2

1169

PRINCIPLE OF DELAY

G.R. No. 129018

November 15, 2001

CARMELITA LEAO, assisted by her husband GREGORIO

CUACHON,
petitioner,
vs.
COURT OF APPEALS and HERMOGENES FERNANDO, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari of the decision1 of the Court of
Appeals affirming that of the Regional Trial Court, Malolos, Branch 72 ordering
petitioner Leao to pay respondent Hermogenes Fernando the sum of
P183,687.70 corresponding to her outstanding obligations under the contract to
sell, with interest and surcharges due thereon, attorney's fees and
costs.1wphi1.nt
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leao,
as vendee executed a contract to sell involving a piece of land, Lot No. 876-B,
with an area of 431 square meters, located at Sto. Cristo, Baliuag, Bulacan.3
In the contract, Carmelita Leao bound herself to pay Hermogenes Fernando the
sum of one hundred seven thousand and seven hundred and fifty pesos
(P107,750.00) as the total purchase price of the lot. The manner of paying the
total purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE
(P10,775.00) PESOS, shall be paid at the signing of this contract as DOWN
PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED
SEVENTY FIVE PESOS (P96,975.00) shall be paid within a period of
TEN (10) years at a monthly amortization of P1,747.30 to begin from
December 7, 1985 with interest at eighteen per cent (18%) per annum based
on balances."4
The contract also provided for a grace period of one month within which to
make payments, together with the one corresponding to the month of grace.
Should the

month of grace expire without the installments for both months having been
satisfied, an interest of 18% per annum will be charged on the unpaid installments.5
Should a period of ninety (90) days elapse from the expiration of the grace period
without the overdue and unpaid installments having been paid with the
corresponding interests up to that date, respondent Fernando, as vendor, was
authorized to declare the contract cancelled and to dispose of the parcel of land,
as if the contract had not been entered into. The payments made, together with all
the improvements made on the premises, shall be considered as rents paid for the
use and occupation of the premises and as liquidated damages.6
After the execution of the contract, Carmelita Leao made several payments in
lump sum.7 Thereafter, she constructed a house on the lot valued at
P800,000.00.8 The last payment that she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision in an ejectment case9
earlier filed by respondent Fernando ordering petitioner Leao to vacate the
premises and to pay P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until she vacated the premises,
attorney's fees and costs of the suit.10 On August 24, 1993, the trial court issued
a writ of execution which was duly served on petitioner Leao.
On September 27, 1993, petitioner Leao filed with the Regional Trial Court of
Malolos, Bulacan a complaint for specific performance with preliminary
injunction.11 Petitioner Leao assailed the validity of the judgment of the
municipal trial court12 for being violative of her right to due process and for being
contrary to the avowed intentions of Republic Act No. 6552 regarding protection
to buyers of lots on installments. Petitioner Leao deposited P18,000.00 with the
clerk of court, Regional Trial Court, Bulacan, to cover the balance of the total cost
of Lot 876-B.13
On November 4, 1993, after petitioner Leao posted a cash bond of
P50,000.00,14 the trial court issued a writ of preliminary injunction15 to stay the
enforcement of the decision of the municipal trial court.16
On February 6, 1995, the trial court rendered a decision, the dispositive portion
of which reads:
"WHEREFORE, judgment is hereby rendered as
follows:

"1. The preliminary injunction issued by this court per its order
dated November 4, 1993 is hereby made permanent;
"2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70
corresponding to her outstanding obligations under the contract to sell
(Exhibit "A" Exhibit "B") consisting of the principal of said obligation
together with the interest and surcharges due thereon as of February 28,
1994, plus interest thereon at the rate of 18% per annum in accordance
with the provision of said contract to be computed from March 1, 1994,
until the same becomes fully paid;
"3. Ordering the defendant to pay to plaintiff the amount of P10,000 as
and by way of attorney's fees;
"4. Ordering the defendant to pay to plaintiff the costs of the suit in
Civil Case No. 1680 aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.

"(sgd.)
DANILO
MANALASTAS Judge"17

A.

On February 21, 1995, respondent Fernando filed a motion for reconsideration18

and the supplement19 thereto. The trial court increased the amount of
P103,090.70 to P183,687.00 and ordered petitioner Leao ordered to pay
attorney's fees.20
According to the trial court, the transaction between the parties was an absolute
sale, making petitioner Leao the owner of the lot upon actual and constructive
delivery thereof. Respondent Fernando, the seller, was divested of ownership
and cannot recover the same unless the contract is rescinded pursuant to Article
1592 of the Civil Code which requires a judicial or notarial demand. Since there
had been no rescission, petitioner Leao, as the owner in possession of the
property, cannot be evicted.
On the issue of delay, the trial court held:

"While the said contract provides that the whole purchase price is payable
within a ten-year period, yet the same contract clearly specifies that the
purchase price shall be payable in monthly installments for which the
corresponding penalty shall be imposed in case of default. The plaintiff
certainly cannot ignore the binding effect of such stipulation by merely
asserting that the ten-year period for payment of the whole purchase price
has not yet lapsed. In other words, the plaintiff has clearly defaulted in the
payment of the amortizations due under the contract as recited in the
statement of account (Exhibit "2") and she should be liable for the
payment of interest and penalties in accordance with the stipulations in the
contract pertaining thereto."21
The trial court disregarded petitioner Leaos claim that she made a
downpayment of P10,000.00, at the time of the execution of the contract.
The trial court relied on the statement of account22 and the summary23 prepared
by respondent Fernando to determine petitioner Leao's liability for the payment
of interests and penalties.
The trial court held that the consignation made by petitioner Leao in the
amount of P18,000.00 did not produce any legal effect as the same was not done
in accordance with Articles 1176, 1177 and 1178 of the Civil Code.
In time, petitioner Leao appealed the decision to the Court of Appeals.24 On
January 22, 1997, Court of Appeals promulgated a decision affirming that of the
Regional Trial Court in toto.25 On February 11, 1997, petitioner Leao filed a
motion for reconsideration.26 On April 18, 1997, the Court of Appeals denied
the motion.27
Hence, this petition.28
The Issues
The issues to be resolved in this petition for review are (1) whether the transaction
between the parties in an absolute sale or a conditional sale; (2) whether there was
a proper cancellation of the contract to sell; and (3) whether petitioner was in
delay in the payment of the monthly amortizations.
The Court's Ruling

Contrary to the findings of the trial court, the transaction between the parties was a
conditional sale not an absolute sale. The intention of the parties was to reserve
the ownership of the land in the seller until the buyer has paid the total purchase
price.
Consider the following:
First, the contract to sell makes the sale, cession and conveyance "subject
to conditions" set forth in the contract to sell.29
Second, what was transferred was the possession of the property, not ownership.
The possession is even limited by the following: (1) that the vendee may
continue therewith "as long as the VENDEE complies with all the terms and
conditions mentioned, and (2) that the buyer may not sell, cede, assign, transfer
or mortgage or in any way encumber any right, interest or equity that she may
have or acquire in and to the said parcel of land nor to lease or to sublease it or
give possession to another person without the written consent of the seller.30
Finally, the ownership of the lot was not transferred to Carmelita Leao. As the
land is covered by a torrens title, the act of registration of the deed of sale was the
operative act that could transfer ownership over the lot.31 There is not even a deed
that could be registered since the contract provides that the seller will execute
such a deed "upon complete payment by the VENDEE of the total purchase price
of the property" with the stipulated interest.32
In a contract to sell real property on installments, the full payment of the
purchase price is a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring any obligatory force.33
The transfer of ownership and title would occur after full payment of the price.34
In the case at bar, petitioner Leao's non-payment of the installments after April
1, 1989, prevented the obligation of respondent Fernando to convey the property
from arising. In fact, it brought into effect the provision of the contract on
cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil Code is
inapplicable to the case at bar.35 However, any attempt to cancel the contract to
sell would have to comply with the provisions of Republic Act No. 6552, the
"Realty Installment Buyer Protection Act."

R.A. No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract
upon non-payment of an installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title from acquiring binding
force.36 The law also provides for the rights of the buyer in case of cancellation.
Thus, Sec. 3 (b) of the law provides that:
"If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty percent
of the total payments made and, after five years of installments, an
additional five percent every year but not to exceed ninety percent of the
total payment made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer." [Emphasis
supplied]
The decision in the ejectment case37 operated as the notice of cancellation
required by Sec. 3(b). As petitioner Leao was not given then cash surrender
value of the payments that she made, there was still no actual cancellation of the
contract. Consequently, petitioner Leao may still reinstate the contract by
updating the account during the grace period and before actual cancellation.38
Should petitioner Leao wish to reinstate the contract, she would have to
update her accounts with respondent Fernando in accordance with the
statement of account39 which amount was P183,687.00.40
On the issue of whether petitioner Leao was in delay in paying the amortizations,
we rule that while the contract provided that the total purchase price was payable
within a ten-year period, the same contract specified that the purchase price shall
be paid in monthly installments for which the corresponding penalty shall be
imposed in case of default. Petitioner Leao cannot ignore the provision on the
payment of monthly installments by claiming that the ten-year period within
which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.1wphi1.nt

In the case at bar, respondent Fernando performed his part of the obligation by
allowing petitioner Leao to continue in possession and use of the property.
Clearly, when petitioner Leao did not pay the monthly amortizations in
accordance with the terms of the contract, she was in delay and liable for
damages.41 However, we agree with the trial court that the default committed by
petitioner Leao in respect of the obligation could be compensated by the
interest and surcharges imposed upon her under the contract in question.42
It is a cardinal rule in the interpretation of contracts that if the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control.43 Thus, as there is no ambiguity in
the language of the contract, there is no room for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of
the Court of Appeals44 in toto.
No costs.
SO ORDERED.
Davide, Jr., Puno, Kapunan, and Ynares-Santiago, JJ.,
concur.

