execution has been improvidently
issued, or that it is defective in substance, or issued against
the wrong party or that judgment debt has been paid or
otherwise satisfied or when the writ has been issued
without authority. (emphasis supplied)
Likewise in the case of Dormitorio vs. Fernandez,
9
We held:
What was done by respondent Judge in setting aside the writ of
execution in Civil Case No. 5111 finds support in the applicable
authorities. There is this relevant excerpt in Barretto v. Lopez 10 this
Court speaking through the then Chief Justice Paras: "Allegating that the
respondent judge of the municipal court had acted in excess of her
jurisdiction and with grave abuse of discretion in issuing the writ of
execution of December 15, 1947, the petitioner has filed the present
petition for certiorari and prohibition for the purpose of having said writ
of execution annulled. Said petition is meritorious. The agreement filed
by the parties in the ejectment case created as between them new rights
and obligations which naturally superseded the judgment of the
municipal court." In Santos v. Acuna, 11 it was contended that a lower
court decision was novated by the subsequent agreement of the parties.
Implicit in this Court's ruling is that such a plea would merit approval if
indeed that was what the parties intended. ...
WHEREFORE, finding merit in the petition, the same is hereby given DUE COURSE
and the assailed decision, SET ASIDE. Private respondents are hereby ordered to
reconvey and deliver lot No. 965 and Lot No. 16 as covered by TCT Nos. 146360 and
146361 respectively in favor of petitioners. Should private respondents fail to do so,
the Clerk of Court of the Regional Trial Court concerned is ordered to execute the
necessary deed of reconveyance, conformably with the provisions of the Rules of
Court. The local Register of Property is ordered to register said deed of reconveyance.
Private respondents are hereby authorized to withdraw the balance in the amount of
P10,000 consigned by petitioners on January 9, 1985 with the trial court as per OR
No. 9764172 (Annex "O") a full payment of petitioners' obligation.
This decision is immediately executory and no motion for extension of the period
within which to file a motion for reconsideration will be granted.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Padilla and Sarmiento, JJ concur.

Footnotes
1 Penned by Hon. Justice Jose F. Racela, Jr. with the concurring votes of
Hon. Justices Simeon M. Gopengco and Lino Patajo promulgated on May
31,1984 in AC-G.R. SP No. 01307, Annex "G".
2 Decided by Hon. Judge Florante S. Abasalo, Annex "A".
3 Promulgated by Hon. Judge Rosalio C. Segundo Annex "C".
4 Lot 965, Lot 16 and Lot 52.
5 Annex "C" p. 29, Rollo.
6 22 SCRA 451, 458.
7 8 Phil. 569.
8 77 Phil. 703.
9 72 SCRA 388, 393.
10 83 Phil. 734.
11 100 Phil 230, 237
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-29280 August 11, 1988
PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,
vs.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-
appellants.
Araneta, Mendoza & Papa for plaintiff-appellee.
Quasha, Asperilia, Zafra, Tayag & Ancheta for defendants-appellants.

PARAS, J.:
This is an appeal from the decision dated May 16, 1968 rendered by the Court of First
Instance of Manila, Branch XII in Civil Case No. 68095, the decretal portion of which
states:
IN VIEW OF THE FOREGOING, judgment is rendered sentencing all the
defendants to pay the plaintiff jointly and severally the sum of
P601,633.01 with interest thereon at the rate of 11% per annum from
June 17, 1967, until the whole amount is paid, plus 10% of the total
amount due for attorney's fees and the costs of suit. Should the
defendants fail to pay the same to the plaintiff, then it is ordered that all
the effects, materials and stocks covered by the chattel mortgages be sold
at public auction in conformity with the Provisions of Sec. 14 of the
Chattel Mortgage Law, and the proceeds thereof applied to satisfy the
judgment herein rendered. The counterclaim of the defendants, upon the
evidence presented and in the light of the authorities above cited, is
dismissed for lack of merit.
SO ORDERED
(pp. 89-90, Record on Appeal; p. 15, Rollo)
The facts of the case based on the statement of facts, made by the trial court in its
decision as cited in the briefs of both parties are as follows:
This is an action for foreclosure of chattel mortgage executed in favor of
the plaintiff by the defendant Syvel's Incorporated on its stocks of goods,
personal properties and other materials owned by it and located at its
stores or warehouses at No. 406, Escolta, Manila; Nos. 764-766 Rizal
Avenue, Manila; Nos. 10-11 Cartimar Avenue, Pasay City; No. 886
Nicanor Reyes, Sr. (formerly Morayta), Manila; as evidenced by
Annex"A."The chattel mortgage was duly registered in the corresponding
registry of deeds of Manila and Pasay City. The chattel mortgage was in
connection with a credit commercial line in the amount of P900,000.00
granted the said defendant corporation, the expiry date of which was
May 20, 1966. On May 20, 1965, defendants Antonio V. Syyap and Angel
Y. Syyap executed an undertaking in favor of the plaintiff whereby they
both agreed to guarantee absolutely and unconditionally and without the
benefit of excussion the full and prompt payment of any indebtedness to
be incurred on account of the said credit line. Against the credit line
granted the defendant Syvel's Incorporated the latter drew advances in
the form of promissory notes which are attached to the complaint as
Annexes "C" to "l." In view of the failure of the defendant corporation to
make payment in accordance with the terms and conditions agreed upon
in the Commercial Credit Agreement the plaintiff started to foreclose
extrajudicially the chattel mortgage. However, because of an attempt to
have the matter settled, the extra-judicial foreclosure was not pushed
thru. As no payment had been paid, this case was even tually filed in this
Court.
On petition of the plaintiff based on the affidavits executed by Mr.
Leopoldo R. Rivera, Assistant Vice President of the plaintiff bank and
Atty. Eduardo J. Berenguer on January 12, 1967, to the effect, among
others, that the defendants are disposing of their properties with intent
to defraud their creditors, particularly the plaintiff herein, a preliminary
writ of attachment was issued. As a consequence of the issuance of the
writ of attachment, the defendants, in their answer to the complaint set
up a compulsory counterclaim for damages.
After the filing of this case in this court and during its pendency
defendant Antonio v. Syyap proposed to have the case settled amicably
and to that end a conference was held in which Mr. Antonio de las Alas,
Jr., Vice President of the Bank, plaintiff, defendant Antonio V. Syyap and
Atty. Mendoza were present. Mr. Syyap requested that the plaintiff
dismiss this case because he did not want to have the goodwill of Syvel's
Incorporated impaired, and offered to execute a real estate mortgage on
his real property located in Bacoor, Cavite. Mr. De las Alas consented,
and so the Real Estate Mortgage, marked as Exhibit A, was executed by
the defendant Antonio V. Syyap and his wife Margarita Bengco Syyap on
June 22, 1967. In that deed of mortgage, defendant Syyap admitted that
as of June 16, 1967, the indebtedness of Syvel's Incorporated was
P601,633.01, the breakdown of which is as follows: P568,577.76 as
principal and P33,055.25 as interest. Complying with the promise of the
plaintiff thru its Vice President to ask for the dismissal of this case, a
motion to dismiss this case without prejudice was prepared, Exhibit C,
but the defendants did not want to agree if the dismissal would mean
also the dismissal of their counterclaim Against the plaintiff. Hence, trial
proceeded.
As regards the liabilities of the defendants, there is no dispute that a
credit line to the maximum amount of P900,000.00 was granted to the
defendant corporation on the guaranty of the merchandise or stocks in
goods of the said corporation which were covered by chattel mortgage
duly registered as required by law. There is likewise no dispute that the
defendants Syyap guaranteed absolutely and unconditionally and
without the benefit of excussion the full and prompt payment of any
indebtedness incurred by the defendant corporation under the credit line
granted it by the plaintiff. As of June 16, 1967, its indebtedness was in
the total amount of P601,633.01. This was admitted by defendant
Antonio V. Syyap in the deed of real estate mortgage executed by him. No
part of the amount has been paid by either of the defendants. Hence
their liabilities cannot be questioned. (pp. 3-6, Brief for Appellee; p. 26,
Rollo)
In their brief, appellants assign the following errors:
I
The lower court erred in not holding that the obligation secured by the
Chattel Mortgage sought to be foreclosed in the above-entitled case was
novated by the subsequent execution between appellee and appellant
Antonio V, Syyap of a real estate mortgage as additional collateral to the
obligation secured by said chattel mortgage.
II
The lower court erred in not dismissing the above-entitled case and in
finding appellants liable under the complaint.
III
The lower court erred in not holding that the writ of preliminary
attachment is devoid of any legal and factual basis whatsoever.
IV
The lower court erred in dismissing appellants'counterclaim and in not
holding appellee liable to appellants for the consequent damages arising
out of a wrongful attachment. (pp. 1-2, Brief for the Appellants, p. 25,
Rollo)
Appellants admit that they are indebted to the appellee bank in the amount of
P601,633.01, breakdown of which is as follows: P568,577.76 as principal and