1169 PRINCIPLE OF DELAY

G.R. No. 127695

December 3,
2001
HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS, ROQUE R.
BACUS, SR., SATURNINO R. BACUS, PRISCILA VDA. DE
CABANERO, CARMELITA B. SUQUIB, BERNARDITA B. CARDENAS,
RAUL R. BACUS, MEDARDO R. BACUS, ANSELMA B. ALBAN,
RICARDO R. BACUS, FELICISIMA B. JUDICO, and DOMINICIANA B.
TANGAL,
petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and
VICTORIANA DURAY, respondents.
QUISUMBING, J.:
This petition assails the decision dated November 29, 1996, of the Court of
Appeals in CA-G.R. CV No. 37566, affirming the decision dated August 3,
1991, of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB8935.
The facts, as culled from the records, are as
follows:
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel
of agricultural land in Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B2, it had an area of 3,002 square meters, covered by Transfer Certificate of Title
No. 48866. The lease was for six years, ending May 31, 1990. The contract
contained an option to buy clause. Under said option, the lessee had the exclusive
and irrevocable right to buy 2,000 square meters of the property within five years
from a year after the effectivity of the contract, at P200 per square meter. That
rate shall be proportionately adjusted depending on the peso rate against the US
dollar, which at the time of the execution of the contract was fourteen pesos.1
Close to the expiration of the contract, Luis Bacus died on October 10, 1989.
Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of
the heirs of Luis Bacus, that they were willing and ready to purchase the property
under the option to buy clause. They requested Roque Bacus to prepare the
necessary documents, such as a Special Power of Attorney authorizing him to
enter into a contract of sale,2 on behalf of his sisters who were then abroad.
On March 30, 1990, due to the refusal of petitioners to sell the property,
Faustino Duray's adverse claim was annotated by the Register of Deeds of Cebu,
at the back

of TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No.
3661-A-3-B-2-A.3
Subsequently, on April 5, 1990, Duray filed a complaint for specific performance
against the heirs of Luis Bacus with the Lupon Tagapamayapa of Barangay
Bulacao, asking that he be allowed to purchase the lot specifically referred to in
the lease contract with option to buy. At the hearing, Duray presented a
certification 4 from the manager of Standard Chartered Bank, Cebu City, addressed
to Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client,
arrangements were being made to allow Faustino Duray to borrow funds of
approximately P700,000 to enable him to meet his obligations under the contract
with Luis Bacus.5
Having failed to reach an agreement before the Lupon, on April 27, 1990, private
respondents filed a complaint for specific performance with damages against
petitioners before the Regional Trial Court, praying that the latter, (a) execute a
deed of sale over the subject property in favor of private respondents; (b)
receive the payment of the purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis Bacus' death, private
respondents conveyed to them the former's lack of interest to exercise their option
because of insufficiency of funds, but they were surprised to learn of private
respondents' demand. In turn, they requested private respondents to pay the
purchase price in full but the latter refused. They further alleged that private
respondents did not deposit the money as required by the Lupon and instead
presented a bank certification which cannot be deemed legal tender.
On October 30, 1990, private respondents manifested in court that they caused the
issuance of a cashier's check in the amount of P650,0006 payable to petitioners at
anytime upon demand.
On August 3, 1991, the Regional Trial Court ruled in favor of private respondents,
the dispositive portion of which reads:
Premises considered, the court finds for the plaintiffs and orders the
defendants to specifically perform their obligation in the option to buy and to
execute a document of sale over the property covered by Transfer Certificate
of Title # T-63269 upon payment by the plaintiffs to them in the amount of
Six Hundred Seventy-Five Thousand Six Hundred Seventy-Five
(P675,675.00) Pesos within a period of thirty (30) days from the date this
decision becomes final.

SO ORDERED.7
Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied
the appeal on November 29, 1996, on the ground that the private respondents
exercised their option to buy the leased property before the expiration of the
contract of lease. It held:
. . . After a careful review of the entire records of this case, we are convinced
that the plaintiffs-appellees validly and effectively exercised their option to
buy the subject property. As opined by the lower court, "the readiness and
preparedness of the plaintiff on his part, is manifested by his cautionary
letters, the prepared bank certification long before the date of May 31, 1990,
the final day of the option, and his filing of this suit before said date. If the
plaintiff- appellee Francisco Duray had no intention to purchase the
property, he would not have bothered to write those letters to the
defendant-appellants (which were all received by them) and neither would
he be interested in having his adverse claim annotated at the back of the
T.C.T. of the subject property, two
(2) months before the expiration of the lease. Moreover, he even went to the
extent of seeking the help of the Lupon Tagapamayapa to compel the
defendants-appellants to recognize his right to purchase the property and for
them to perform their corresponding obligation.8
xxx

xxx

xxx

We therefore find no merit in this

appeal.
WHEREFORE,
AFFIRMED.9

the

decision

appealed

from

is

hereby

Hence, this petition where petitioners aver that the Court of Appeals gravely erred
and abused its discretion in:
I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE SPECIFIC
PERFORMANCE CASE BY ORDERING PETITIONERS (DEFENDANTS
THEREIN) TO EXECUTE A DOCUMENT OF SALE OVER THE
PROPERTY IN QUESTION (WITH TCT NO. T-63269) TO THEM IN THE
AMOUNT OF P675,675.00 WITHIN THIRTY (30) DAYS FROM THE
DATE THE DECISION BECOMES FINAL;

II.
. . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS
OF LAW AND JURISPRUDENCE IN UPHOLDING THE DECISION OF
THE TRIAL COURT TO THE EFFECT THAT PRIVATE RESPONDENTS

HAD EXERCISED THEIR RIGHT OF OPTION TO BUY ON TIME;

THUS THE PRESENTATION OF THE CERTIFICATION OF THE
BANK MANAGER OF A BANK DEPOSIT IN THE NAME OF
ANOTHER PERSON FOR LOAN TO RESPONDENTS WAS
EQUIVALENT TO A VALID TENDER OF PAYMENT AND A
SUFFICIENT COMPLAINCE (SIC) OF A CONDITION FOR THE
EXERCISE OF THE OPTION TO BUY; AND
III. .

. . UPHOLDING THE TRIAL COURT'S RULING THAT THE

PRESENTATION OF A CASHER'S (SIC) CHECK BY THE
RESPONDENTS IN THE AMOUNT OF P625,000.00 EVEN AFTER THE
TERMINATION OF THE TRIAL ON THE MERITS WITH BOTH
PARTIES ALREADY HAVING RESTED THEIR CASE, WAS STILL
VALID COMPLIANCE OF THE CONDITION FOR THE PRIVATE
RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF RIGHT OF
OPTION TO BUY AND HAD A FORCE OF VALID AND FULL TENDER
OF PAYMENT WITHIN THE AGREED PERIOD.10

Petitioners insist that they cannot be compelled to sell the disputed property by
virtue of the nonfulfillment of the obligation under the option contract of the
private respondents.
Private respondents first aver that petitioners are unclear if Rule 65 or Rule 45 of
the Rules of Court govern their petition, and that petitioners only raised
questions of facts which this Court cannot properly entertain in a petition for
review. They claim that even assuming that the instant petition is one under Rule
45, the same must be denied for the Court of Appeals has correctly determined
that they had validly exercised their option to buy the leased property before the
contract expired.
In response, petitioners state that private respondents erred in initially classifying
the instant petition as one under Rule 65 of the Rules of Court. They argue that
the petition is one under Rule 45 where errors of the Court of Appeals,
whether evidentiary or legal in nature, may be reviewed.
We agree with private respondents that in a petition for review under Rule 45, only
questions of law may be raised.11 However, a close reading of petitioners'
arguments reveal the following legal issues which may properly be entertained in
the instant petition:

a) When private respondents opted to buy the property covered by the lease
contract with option to buy, were they already required to deliver the money
or consign it in court before petitioner executes a deed of transfer?
b) Did private respondents incur in delay when they did not deliver the
purchase price or consign it in court on or before the expiration of the
contract?
On the first issue, petitioners contend that private respondents failed to comply
with their obligation because there was neither actual delivery to them nor
consignation in court or with the Municipal, City or Provincial Treasurer of the
purchase price before the contract expired. Private respondents' bank certificate
stating that arrangements were being made by the bank to release P700,000 as a
loan to private respondents cannot be considered as legal tender that may substitute
for delivery of payment to petitioners nor was it a consignation.
Obligations under an option to buy are reciprocal obligations.12 The performance
of one obligation is conditioned on the simultaneous fulfillment of the other
obligation.13 In other words, in an option to buy, the payment of the purchase price
by the creditor is contingent upon the execution and delivery of a deed of sale by
the debtor. In this case, when private respondents opted to buy the property,
their obligation was to advise petitioners of their decision and their readiness to
pay the price. They were not yet obliged to make actual payment. Only upon
petitioners' actual execution and delivery of the deed of sale were they required to
pay. As earlier stated, the latter was contingent upon the former. In Nietes vs.
Court of Appeals, 46 SCRA 654 (1972), we held that notice of the creditor's
decision to exercise his option to buy need not be coupled with actual payment
of the price, so long as this is delivered to the owner of the property upon
performance of his part of the agreement. Consequently, since the obligation was
not yet due, consignation in court of the purchase price was not yet required.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and it
generally requires a prior tender of payment. In instances, where no debt is due and
owing, consignation is not proper.14 Therefore, petitioners' contention that private
respondents failed to comply with their obligation under the option to buy because
they failed to actually deliver the purchase price or consign it in court before the
contract expired and before they execute a deed, has no leg to stand on.

Corollary, private respondents did not incur in delay when they did not yet deliver
payment nor make a consignation before the expiration of the contract. In
reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him.
Only from the moment one of the parties fulfills his obligation, does delay by the
other begin.15
In this case, private respondents, as early as March 15, 1990, communicated to
petitioners their intention to buy the property and they were at that time
undertaking to meet their obligation before the expiration of the contract on
May 31, 1990. However, petitioners refused to execute the deed of sale and it was
their demand to private respondents to first deliver the money before they would
execute the same which prompted private respondents to institute a case for
specific performance in the Lupong Tagapamayapa and then in the RTC. On
October 30, 1990, after the case had been submitted for decision but before the
trial court rendered its decision, private respondents issued a cashier's check in
petitioners' favor purportedly to bolster their claim that they were ready to pay
the purchase price. The trial court considered this in private respondents' favor
and we believe that it rightly did so, because at the time the check was issued,
petitioners had not yet executed a deed of sale nor expressed readiness to do so.
Accordingly, as there was no compliance yet with what was incumbent upon
petitioners under the option to buy, private respondents had not incurred in delay
when the cashier's check was issued even after the contract expired.
WHEREFORE, the instant petition is DENIED. The decision dated November 29,
1996 of the Court of Appeals is hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Bellosillo, Mendoza and De Leon, Jr., JJ ., concur.
Buena J ., on official leave.

1169 PRINCIPLE OF DELAY

G.R. No. 181206

October 9, 2009

MEGAWORLD GLOBUS ASIA, INC., Petitioner,

vs.
MILA S. TANSECO, Respondent.
DECISION
CARPIO
J.:

MORALES,

On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and

respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a
224 square-meter (more or less) condominium unit at a pre-selling project, "The
Salcedo Park," located along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the
reservation fee of P100,000, or P4,940,611.19, by postdated check payable on July
14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35
from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63
on October 31, 1998, the stipulated delivery date of the unit; provided that if
the construction is completed earlier, Tanseco would pay the balance within seven
days from receipt of a notice of turnover.
Section 4 of the Contract to Buy and Sell provided for the construction schedule as
follows:
4. CONSTRUCTION SCHEDULE The construction of the Project and the
unit/s herein purchased shall be completed and delivered not later than October
31, 1998 with additional grace period of six (6) months within which to complete
the Project and the unit/s, barring delays due to fire, earthquakes, the elements, acts
of God, war, civil disturbances, strikes or other labor disturbances, government
and economic controls making it, among others, impossible or difficult to
obtain the necessary materials, acts of third person, or any other cause or
conditions beyond the control of the SELLER. In this event, the completion and
delivery of the unit are deemed extended accordingly without liability on the part
of the SELLER. The foregoing notwithstanding, the SELLER reserves the right
to withdraw from this transaction and refund to the BUYER without interest the
amounts received from him under this contract if for any reason not attributable to

SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion,
insurrection, wars, coup de etat, civil

disturbances or for other reasons beyond its control, the Project may not be
completed or it can only be completed at a financial loss to the SELLER. In any
event, all construction on or of the Project shall remain the property of the
SELLER. (Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance
of P2,520,305.63 pending delivery of the unit.2 Megaworld, however, failed to
deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999,
the last day of the six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002
(notice of turnover), informed Tanseco that the unit was ready for inspection
preparatory to delivery.3 Tanseco replied through counsel, by letter of May 6,
2002, that in view of Megaworlds failure to deliver the unit on time, she was
demanding the return of P14,281,731.70 representing the total installment
payment she had made, with interest at 12% per annum from April 30, 1999, the
expiration of the six- month grace period. Tanseco pointed out that none of the
excepted causes of delay existed.4
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the
Housing and Land Use Regulatory Boards (HLURB) Expanded National
Capital Region Field Office a complaint against Megaworld for rescission of
contract, refund of payment, and damages.5
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis
which was beyond its control; and argued that default had not set in, Tanseco not
having made any judicial or extrajudicial demand for delivery before receipt of the
notice of turnover.6
By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tansecos complaint
for lack of cause of action, finding that Megaworld had effected delivery by the
notice of turnover before Tanseco made a demand. Tanseco was thereupon ordered
to pay Megaworld the balance of the purchase price, plus P25,000 as moral
damages, P25,000 as exemplary damages, and P25,000 as attorneys fees.
On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of
November 28, 2003,8 sustained the HLURB Arbiters Decision on the ground of
laches for failure to demand rescission when the right thereto accrued. It deleted
the award of damages, however. Tansecos Motion for Reconsideration having
been denied,9 she appealed to the Office of the President which dismissed the
appeal by Decision of April 28, 200610 for failure to show that the findings of the
HLURB were

tainted with grave abuse of discretion. Her Motion for Reconsideration having
been denied by Resolution dated August 30, 2006,11 Tanseco filed a Petition for
Review under Rule 43 with the Court of Appeals.12
By Decision of September 28, 2007,13 the appellate court granted Tansecos
petition, disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the
assailed May 28, 2003 decision of the HLURB Field Office, the November 28,
2003 decision of the HLURB Board of Commissioners in HLURB Case No.
REM-A- 030711-0162, the April 28, 2006 Decision and August 30, 2006
Resolution of the Office of the President in O.P. Case No. 05-I-318, are hereby
REVERSED and SET ASIDE and a new one entered: (1) RESCINDING, as
prayed for by TANSECO, the aggrieved party, the contract to buy and sell; (2)
DIRECTING MEGAWORLD TO PAY TANSECO the amount she had paid
totaling P14,281,731.70 with Twelve (12%) Percent interest per annum from
October 31, 1998; (3) ORDERING MEGAWORLD TO PAY TANSECO
P200,000.00 by way of exemplary damages;
(4) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as
attorneys
fees; and (5) ORDERING MEGAWORLD TO PAY TANSECO the cost of suit.
(Emphasis in the original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no judicial or
extrajudicial demand is needed to put the obligor in default if the contract, as in the
herein parties contract, states the date when the obligation should be performed;
that time was of the essence because Tanseco relied on Megaworlds promise of
timely delivery when she agreed to part with her money; that the delay should be
reckoned from October 31, 1998, there being no force majeure to warrant the
application of the April 30, 1999 alternative date; and that specific performance
could not be ordered in lieu of rescission as the right to choose the remedy belongs
to the aggrieved party.
The appellate court awarded Tanseco exemplary damages on a finding of bad faith
on the part of Megaworld in forcing her to accept its long-delayed delivery; and
attorneys fees, she having been compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by Resolution of January 8,
2008,14 Megaworld filed the present Petition for Review on Certiorari, echoing its
position before the HLURB, adding that Tanseco had not shown any basis for the
award of damages and attorneys fees.15

Tanseco, on the other hand, maintained her position too, and citing Megaworlds
bad faith which became evident when it insisted on making the delivery despite the
long delay,16 insisted that she deserved the award of damages and attorneys fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other
begins . (Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months
thereafter on the part of Megaworld, and to pay the balance of the purchase price at
or about the time of delivery on the part of Tanseco. Compliance by Megaworld
with its obligation is determinative of compliance by Tanseco with her obligation
to pay the balance of the purchase price. Megaworld having failed to comply
with its obligation under the contract, it is liable therefor.17
That Megaworlds sending of a notice of turnover preceded Tansecos demand for
refund does not abate her cause. For demand would have been useless, Megaworld
admittedly having failed in its obligation to deliver the unit on the agreed date.
Article 1174 of the Civil Code provides:

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

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

1169 PRINCIPLE OF DELAY

G.R. No. 193723
2011

July 20,

GENERAL MILLING CORPORATION, Petitioner,

vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
DECISION
VELASCO,
J.:

JR.,

The Case
This is a petition for review of the April 15, 2010 Decision of the Court of Appeals
(CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos &
Remedios Ramos v. General Milling Corporation, et al., which affirmed the
May 31, 2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa
City, in Civil Case No. 00-0129 for Annulment and/or Declaration of Nullity of
Extrajudicial Foreclosure Sale with Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers
Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the
contract, GMC was to supply broiler chickens for the spouses to raise on their land
in Barangay Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the
Growers Contract was accompanied by a Deed of Real Estate Mortgage over a
piece of real property upon which their conjugal home was built. The spouses
further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks
delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses
Ramos a maximum credit line of PhP 215,000 payable within an indefinite
period with an interest of twelve percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the
full and faithful compliance of [ MORTGAGORS] obligation/s with the
MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE,
over a 1 parcel of land and the improvements existing thereon, situated in the
Barrio/s of Banaybanay, Municipality of Lipa City, Province of Batangas,
Philippines, his/her/their title/s

thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of

Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN
THOUSAND (P 215,000.00), Philippine Currency, which the maximum credit line
payable within a x x x day term and to secure the payment of the same plus interest
of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They
alleged that they suffered business losses because of the negligence of GMC and
its violation of the Growers Contract.3
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC
would institute foreclosure proceedings on their mortgaged property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage.
On June 10, 1997, the property subject of the foreclosure was subsequently sold by
public auction to GMC after the required posting and publication.5 It was
foreclosed for PhP 935,882,075, an amount representing the losses on chicks and
feeds exclusive of interest at 12% per annum and attorneys fees.6 To complicate
matters, on October 27, 1997, GMC informed the spouses that its Agribusiness
Division had closed its business and poultry operations.7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or
Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They
contended that the extrajudicial foreclosure sale on June 10, 1997 was null and
void, since there was no compliance with the requirements of posting and
publication of notices under Act No. 3135, as amended, or An Act to Regulate the
Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages. They likewise claimed that there was no sheriffs affidavit to prove
compliance with the requirements on posting and publication of notices. It was
further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer
for moral and exemplary damages and attorneys fees was also included in the
complaint.8 Librado Ramos alleged that, when the property was foreclosed, GMC
did not notify him at all of the foreclosure.9
During the trial, the parties agreed to limit the issues to the following: (1) the
validity of the Deed of Real Estate Mortgage; (2) the validity of the extrajudicial
foreclosure; and (3) the party liable for damages.10
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their
liabilities under the Growers Contract. It argued that it was compelled to foreclose
the mortgage because of Spouses Ramos failure to pay their obligation. GMC

insisted that it had observed all the requirements of posting and publication
of notices under Act No. 3135.11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real
Estate Mortgage was valid even if its term was not fixed. Since the duration of
the term was made to depend exclusively upon the will of the debtors-spouses, the
trial court cited jurisprudence and said that "the obligation is not due and payable
until an action is commenced by the mortgagee against the mortgagor for the
purpose of having the court fix the date on and after which the instrument is
payable and the date of maturity is fixed in pursuance thereto."12
The trial court held that the action of GMC in moving for the foreclosure of the
spouses properties was premature, because the latters obligation under their
contract was not yet due.
The trial court awarded attorneys fees because of the premature action taken by
GMC in filing extrajudicial foreclosure proceedings before the obligation of the
spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as
follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 010797 is hereby declared null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal
for all intents and puposes;
3. Defendant-corporation General Milling Corporation is ordered to pay
Spouses Librado and Remedios Ramos attorneys fees in the total
amount of P 57,000.00 representing acceptance fee of P30,000.00
and P3,000.00 appearance fee for nine (9) trial dates or a total
appearance fee of P 27,000.00;
4.

The claims for moral and exemplary damages are denied for lack of
merit. IT IS SO ORDERED.13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial
foreclosure proceedings null and void; (2) ordering GMC to pay Spouses Ramos
attorneys fees; and (3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling on a
different ground. Contrary to the findings of the trial court, the CA ruled that the
requirements of posting and publication of notices under Act No. 3135 were
complied with. The CA, however, still found that GMCs action against Spouses
Ramos was premature, as they were not in default when the action was filed on
May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that defendantappellant GMC made no demand to spouses Ramos for the full payment of their
obligation. While it was alleged in the Answer as well as in the Affidavit
constituting the direct testimony of Joseph Dominise, the principal witness of
defendant- appellant GMC, that demands were sent to spouses Ramos, the
documentary evidence proves otherwise. A perusal of the letters presented and
offered as evidence by defendant-appellant GMC did not "demand" but only
request spouses Ramos to go to the office of GMC to "discuss" the settlement of
their account.15
According to the CA, however, the RTC erroneously awarded attorneys fees to
Spouses Ramos, since the presumption of good faith on the part of GMC was not
overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision of the
Regional Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby
AFFIRMED with MODIFICATION by deleting the award of attorneys fees to
plaintiffs-appellees spouses Librado Ramos and Remedios Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED
AND DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT
RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED
THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE
DECISIONS OF THE SUPREME COURT.

B.

WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC

MADE NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL
PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE
LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO
RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND
TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS.17

The Ruling of this Court

Can the CA consider matters not
alleged?
GMC asserts that since the issue on the existence of the demand letter was not
raised in the trial court, the CA, by considering such issue, violated the basic
requirements of fair play, justice, and due process.18
In their Comment,19 respondents-spouses aver that the CA has ample authority to
rule on matters not assigned as errors on appeal if these are indispensable or
necessary to the just resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We explained that an
appellate court has a broad discretionary power in waiving the lack of assignment
of errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court
over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical
errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is
necessary in arriving at a just decision and complete resolution of the case or
to serve the interests of a justice or to avoid dispensing piecemeal justice;
(d) atters not specifically assigned as errors on appeal but raised in the trial court
and are matters of record having some bearing on the issue submitted which
the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error
assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of
a question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a just and
complete resolution of the appeal if there is a ruling on whether the Spouses
Ramos were actually in default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part of
the CA in finding that no demand was made on Spouses Ramos to pay their
obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a
demand.
We disagree.
There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtors performance.21
According to the CA, GMC did not make a demand on Spouses Ramos but merely
requested them to go to GMCs office to discuss the settlement of their account. In
spite of the lack of demand made on the spouses, however, GMC proceeded with
the foreclosure proceedings. Neither was there any provision in the Deed of Real
Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without
need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the
following:
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfilment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not being
necessary for delay to exist, We agree with the appellate court that GMC should
have first made a demand on the spouses before proceeding to foreclose the real
estate mortgage.

Development Bank of the Philippines v. Licuanan finds application to the instant

case:
The issue of whether demand was made before the foreclosure was effected is
essential.1avvphi1 If demand was made and duly received by the respondents and
the latter still did not pay, then they were already in default and foreclosure was
proper. However, if demand was not made, then the loans had not yet become due
and demandable. This meant that respondents had not defaulted in their payments
and the foreclosure by petitioner was premature. Foreclosure is valid only when the
debtor is in default in the payment of his obligation.22
In turn, whether or not demand was made is a question of fact.23 This petition filed
under Rule 45 of the Rules of Court shall raise only questions of law. For a
question to be one of law, it must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The resolution of
the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.24 It need not be reiterated that this
Court is not a trier of facts.25 We will defer to the factual findings of the trial court,
because petitioner GMC has not shown any circumstances making this case an
exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C.
No. 85400 is AFFIRMED.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO*
Associate Justice
TERESITA J.
LEONARDO-DE
CASTRO**
Associate Justice

ROBERTO A. ABAD
Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

1169-PRINCIPLE OF DELAY
THIRD
DIVISION
R.S. TOMAS, INC., - versus
INC.,
G.R.
No.
173155

- RIZAL CEMENT COMPANY,

March 21, 2012

DECISIO
N PERALTA,
J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner
R.S. Tomas, Inc. against respondent Rizal Cement Company, Inc. assailing the Court of Appeals
(CA) Decision[1] dated December 19, 2005 and Resolution[2] dated June 6, 2006 in CA-G.R. CV No.
61049. The assailed decision reversed and set aside the Regional Trial Court[3] (RTC) Decision[4]
dated June 5, 1998 in Civil Case No. 92-1562.
The facts of the case, as culled from the records, are as follows:
On December 28, 1990, respondent and petitioner entered into a Contract[5] for the supply of labor,
materials, and technical supervision of the following projects:
1.

J.O. #P-90-212 Wiring and installation of primary and secondary lines

system.

2.

J.O. #P-90-213 Supply and installation of primary protection and disconnecting

switch.

3.