P33,055.25 as interest. After the filing of the case and during its pendency, defendant
Antonio V. Syyap proposed to have the case amicably settled and for that purpose a
conference was held in which Mr. Antonio de las Alas, Jr., Vice President of plaintiff
People's Bank and Trust Company, defendant Antonio V. Syyap and Atty. Mendoza
were present. Mr. Syyap requested that the plaintiff dismiss this case as he did not
want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a
real estate mortgage on his real property located in Bacoor, Cavite. Mr. de las Alas
consented, and so the Real Estate Mortgage (Exhibit "A") was executed by defendant
Antonio Syyap and his wife Margarita Bengco Syyap on June 22, 1967. Defendants
did not agree with plaintiffs motion to dismiss which included the dismissal of their
counterclaim and filed instead their own motion to dismiss (Record on Appeal, pp. 68-
72) on the ground that by the execution of said real estate mortgage, the obligation
secured by the chattel mortgage subject of this case was novated, and therefore,
appellee's cause of action thereon was extinguished.
In an Order dated September 23, 1967, the motion was denied for not being well
founded (record on Appeal, p. 78).
Appellants contention is without merit.
Novation takes place when the object or principal condition of an obligation is changed
or altered. It is elementary that novation is never presumed; it must be explicitly
stated or there must be manifest incompatibility between the old and the new
obligations in every aspect (Goni v. CA, 144 SCRA 223 [1986]; National Power Corp. v.
Dayrit, 125 SCRA 849 [1983]).
In the case at bar, there is nothing in the Real Estate Mortgage which supports
appellants'submission. The contract on its face does not show the existence of an
explicit novation nor incompatibility on every point between the "old and the "new"
agreements as the second contract evidently indicates that the same was executed as
new additional security to the chattel mortgage previously entered into by the parties.
Moreover, records show that in the real estate mortgage, appellants agreed that the
chattel mortgage "shall remain in full force and shall not be impaired by this (real
estate) mortgage."
The pertinent provision of the contract is quoted as follows:
That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book
No. I, Series of 1965, Notary Public Jose C. Merris, Manila); real estate
mortgage executed by Angel V. Syyap and Rita V. Syyap (Doc. No. 441,
Page No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris,
Manila) shall remain in full force and shall not be impaired by this
mortgage (par. 5, Exhibit"A," Emphasis ours).
It is clear, therefore, that a novation was not intended. The real estate mortgage was
evidently taken as additional security for the performance of the contract (Bank of P.I.
v. Herrige, 47 Phil. 57).
In the determination of the legality of the writ of attachment by the Court of First
Instance of Manila, it is a well established rule that the grant or denial of a writ of
attachment rests upon the sound discretion of the court. Records are bereft of any
evidence that grave abuse of discretion was committed by respondent judge in the
issuance of the writ of attachment.
Appellants contend that the affidavits of Messrs. Rivera and Berenguer on which the
lower court based the issuance of the writ of preliminary attachment relied on the
reports of credit investigators sent to the field and not on the personal knowledge of
the affiants. Such contention deserves scant consideration. Evidence adduced during
the trial strongly shows that the witnesses have personal knowledge of the facts stated
in their affidavits in support of the application for the writ. They testified that Syvel's
Inc. had disposed of all the articles covered by the chattel mortgage but had not
remitted the proceeds to appellee bank; that the Syvel's Stores at the Escolta, Rizal
Avenue and Morayta Street were no longer operated by appellants and that the latter
were disposing of their properties to defraud appellee bank. Such testimonies and
circumstances were given full credit by the trial court in its decision (Brief for
Appellee, p. 14). Hence, the attachment sought on the ground of actual removal of
property is justified where there is physical removal thereof by the debtor, as shown by
the records (McTaggert v. Putnam Corset Co., 8 N.Y. S 800 cited in Moran, Comments
on the Rules of Court, 1970 Ed., Vol. 3, p. 7).
Besides, the actuations of appellants were clearly seen by the witnesses who "saw a
Fiat Bantam Car-Fiat Car, a small car and about three or four persons hurrying; they
were carrying goods coming from the back portion of this store of Syvels at the
Escolta, between 5:30 and 6:00 o'clock in the evening." (Record on Appeal, pp. 45-46).
Therefore, "the act of debtor (appellant) in taking his stock of goods from the rear of
his store at night, is sufficient to support an attachment upon the ground of the
fraudulent concealment of property for the purpose of delaying and defrauding
creditors." (4 Am. Jur., 841 cited in Francisco, Revised Rules of Court, Second Edition,
1985, p. 24).
In any case, intent to defraud may be and usually is inferred from the facts and
circumstances of the case; it can rarely be proved by direct evidence. It may be
gleaned also from the statements and conduct of the debtor, and in this connection,
the principle may be applied that every person is presumed to intend the natural
consequences of his acts (Francisco, Revised Rules of Court, supra, pp. 24-25), In fact
the trial court is impressed "that not only has the plaintiff acted in perfect good faith
but also on facts sufficient in themselves to convince an ordinary man that the
defendants were obviously trying to spirit away a port;.on of the stocks of Syvel's
Incorporated in order to render ineffectual at least partially anyjudgment that may be
rendered in favor of the plaintiff." (Decision; Civil Case No. 68095; Record on Appeal,
pp. 88-89).
Appellants having failed to adduce evidence of bad faith or malice on the part of
appellee in the procurement of the writ of preliminary attachment, the claim of the
former for damages is evidently negated. In fact, the allegations in the appellee's
complaint more than justify the issuance of the writ of attachment.
PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the
judgment appealed from is AFFIRMED.
SO ORDERED.
Melencio-Herrera, (Chairperson) and Sarmiento, JJ., concur.
Padilla, J., took no part.

G.R. No. L-22958
[ G.R. No. L-22958, January 30, 1971 ]
ESTRELLA BENIPAYO RODRIGUEZ, MANUEL D. BENIPAYO, DONATO BENIPAYO,
JR., JAIME D. BENIPAYO, MAXIMA BENIPAYO MORALES, AURORA BENIPAYO
DE LEON, FRANCISCO D. BENIPAYO, ALEJANDRO D. BENIPAYO, TERESITA
BENIPAYO DE LOS SANTOS, LYDIA BENIPAYO CLEMENTE, AND JULIA C.
MERCADO, PETITIONERS, VS. HON. JUAN O. REYES, IN HIS CAPACITY AS
PRESIDING JUDGE OF THE MANILA COURT OF FIRST INSTANCE, BRANCH XXI,
ALBERTO D. BENIPAYO, DR. JOSE N. DUALAN AND VICENTE SAYSON, JR.,
RESPONDENTS.

D E C I S I O N
REYES, J.B.L., J.:
Petition for certiorari, with a prayer for the issuance of a writ of preliminary injunction,
filed by some
[1]
of the children of the deceased spouses, Donato Benipayo, Jr., and
Pura Disonglo, seeking to have this Court set aside the order issued on 28 April 1964
by the Hon. Juan O. Reyes in Civil Case No. 52188 of the Court of First Instance of
Manila, entitled "Estrella Benipayo-Rodriguez, et al. vs. Alberto D. Benipayo",
approving the sheriff's sales of properties owned in common by the plaintiffs and
defendant aforesaid, subject to the condition that the vendors should clear the titles
thereof from any encumbrance in favor of the Development Bank of the Philippines.
The petition further sought to compel the respondent judge to cause a re-bidding of
the properties involved, at public auction, or to approve the sales aforementioned
without the condition imposed upon the vendors.
Upon the filing of a bond in the amount of P20,000.00, this Court ordered the
issuance of a writ of preliminary injunction on 25 June 1964.
[2]