J.O. #P-90-214 Rewinding and conversion of one (1) unit 3125 KVA, 34.5 KV/2.4 KV, 3
Transformer to 4000 KVA, 34.5 KV/480V, 3 Delta Primary, Wye with neutral secondary.[6]

Petitioner agreed to perform the above-mentioned job orders. Specifically, it undertook to supply the
labor, equipment, supervision, and materials as specified in the detailed scope of work.[7] For its part,
respondent agreed to pay the total sum of P2,944,000.00 in consideration of the performance of the
job orders. Petitioner undertook to complete the projects within one hundred twenty (120) days from the
effectivity of the contract.[8] It was agreed upon that petitioner would be liable to respondent for
liquidated damages in the amount of P29,440.00 per day of delay in the completion of the projects which
shall be limited to 10% of the project cost.[9] To secure the full and faithful performance of all its
obligations and responsibilities under the contract, petitioner obtained from Times Surety &
Insurance Co. Inc. (Times Insurance) a performance bond[10] in an amount equivalent to fifty percent
(50%) of the contract price or P1,458,618.18. Pursuant to the terms of the contract, respondent made an
initial payment of P1,458,618.18 on January 8, 1991.[11]

In a letter[12] dated March 9, 1991, petitioner requested for an extension of seventy-five (75) days
within which to complete the projects because of the need to import some of the materials needed. In
the same letter, it also asked for a price adjustment of P255,000.00 to cover the higher cost of
materials.[13] In

another letter[14] dated March 27, 1991, petitioner requested for another 75 days extension for the
completion of the transformer portion of the projects for failure of its supplier to deliver the materials.
On June 14, 1991,[15] petitioner manifested its desire to complete the project as soon as possible to
prevent further losses and maintain goodwill between the companies. Petitioner requested for
respondents assistance by facilitating the acquisition of materials and supplies needed to complete J.O.
#P-90-212 and
J.O. #P-90-213 by directly paying the suppliers. It further sought that it be allowed to back out from
J.O.
#P-90-214 covering the rewinding and conversion of the damaged
transformer.
In response[16] to petitioners requests, respondent, through counsel, manifested its observation
that petitioners financial status showed that it could no longer complete the projects as agreed upon.
Respondent also informed petitioner that it was already in default having failed to complete the
projects within 120 days from the effectivity of the contract. Respondent further notified petitioner that
the former was terminating the contract. It also demanded for the refund of the amount already paid
to petitioner, otherwise, the necessary action would be instituted. Respondent sent another demand
letter[17] to Times Insurance for the payment of P1,472,000.00 pursuant to the performance bond it
issued.
On November 14, 1991,[18] respondent entered into two contracts with Geostar Philippines, Inc.
(Geostar) for the completion of the projects commenced but not completed by petitioner for a total
consideration of P3,435,000.00.
On December 14, 1991, petitioner reiterated its desire to complete J.O. #P-90-212 and J.O. #P-90-213
and to exclude J.O. #P-90-214,[19] but the same was denied by respondent in a letter[20] dated
January 14, 1992. In the same letter, respondent pointed out that amicable settlement is impossible.
Hence, the Complaint for Sum of Money[21] filed by respondent against petitioner and Times Surety &
Insurance Co., Inc. praying for the payment of the following: P493,695.00 representing the amount
which they owed respondent from the downpayment and advances made by the latter vis--vis the
work accomplishment; P2,550,945.87 representing the amount incurred in excess of the cost of the
projects as agreed upon; P294,000.00 as liquidated damages; plus interest and attorneys fees.[22]
Times Insurance did not file any pleading nor appeared in court. For its part, petitioner denied[23]
liability and claimed instead that it failed to complete the projects due to respondents fault. It explained
that it relied in good faith on respondents representation that the transformer subject of the contract
could still be rewound and converted but upon dismantling the core-coil assembly, it discovered that
the coils were already badly damaged and the primary bushing broken. This discovery allegedly entailed
price adjustment. Petitioner thus requested respondent for additional time within which to complete the
project and additional amount to finance the same. Petitioner also insisted that the proximate cause of
the delay is the misrepresentation of the respondent on the extent of the defect of the transformer.
After the presentation of the parties respective evidence, the RTC rendered a decision on June 5, 1998
in favor of petitioner, the dispositive portion of which reads:
Wherefore, finding defendant-contractors evidence more preponderant than that of the plaintiff,
judgment is hereby rendered in favor of the defendant-contractor against the plaintiff and hereby orders:
(1) that the instant
DISMISSED;

case

be

(2) that plaintiff pays defendant the amount of P4,000,000.00; for moral and exemplary & other
damages;

(3) P100,000.00 for attorneys fees and cost of

suit.

SO
[24]

ORDERED.

The RTC held that the failure of petitioner to complete the projects was not solely due to its fault but
more on respondents misrepresentation and bad faith.[25] Therefore, the Court dismissed
respondents complaint. Since respondent was found to have committed deceit in its dealings with
petitioner, the court awarded damages in favor of the latter.[26]
Respondent, however, successfully obtained a favorable decision when its appeal was granted by the
CA. The appellate court reversed and set aside the RTC decision and awarded respondent P493,695.34
for the excess payment made to petitioner, P508,510.00 for the amount spent in contracting Geostar and
P294,400.00 as liquidated damages.[27] Contrary to the conclusion of the RTC, the CA found that
petitioner failed to prove that respondent made fraudulent misrepresentation to induce the former to
enter into the contract. It further held that petitioner was given the opportunity to inspect the transformer
before offering its bid. [28] This being so, the CA added that petitioners failure to avail of such
opportunity is inexcusable, considering that it is a company engaged in the electrical business and the
contract involved a sizable amount of money.[29] As to the condition of the subject transformer unit,
the appellate court found the testimony of petitioners president insufficient to prove that the same
could no longer be rewound or converted.[30] Considering that advance payments had been made
to petitioner, the court deemed it necessary to require it to return to respondent the excess amounts, vis-vis its actual accomplishment.[31] In addition to the refund of the excess payment, the CA also ordered
the reimbursement of what respondent paid to Geostar for the unfinished projects of petitioner as well
as the payment of liquidated damages as stipulated in the contract.[32]
Aggrieved, petitioner comes before the Court in this petition for review on certiorari under Rule 45 of
the Rules of Court raising the following issues: (1) whether or not respondent was guilty of fraud or
misrepresentation as to the actual condition of the transformer subject of the contract;[33] (2) whether
or not the evidence presented by petitioner adequately established the true nature and condition of the
subject transformer;[34] (3) whether or not petitioner is guilty of inexcusable delay in the completion
of the projects;[35] (4) whether or not petitioner is liable for liquidated damages;[36] and (5) whether
or not petitioner is liable for the cost of the contract between respondent and Geostar.[37]
The petition is without
merit.
The case stemmed from an action for sum of money or damages arising from breach of contract.
The contract involved in this case refers to the rewinding and conversion of one unit of transformer
to be installed and energized to supply respondents power requirements.[38] This project was embodied
in three
(3) job orders, all of which were awarded to petitioner who represented itself to be capable, competent,
and
duly licensed to handle the projects.[39] Petitioner, however, failed to complete the projects within the
agreed period allegedly because of misrepresentation and fraud committed by respondent as to the
true nature of the subject transformer. The trial court found that respondent indeed failed to inform
petitioner of the true condition of the transformer which amounted to fraud thereby justifying the
latters failure to complete the projects. The CA, however, had a different conclusion and decided in
favor of respondent. Ultimately, the issue before us is whether or not there was breach of contract which
essentially is a factual matter not usually reviewable in a petition filed under Rule 45.[40]
In resolving the issues, the Court inquires into the probative value of the evidence presented before the
trial court.[41] Petitioner, indeed, endeavors to convince us to determine once again the weight,
credence, and probative value of the evidence presented before the trial court.[42] While in general, the
findings of fact of the CA are final and conclusive and cannot be reviewed on appeal to the Court
because it is not a trier of facts,[43] there are recognized exceptions[44] as when the findings of fact
are conflicting, which is

obtaining in this case. The conflicting conclusions of the trial and appellate courts impel us to reexamine the evidence presented.
After a thorough review of the records of the case, we find no reason to depart from the conclusions of
the
CA
.
It is undisputed that petitioner and respondent entered into a contract for the supply of labor, materials,
and technical supervision primarily for the rewinding and conversion of one (1) unit of transformer and
related works aimed at providing the power needs of respondent. As agreed upon by the parties, the
projects were to be completed within 120 days from the effectivity of the contract. Admittedly,
however, respondent failed, not only to perform its part of the contract on time but, in fact, to complete
the projects. Petitioner tried to exempt itself from the consequences of said breach by passing the fault to
respondent. It explained that its failure to complete the project was due to the misrepresentation of the
respondent. It claimed that more time and money were needed, because the condition of the subject
transformer was worse than the representations of respondent. Is this defense tenable?
We
answer
negative.

in

the

Records show that petitioner indeed asked for price adjustment and extension of time within which
to complete the projects. In its letter[45] dated March 9, 1991, petitioner anchored its request for
extension on the following grounds:
1.

To maximize the existing 3125 KVA to 4000 KVA capacity using the same core, we will replace the
secondary windings from rectangular type to copper sheet which is more accurate in winding to
the required number of turns than using parallel rectangular or circular type of copper
magnet wires. However, these copper sheets are not readily available locally in volume quantities,
and therefore, we will be importing this material and it will take 60 days minimum time for its
delivery.