It appears that on 13 November 1962, petitioners filed with the respondent court a
complaint against their brother, respondent Alberto D. Benipayo, for the partition of
the properties held by them in common as heirs of the late spouses, Donato D.
Benipayo and Pura Disonglo (Civil Case No. 52188). After respondent Benipayo had





answered the complaint, the court set the case for a pre-trial conference, and in the
course thereof the parties agreed to have the properties in litigation sold at public
auction to the highest bidder. Pursuant to an order issued by the respondent judge,
the parties submitted to the court a list of the properties to be sold, among which were
some lots in Albay, and the following parcels of land, with their improvements, that
were at the time mortgaged to the Development Bank of the Philippines:
"1. Lot No. 6-A, Block 2124, with an area of 314.70 square meters, evidenced by TCT
No. 48978, Manila;
2. Lot No. 6-B-2, Block No. 2124, with an area of 389.90 square meters, evidenced by
TCT No. 48979, Manila;
3. The improvements erected on the above two lots denominated as No. 664
Misericordia, Manila.
The above improvements and two lots are mortgaged with the Development Bank of
the Philippines with an outstanding mortgage capital of about P50,000.00."
The respondent judge first directed the sale at public auction of properties located in
Albay. After the consummation of the sale and the approval thereof, His Honor ordered
the sale of the two Manila lots and improvements described above. Pursuant to the
order, the sheriff of the City of Manila scheduled the auction sale on 30 March 1964 at
10:00 o'clock A.M. Notice thereof was duly posted and published, with the following
warning:
"NOTE: According to information furnished by the plaintiffs' counsel, Atty. Gonzalo D.
David, the real properties described above are mortgaged with (sic) the Development
Bank of the Philippines, under which there is allegedly an outstanding balance in the
sum of P37,121.76.
"Prospective buyers and bidders are hereby enjoined to investigate for themselves the
titles to the real properties described above, as well as the encumbrances thereon, if
any there be."
On the date set for the sale, petitioners moved for its postponement on the ground
that they were not in a position to actively participate therein, but upon objection of
respondent Benipayo's counsel, His Honor denied the motion and the sale was held as
scheduled.
Herein respondent, Jose N. Dualan, successfully bid at the auction sale the sum of P
235,000.00 for Lot No. 6-B-2, Block No. 2124, covered by Transfer Certificate of Title
No. 48979, issued by the Office of the Register of Deeds of Manila; while respondent
Vicente Sayson's bid of P173,000.00 was the highest for Lot No. 6-A of Block No. 2124,
covered by Transfer Certificate of Title No. 48978 issued by the same office.
[3]



After the sheriff had filed his return with the respondent judge, petitioners moved for
the approval of the sale, deducting from the total amount of P408,000.00 the sheriff's
percentage, and the expenses incurred by petitioners for the publication of the notice
of sale. Commenting on the aforesaid motion, respondents Benipayo and Dualan
prayed that the respondent judge order (1) the payment of the mortgage debt in favor
of the Development Bank of the Philippines in the amount of P37,121.96 from the
proceeds of the auction sale; (2) the issuance by the sheriff of Manila of a certificate of
sale in favor of Dualan of the property sold to him free from all liens and
encumbrances; and (3) the payment to respondent Benipayo of 1/12 of the proceeds of
the sale after deducting therefrom the payment to the Development Bank of the
Philippines.
After hearing the arguments of the parties on the motion, the respondent judge
apparently entertained some doubts as to whether there had been a meeting of minds
on the question of who was to discharge the mortgage obligation in favor of the
Development Bank, so he suggested that the properties be subjected to another
"bidding" "with a clear-cut understanding that the 12 heirs shall assume all
obligations and that they should not be paid by the buyers."
[4]
The suggestion was not
accepted by the buyers; and the respondent judge, on 28 April 1964, issued the order
complained of, the dispositive portion of which reads as follows:
"WHEREFORE, the Manila Sheriff's Report dated March 30, 1964, and the Quezon
City Sheriff's Report dated April 6, 1964, are hereby approved, subject to the following
conditions:
1. That the vendors or the owners of the properties sold shall clear said properties of
all encumbrances that were incurred by them long before the auction sales;
2. That since the taxes on said real estates are not encumbrances incurred by the
owners of the properties, but are proper charges attached and against the properties
themselves, the real estate taxes shall be borne by the owner or owners of the said
properties on the date when said taxes become due for payment."
Petitioners' motion for reconsideration of the above-quoted order having been denied,
the present petition for certiorari was filed by them.
After the respondents had filed their answer to the petition and the parties had
submitted their respective memorandum, the petitioners, jointly with respondents
Vicente Sayson and Alberto Benipayo, submitted a compromise agreement, on 8 May
1970, cancelling the sale to respondent Vicente Sayson of the property (TCT No.
48978) previously bidded for by him, upon the consideration that the amount paid to