2.

We also find it difficult to source locally the replacement for the damaged high voltage bushing.

3.

The delivery of power cable no. 2/0 will also be delayed. This will take 90 days to deliver from January
1991.[46]
Also in its letter[47] dated March 27, 1991, petitioner informed respondent that the projects would
be completed within the contract time table but explained that the delivery of the transformer would
only be delayed. The reasons advanced by petitioner to justify the delay are as follows:
1.

Our supplier for copper sheets cannot complete the delivery until April 30,
1991.

2.

Importation of HV Bushing will take approximately 45 days delivery per advice of our supplier. x
x x[48]

Clearly, in the above letters, petitioner justified its inability to complete the projects within the
stipulated period on the alleged unavailability of the materials to be used to perform the projects as
stated in the job orders. Nowhere in said letters did petitioner claim that it could not finish the
projects, particularly the conversion of the transformer unit because the defects were worse than the
representation of respondent. In other words, there was no allegation of fraud, bad faith, concealment or
misrepresentation on the part of respondent as to the true condition of the subject transformer. Even in
its letter[49] dated May 25, 1991, petitioner only requested respondent that payment to the first progress

billing be released as soon as possible and without deduction. It further proposed that respondent make a
direct payment to petitioners suppliers.

It was only in its June 14, 1991 letter[50] when petitioner raised its observations that the subject
transformer needed more repairs than what it knew during the bidding. [51] In the same letter,
however, petitioner repeated its request that direct payment be made by respondent to petitioners
suppliers.[52] More importantly, petitioner admitted that it made a judgment error when it quoted for
only P440,770.00 for the contract relating to J.O. #P-90-214 based on limited information.
It can be inferred from the foregoing facts that there was not only a delay but a failure to
complete the projects as stated in the contract; that petitioner could not complete the projects because it
did not have the materials needed; and that it is in need of financial assistance.
As the Court sees it, the bid submitted by petitioner may have been sufficient to be declared
the winner but it failed to anticipate all expenses necessary to complete the projects. [53] When it
incurred expenses it failed to foresee, it began requesting for price adjustment to cover the cost of
high voltage bushing and difference in cost of copper sheet and rectangular wire.[54] However, the
scope of work presented by respondent specifically stated that the wires to be used shall be pure copper
and that there was a need to supply new bushings for the complete rewinding and conversion of
3125 KVA to 4 MVA Transformer.[55] In other words, petitioner was aware that there was a need for
complete replacement of windings to copper and of secondary bushings. [56] It is, therefore,
improper for petitioner to ask for additional amount to answer for the expenses that were already part
and parcel of the undertaking it was bound to perform. For petitioner, the contract entered into may have
turned out to be an unwise investment, but there is no one to blame but petitioner for plunging into an
undertaking without fully studying it in its entirety.[57]
The Court likewise notes that petitioner repeatedly asked for extension allegedly because it needed to
import the materials and that the same could not be delivered on time. Petitioner also repeatedly
requested that respondent make a direct payment to the suppliers notwithstanding the fact that it
contracted with respondent for the supply of labor, materials, and technical supervision. It is,
therefore, expected that petitioner would be responsible in paying its suppliers because respondent is
not privy to their (petitioner and its suppliers) contract. This is especially true in this case since
respondent had already made advance payments to petitioner. It appears, therefore, that in offering its
bid, the source and cost of materials were not seriously taken into consideration. It appears, further, that
petitioner had a hard time in fulfilling its obligations under the contract that is why it asked for financial
assistance from respondent. This is contrary to petitioners representation that it was capable, competent,
and duly licensed to handle the projects.
As to the alleged damaged condition of the subject transformer, we quote with approval the CA
conclusion in this wise:
In the same vein, We cannot readily accept the testimony of Tomas that the transformer unit was
severely damaged and was beyond repair as it was not substantiated with any other evidence. R.S. Tomas
could have presented an independent expert witness whose opinion may corroborate its stance that the
transformer unit was indeed incapable of being restored. To our mind, the testimony of Tomas is selfserving as it is easy to concoct, yet difficult to verify.[58]
This lack of evidence, coupled with petitioners failure to raise the same at the earliest opportunity,
belies petitioners claim that it could not complete the projects because the subject transformer could no
longer be repaired.
Assuming for the sake of argument that the subject transformer was indeed in a damaged
condition even before the bidding which makes it impossible for petitioner to perform its obligations
under the

contract, we also agree with the CA that petitioner failed to prove that respondent was guilty of bad
faith, fraud, deceit or misrepresentation.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud.[59] Fraud has been defined to include an
inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot
with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits
to state material facts and, by reason of such omission or concealment, the other party was induced to
give consent that would not otherwise have been given.[60] These are allegations of fact that demand
clear and convincing proof. They are serious accusations that can be so conveniently and casually
invoked, and that is why they are never presumed.[61] In this case, the evidence presented is insufficient
to prove that respondent acted in bad faith or fraudulently in dealing with petitioner.
Petitioner in fact admitted that its representatives were given the opportunity to inspect the subject
transformer before it offered its bid. If indeed the transformer was completely sealed, it should
have demanded that the same be opened if it found it necessary before it offered its bid. As contractor,
petitioner had been remiss in its obligation to obtain as much information as possible on the actual
condition of the subject transformer or at least it should have provided a qualification in its bid so as to
make clear its right to claim contract price and time adjustment.[62] As aptly held by the CA,
considering that petitioner is a company engaged in the electrical business and the contract it had
entered into involved a sizable amount of money, its failure to conduct an inspection of the subject
transformer is inexcusable.[63]
In sum, the evidence presented by the parties lead to the following conclusions: (1) that the projects
were not completed by petitioner; (2) that petitioner was given the opportunity to inspect the subject
transformer;
(3) that petitioner failed to thoroughly study the entirety of the projects before it offered its bid; (4)
that petitioner failed to complete the projects because of the unavailability of the required materials
and that petitioner needed financial assistance; (5) that the evidence presented by petitioner were
inadequate to prove that the subject transformer could no longer be repaired; and (6) that there was no
evidence to show that respondent was in bad faith, acted fraudulently, or guilty of deceit and
misrepresentation in dealing with
petitioner.
In view of the foregoing disquisitions, we find that there was not only delay but non-completion of
the projects undertaken by petitioner without justifiable ground. Undoubtedly, petitioner is guilty of
breach of contract. Breach of contract is defined as the failure without legal reason to comply with the
terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise
which forms the whole or part of the contract.[64] In the present case, petitioner did not complete the
projects. This gives respondent the right to terminate the contract by serving petitioner a written
notice. The contract specifically stated that it may be terminated for any of the following causes:
1.

Violation by Contractor of the terms and conditions of this

Contract;

2. Non-completion of the Work within the time agreed upon, or upon the expiration of extension
agreed upon;
3.

Institution of insolvency or receivership proceedings involving Contractor;

and

4.

Other causes provided by law applicable to this contract.

[65]

Consequently, and pursuant to the agreement of the parties,[66] petitioner is liable for liquidated
damages in the amount of P29,440.00 per day of delay, which shall be limited to a maximum of 10% of
the project cost or P294,400.00. In this case, petitioner bound itself to complete the projects within
120 days from December 29, 1990. However, petitioner failed to fulfill the same prompting
respondent to engage the services of another contractor on November 14, 1991. Thus, despite the lapse
of eleven months from the time of the effectivity of the contract entered into between respondent and
petitioner, the latter had not completed the projects. Undoubtedly, petitioner may be held to answer
for liquidated damages in its maximum amount which is 10% of the contract price. While we have
reduced the amount of liquidated damages in some cases,[67] because of partial fulfillment of the
contract and/or the amount is unconscionable, we do not find the same to be applicable in this case. It
must be recalled that the contract entered into by petitioner consists of three projects, all of which
were not completed by petitioner. Moreover, the percentage of work accomplishment was not
adequately shown by petitioner. Hence, we apply the general rule not to ignore the freedom of the
parties to agree on such terms and conditions as they see fit as long as they are not contrary to law,
morals, good customs, public order or public policy.[68] Thus, as agreed upon by the parties, we apply
the 10% liquidated damages.
Considering that petitioner was already in delay and in breach of contract, it is liable for
damages that are the natural and probable consequences of its breach of obligation.[69] Since advanced
payments had been made by respondent, petitioner is bound to return the excess vis--vis its work
accomplishments. In order to finish the projects, respondent had to contract the services of another
contractor. We, therefore, find no reason to depart from the CA conclusion requiring the return of the
excess payments as well as the payment of the cost of contracting Geostar, in addition to liquidated
damages.[70]
WHEREFORE, premises considered, the petition is hereby DENIED. The Court of Appeals
Decision dated December 19, 2005 and Resolution dated June 6, 2006 in CA-G.R. CV No. 61049
are AFFIRMED.
SO ORDERED.