the Sheriff by Sayson be returned to the latter. As respondent Jose Dualan interposed
no objection to the approval of the said compromise agreement, this Court rendered,
on 30 June 1970, a partial decision, approving the compromise agreement and
ordering the compliance with its provisions by the parties thereto, and, as prayed for,
dismissed this case as against Vicente Sayson, leaving only Jose N. Dualan, purchaser
of the property covered by TCT No. 48979 of the City of Manila, as party respondent.
The petitioners seek to apply the doctrine of caveat emptor to the successful bidder
Dualan, and contend that under said rule Dualan bought at his own peril and, having
purchased the property with knowledge of the incumbrance, he should assume
payment of the indebtedness secured thereby.
We find the stand of petitioners-appellants to be unmeritorious and untenable. The
maxim "caveat emptor" applies only to execution sales, and this was not one such.
[5]

The mere fact that the purchaser of an immovable has notice that the required realty
is encumbered with a mortgage does not render him liable for the payment of the debt
guaranteed by the mortgage, in the absence of stipulation or condition that he is to
assume payment of the mortgage debt. The reason is plain: the mortgage is merely an
encumbrance on the property, entitling the mortgagee to have the property forclosed,
i.e., sold, in case the principal obligor does not pay the mortgage debt, and apply the
proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory
undertaking for the convenience and security of the mortgage creditor, and exists
independently of the obligation to pay the debt secured by it. The mortgagee, if he is so
minded, can waive the mortgage security and proceed to collect the principal debt by
personal action against the original mortgagor.
By buying the property covered by TCT No. 48979 with notice that it was mortgaged,
respondent Dualan only undertook either to pay or else allow the land's being sold if
the mortgage creditor could not or did not obtain payment from the principal debtor
when the debt matured.
[6]
Nothing else. Certainly the buyer did not obligate himself to
replace the debtor in the principal obligation, and he could not do so in law without
the creditor's consent. Our Civil Code, Article 1293, explicitly provides:
"ART. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter,
but not without the consent of the creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237."
The obligation to discharge the mortgage indebtedness, therefore, remained on the
shoulders of the original debtors and their heirs, petitioners herein, since the record is