1169 PRINCIPLE OF DELAY

G.R. No. 191431

March 13, 2013

RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners,

vs.
ATTY. DELFIN GRUSPE, Respondent.
DECISION
BRION,
J.:
Before the Court is the petition for review on certiorari1 filed under Rule 45 of the
Rules of Court, assailing the decision2 dated July 30, 2009 and the resolution3
dated February 19, 2010 of the Court of Appeals (CA) in CA-G.R. CV No.
86083. The CA rulings affirmed with modification the decision dated September
27, 2004 of the Regional Trial Court (RTC) of Bacoor, Cavite, Branch 19, in Civil
Case No. BCV- 99-146 which granted respondent Atty. Delfin Grupes claim for
payment of sum of money against petitioners Rodolfo G. Cruz and Esperanza
Ibias.4
THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on October 24, 1999, when the
mini bus owned and operated by Cruz and driven by one Arturo Davin collided
with the Toyota Corolla car of Gruspe; Gruspes car was a total wreck. The next
day, on October 25, 1999, Cruz, along with Leonardo Q. Ibias went to
Gruspes office, apologized for the incident, and executed a Joint Affidavit of
Undertaking promising jointly and severally to replace the Gruspes damaged
car in 20 days, or until November 15, 1999, of the same model and of at
least the same quality; or, alternatively, they would pay the cost of Gruspes
car amounting to P350,000.00, with interest at
12% per month for any delayed payment after November 15, 1999, until fully
paid.5 When Cruz and Leonardo failed to comply with their undertaking, Gruspe
filed a complaint for collection of sum of money against them on November
19, 1999 before the RTC.
In their answer, Cruz and Leonardo denied Gruspes allegation, claiming that
Gruspe, a lawyer, prepared the Joint Affidavit of Undertaking and forced them to
affix their signatures thereon, without explaining and informing them of its
contents; Cruz affixed his signature so that his mini bus could be released as it
was his only

means of income; Leonardo, a barangay official, accompanied Cruz to Gruspes

office for the release of the mini bus, but was also deceived into signing the Joint
Affidavit of Undertaking.
Leonardo died during the pendency of the case and was substituted by his widow,
Esperanza. Meanwhile, Gruspe sold the wrecked car for P130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor of Gruspe and
ordered Cruz and Leonardo to pay P220,000.00,6 plus 15% per annum from
November 15, 1999 until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the interest rate to 12%
per annum pursuant to the Joint Affidavit of Undertaking.7 It declared that despite
its title, the Joint Affidavit of Undertaking is a contract, as it has all the essential
elements of consent, object certain, and consideration required under Article 1318
of the Civil
Code. The CA further said that Cruz and Leonardo failed to present evidence to
support their contention of vitiated consent. By signing the Joint Affidavit of
Undertaking, they voluntarily assumed the obligation for the damage they caused
to Gruspes car; Leonardo, who was not a party to the incident, could have refused
to sign the affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and Esperanza assail the CA
ruling, contending that the Joint Affidavit of Undertaking is not a contract that
can be the basis of an obligation to pay a sum of money in favor of Gruspe. They
consider an affidavit as different from a contract: an affidavits purpose is
simply to attest to facts that are within his knowledge, while a contract requires
that there be a meeting of the minds between the two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a contract, Cruz and
Esperanza claim that it is invalid because Cruz and Leonardos consent thereto was
vitiated; the contract was prepared by Gruspe who is a lawyer, and its contents
were never explained to them. Moreover, Cruz and Leonardo were simply forced
to affix their signatures, otherwise, the mini van would not be released.
Also, they claim that prior to the filing of the complaint for sum of money, Gruspe
did not make any demand upon them. Hence, pursuant to Article 1169 of the Civil

Code, they could not be considered in default. Without this demand, Cruz and
Esperanza contend that Gruspe could not yet take any action.
THE COURTS RULING
The Court finds the petition partly meritorious and accordingly modifies the
judgment of the CA.
Contracts are obligatory no matter what their forms may be, whenever the essential
requisites for their validity are present. In determining whether a document is an
affidavit or a contract, the Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not conclusive of the
nature of its contents.8 In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. If the terms of the
document are clear and leave no doubt on the intention of the contracting parties,
the literal meaning of its stipulations shall control. If the words appear to be
contrary to the parties evident intention, the latter shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of Undertaking readily
discloses that it contains stipulations characteristic of a contract. As quoted in the
CA decision,10 the Joint Affidavit of Undertaking contained a stipulation where
Cruz and Leonardo promised to replace the damaged car of Gruspe, 20 days from
October 25, 1999 or up to November 15, 1999, of the same model and of at least
the same quality. In the event that they cannot replace the car within the same
period, they would pay the cost of Gruspes car in the total amount of P350,000.00,
with interest at 12% per month for any delayed payment after November 15, 1999,
until fully paid. These, as read by the CA, are very simple terms that both Cruz
and Leonardo could easily understand.
There is also no merit to the argument of vitiated consent.1wphi1 An allegation of
vitiated consent must be proven by preponderance of evidence; Cruz and Leonardo
failed to support their allegation.
Although the undertaking in the affidavit appears to be onerous and lopsided, this
does not necessarily prove the alleged vitiation of consent. They, in fact, admitted
the genuineness and due execution of the Joint Affidavit and Undertaking when
they said that they signed the same to secure possession of their vehicle. If they
truly believed that the vehicle had been illegally impounded, they could have
refused to sign the Joint Affidavit of Undertaking and filed a complaint, but they
did not. That the release of their mini bus was conditioned on their signing the
Joint Affidavit of Undertaking does not, by itself, indicate that their consent was
forced they may

have given it grudgingly, but it is not indicative of a vitiated consent that is a

ground for the annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint Affidavit of
Undertaking, the CA did not commit any legal error that merits the reversal of the
assailed decision.
Nevertheless, the CA glossed over the issue of demand which is material in the
computation of interest on the amount due. The RTC ordered Cruz and Leonardo
to pay Gruspe "P350,000.00 as cost of the car xxx plus fifteen percent (15%) per
annum from November 15, 1999 until fully paid."11 The 15% interest (later
modified by the CA to be 12%) was computed from November 15, 1999 the date
stipulated in the Joint Affidavit of Undertaking for the payment of the value of
Gruspes car. In the absence of a finding by the lower courts that Gruspe made a
demand prior to the filing of the complaint, the interest cannot be computed from
November 15, 1999 because until a demand has been made, Cruz and Leonardo
could not be said to be in default.12 "In order that the debtor may be in default,
it is necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3)
that the creditor requires the performance judicially and extrajudicially."13 Default
generally begins from the moment the creditor demands the performance of the
obligation. In this case, demand could be considered to have been made upon the
filing of the complaint on November 19, 1999, and it is only from this date
that the interest should be computed.
Although the CA upheld the Joint Affidavit of Undertaking, we note that it
imposed interest rate on a per annum basis, instead of the per month basis that was
stated in the Joint Affidavit of Undertaking without explaining its reason for
doing so. 14 Neither party, however, questioned the change. Nonetheless, the Court
affirms the change in the interest rate from 12% per month to 12% per annum, as
we find the interest rate agreed upon in the Joint Affidavit of Undertaking
excessive.15
WHEREFORE, we AFFIRM the decision dated July 30, 2009 and the resolution
dated February 19, 2010 of the Court of Appeals in CA-G.R. CV No. 86083,
subject to the Modification that the twelve percent (12%) per annum interest
imposed on the amount due shall accrue only from November 19, 1999, when
judicial demand was made.
SO ORDERED.

1174 DOCTRINE OF FORTUITOUS EVENT

G.R. No. L-55300 March 15, 1990
FRANKLIN G. GACAL and CORAZON M. GACAL, the latter assisted by
her husband, FRANKLIN G. GACAL, petitioners,
vs.
PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO SAMSON
C. ANIMAS, in his capacity as PRESIDING JUDGE of the COURT OF
FIRST INSTANCE OF SOUTH COTABATO, BRANCH I, respondents.
Vicente
A.
petitioners.
Siguion Reyna,
respondent.