devoid of any evidence of contrary intent. This Court has so ruled in Bank of the
Philippine Islands vs. Concepcion Hijos, Inc., 53 Phil. 806, from which We quote:
"But the plaintiff argues that in American jurisprudence, the purchaser of mortgaged
property who assumes the payment of the mortgage debt, may for that reason alone be
sued for the debt by the creditor and that that rule is applicable in this jurisdiction.
Aside from the fact we are not here dealing with a mere assumption of the debt, but
with a subrogation, it may be noted that this court has already held that the American
doctrine in this respect is not in harmony with the spirit of our legislation and has not
been adopted in this country. In the case of E. C. McCullough & Co. vs. Veloso and
Serna (46 Phil., 1), the court, speaking through its present Chief Justice, said:
'The effects of a transfer of a mortgaged property to a third person are well determined
by the Civil Code. According to article 1879
[7]
of this Code, the creditor may demand of
the third person in possession of the property mortgaged payment of such part of the
debt, as is secured by the property in his possession, in the manner and form
established by the law. The Mortgage Law in force at the promulgation of the Civil
Code and referred to in the latter, exacted, among other conditions, also the
circumstance that after judicial or notarial demand, the original debtor had failed to
make payment of the debt at maturity. (Art. 135 of the Mortgage Law of the Philippines
of 1889.) According to this, the obligation of the new possessor to pay the debt
originated only from the right of the creditor to demand payment of him, it being
necessary that a demand for payment should have previously been made upon the
debtor and the latter should have failed to pay. And even if these requirements were
complied with, still the third possessor might abandon the property mortgaged, and in
that case it is considered to be in the possession of the debtor. (Art. 136 of the same
law.) This clearly shows that the spirit of the Civil Code is to let the obligation of the
debtor to pay the debt stand although the property mortgaged to secure the payment
of said debt may have been transferred to a third person. While the Mortgage Law of
1893 eliminated these provisions, it contained nothing indicating any change in the
spirit of the law in this respect. Article 129 of this law, which provides for the
substitution of the debtor by the third person in possession of the property, for the
purposes of the giving of notice, does not show this change and has reference to a case
where the action is directed only against the property burdened with the mortgage.
(Art. 168 of the Regulation.)'"
Upon the other hand, the orders complained of, in so far as they require the vendors-
heirs to clear the title to the land sold to respondent Dualan, when the latter bid for it
with full knowledge that the same was subject to a valid and subsisting mortgage, is
plainly erroneous. In submitting his bid, Dualan is presumed to know, and in fact did
know, that the property was subject to a mortgage lien; that such encumbrance would
make him, as purchaser, eventually liable to discharge mortgage by paying or settling
with the mortgage creditor, should the original mortgagors fail to satisfy the debt.



Normally, therefore, he would have taken this eventuality into account in making his
bid, and offer a lower amount for the lot than if it were not encumbered. If he intended
his bid to be understood as conditioned upon the property being conveyed to him free
from encumbrance, it was his duty to have so stated in his bid, or at least before
depositing the purchase price. He did not do so, and the bid must be understood and
taken to conform to the normal practice of the buyer's taking the mortgaged property
subject to the mortgage. Consequently, he may not demand that the vendors should
discharge the encumbrance aforesaid.
Thus, the questioned order of the trial court ordering the vendors-heirs to clear the
property of all its encumbrances is not in accordance with law.
The second and fourth grounds for the petition for certiorari are that the minds of the
parties allegedly never met, so that the court should have ordered a re-bidding. The
claim that there was no meeting of the minds is not only inconsistent with petitioners'
own argument on the main issue, but is belied by their conduct. The fact is that an
offer to sell was advertised, a bidding was conducted, and the winning bidder
deposited the price. A rebidding would have been proper had all the parties agreed to
it, but they did not. Instead, the petitioners authorized their lawyer to negotiate for the
redemption of the property, thereby implying that they have accepted the validity of
the sale and that their questioning it now is but an afterthought.
The third ground relied upon in the petition for annulling the sale is the participation
of Atty. Ambrosio Padilla in the auction sale on behalf of respondent Dualan while still
the counsel of record for respondent Benipayo. The ground lacks merit, for the reason
that petitioners have not shown that they were in any way prejudiced, and they had,
by their conduct, accepted the validity of the sale.
FOR THE FOREGOING REASONS, the petition for certiorari is hereby granted and the
orders complained of are reversed and set aside in so far as they require petitioners to
clear the property sold from the mortgage in favor of the Development Bank. The writ
of preliminary injunction heretofore issued is made permanent. No costs.
Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor, and Makasiar,
JJ., concur.
Concepcion, C.J., and Castro, J., no part.


[1]
Some of the 11 petitioners denied having authorized the filing of the petition.
(Motion, dated 13 June 1964, Rollo, pages 162 -169)



[2]
Rollo, page 192.
[3]
Per Sheriff's return on auction sale, Annex "P" to Petition, Rollo, pages 65-68.
[4]
T.s.n., 18 April 1964, pages 29-31.
[5]
Albay vs. Benito, 43 Phil. 576; Laxamana vs. Carlos, 57 Phil. 722.
[6]
"ART. 2129. The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the property
which said third person possesses, in the terms and with the formalities which the law
establishes.
[7]
Now Article 2129, New Civil Code.


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