Mirabueno
Montecillo

for
&

Ongsiako

for

private

PARAS,
J.:
This is a, petition for review on certiorari of the decision of the Court of First
Instance of South Cotabato, Branch 1, * promulgated on August 26, 1980
dismissing three (3) consolidated cases for damages: Civil Case No. 1701, Civil
Case No. 1773 and Civil Case No. 1797 (Rollo, p. 35).
The facts, as found by respondent court, are as follows:
Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal,
Bonifacio
S. Anislag and his wife, Mansueta L. Anislag, and the late Elma de
Guzman, were then passengers boarding defendant's BAC 1-11 at
Davao Airport for a flight to Manila, not knowing that on the same
flight, Macalinog, Taurac Pendatum known as Commander Zapata,
Nasser Omar, Liling Pusuan Radia, Dimantong Dimarosing and Mike
Randa, all of Marawi City and members of the Moro National
Liberation Front (MNLF), were their co-passengers, three (3) armed
with grenades, two (2) with .45 caliber pistols, and one with a .22
caliber pistol. Ten (10) minutes after take off at about 2:30 in the
afternoon, the hijackers brandishing their respective firearms
announced the hijacking of the aircraft and directed its pilot to fly to
Libya. With the pilot explaining to them especially to its leader,
Commander Zapata, of the inherent fuel limitations of the plane and

that they are not rated for international flights, the hijackers directed
the

pilot to fly to Sabah. With the same explanation, they relented and
directed the aircraft to land at Zamboanga Airport, Zamboanga City
for refueling. The aircraft landed at 3:00 o'clock in the afternoon of
May 21, 1976 at Zamboanga Airport. When the plane began to taxi
at the runway, it was met by two armored cars of the military with
machine guns pointed at the plane, and it stopped there. The
rebels thru its commander demanded that a DC-aircraft take them to
Libya with the President of the defendant company as hostage and
that they be given
$375,000 and six (6) armalites, otherwise they will blow up the plane
if their demands will not be met by the government and Philippine Air
Lines. Meanwhile, the passengers were not served any food nor water
and it was only on May 23, a Sunday, at about 1:00 o'clock in the
afternoon that they were served 1/4 slice of a sandwich and 1/10 cup
of PAL water. After that, relatives of the hijackers were allowed to
board the plane but immediately after they alighted therefrom, an
armored car bumped the stairs. That commenced the battle between
the military and the hijackers which led ultimately to the liberation of
the surviving crew and the passengers, with the final score of ten (10)
passengers and three
(3) hijackers dead on the spot and three (3) hijackers
captured.
City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal
suffered injuries in the course of her jumping out of the plane when it
was peppered with bullets by the army and after two (2) hand
grenades exploded inside the plane. She was hospitalized at
General Santos Doctors Hospital, General Santos City, for two (2)
days, spending P245.60 for hospital and medical expenses, Assistant
City Fiscal Bonifacio S. Anislag also escaped unhurt but Mrs.
Anislag suffered a fracture at the radial bone of her left elbow for
which she was hospitalized and operated on at the San Pedro
Hospital, Davao City, and therefore, at Davao Regional Hospital,
Davao City, spending P4,500.00. Elma de Guzman died because of
that battle. Hence, the action of damages instituted by the plaintiffs
demanding the following damages, to wit:
Civil Case No. 1701
City Fiscal Franklin G. Gacal and Mrs. Corazon M. Gacal

 actual damages: P245.60 for hospital and medical

expenses of Mrs Gacal; P8,995.00 for their personal
belongings which were lost and not recovered; P50,000.00

each for moral damages; and P5,000.00 for attorney's

fees, apart from the prayer for an award of exemplary
damages (Record, pp. 4-6, Civil Case No. 1701).
Civil Case No. 1773
xxx xxx xxx
Civil Case No. 1797
xxx xxx xxx
The trial court, on August 26, 1980, dismissed the complaints finding that all the
damages sustained in the premises were attributed to force majeure.
On September 12, 1980 the spouses Franklin G. Gacal and Corazon M. Gacal,
plaintiffs in Civil Case No. 1701, filed a notice of appeal with the lower court on
pure questions of law (Rollo, p. 55) and the petition for review on certiorari was
filed with this Court on October 20, 1980 (Rollo, p. 30).
The Court gave due course to the petition (Rollo, p. 147) and both parties filed
their respective briefs but petitioner failed to file reply brief which was noted by
the Court in the resolution dated May 3, 1982 (Rollo, p. 183).
Petitioners alleged that the main cause of the unfortunate incident is the gross,
wanton and inexcusable negligence of respondent Airline personnel in their failure
to frisk the passengers adequately in order to discover hidden weapons in the
bodies of the six (6) hijackers. They claimed that despite the prevalence of
skyjacking, PAL did not use a metal detector which is the most effective
means of discovering potential skyjackers among the passengers (Rollo, pp. 6-7).
Respondent Airline averred that in the performance of its obligation to safely
transport passengers as far as human care and foresight can provide, it has
exercised the utmost diligence of a very cautious person with due regard to all
circumstances, but the security checks and measures and surveillance
precautions in all flights, including the inspection of baggages and cargo and
frisking of passengers at the Davao Airport were performed and rendered solely
by military personnel who under appropriate authority had assumed exclusive
jurisdiction over the same in all airports in the Philippines.

Similarly, the negotiations with the hijackers were a purely government matter and
a military operation, handled by and subject to the absolute and exclusive
jurisdiction of the military authorities. Hence, it concluded that the accident that
befell RP-C1161 was caused by fortuitous event, force majeure and other causes
beyond the control of the respondent Airline.
The determinative issue in this case is whether or not hijacking or air piracy during
martial law and under the circumstances obtaining herein, is a caso fortuito or
force majeure which would exempt an aircraft from payment of damages to its
passengers whose lives were put in jeopardy and whose personal belongings were
lost during the incident.
Under the Civil Code, common carriers are required to exercise extraordinary
diligence in their vigilance over the goods and for the safety of passengers
transported by them, according to all the circumstances of each case (Article
1733). They are presumed at fault or to have acted negligently whenever a
passenger dies or is injured (Philippine Airlines, Inc. v. National Labor Relations
Commission, 124 SCRA 583 [1983]) or for the loss, destruction or deterioration of
goods in cases other than those enumerated in Article 1734 of the Civil Code
(Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463
[1987]).
The source of a common carrier's legal liability is the contract of carriage, and by
entering into said contract, it binds itself to carry the passengers safely as far as
human care and foresight can provide. There is breach of this obligation if it fails
to exert extraordinary diligence according to all the circumstances of the case
in exercise of the utmost diligence of a very cautious person (Isaac v. Ammen
Transportation Co., 101 Phil. 1046 [1957]; Juntilla v. Fontanar, 136 SCRA 624
[1985]).
It is the duty of a common carrier to overcome the presumption of negligence
(Philippine National Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it
must be shown that the carrier had observed the required extraordinary diligence of
a very cautious person as far as human care and foresight can provide or that the
accident was caused by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523
[1976]). Thus, as ruled by this Court, no person shall be responsible for those
"events which could not be foreseen or which though foreseen were inevitable.
(Article 1174, Civil Code). The term is synonymous with caso fortuito (Lasam v.
Smith, 45 Phil. 657 [1924]) which is of the same sense as "force majeure" (Words
and Phrases Permanent Edition, Vol. 17, p. 362).

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

Finally, there is no dispute that the fourth element has also been satisfied.
Consequently the existence of force majeure has been established exempting
respondent PAL from the payment of damages to its passengers who suffered
death or injuries in their persons and for loss of their baggages.
PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit
and the decision of the Court of First Instance of South Cotabato, Branch I is
hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

51

1174 DOCTRINE OF FORTUITOUS EVENT

G.R. No. L-82619 September 15, 1993

PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS and PEDRO ZAPATOS, respondents.
Leighton R. Liazon for petitioner.
Balmes L. Ocampo for private respondent.

BELLOSILLO, J.:
This petition for review in certiorari seeks to annul and set aside the decision of the then
Intermediate Appellant Court, 1 now Court of Appeals, dated 28 February 1985, in AC-G.R. CV
No. 69327 ("Pedro Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court
of first Instance, now Regional Trial Court, declaring Philippine Airlines, Inc., liable in damages
for breach of contract.
On 25 November 1976, private respondent filed a complaint for damages for breach of contract
of carriage 2 against Philippine Airlines, Inc. (PAL), before the then Court of First Instance,
now Regional Trial Court, of Misamis Occidental, at Ozamiz City. According to him, on 2
August 1976, he was among the twenty-one (21) passengers of PAL Flight 477 that took off
from Cebu bound for Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato.
While on flight and just about fifteen (15) minutes before landing at Ozamiz City, the pilot
received a radio message that the airport was closed due to heavy rains and inclement weather
and that he should proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options
to return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or
take the next flight to Cebu the following day, or remain at Cotabato and take the next available
flight to Ozamiz City on 5 August 1975. 3 The Station Agent likewise informed them that Flight
560 bound for Manila would make a stop-over at Cebu to bring some of the diverted passengers;
that there were only six (6) seats available as there were already confirmed passengers for
Manila; and, that the basis for priority would be the check-in sequence at Cebu.
Private respondent chose to return to Cebu but was not accommodated because he checked-in as
passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed
passengers in the accommodation, but the Station Agent refused private respondent's demand
explaining that the latter's predicament was not due to PAL's own doing but to be a force
majeure. 4
Private respondent tried to stop the departure of Flight 560 as his personal belongings, including
a package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe
Obid of Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private
respondent a free ticket to Iligan city, which the latter received under protest. 5 Private
respondent

was left at the airport and could not even hitch a ride in the Ford Fiera loaded with PAL
personnel. 6 PAL neither provided private respondent with transportation from the airport to the
city proper nor food and accommodation for his stay in Cotabato City.
The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL
personnel that he would not use the free ticket because he was filing a case against PAL. 7 In
Iligan City, private respondent hired a car from the airport to Kolambugan, Lanao del Norte,
reaching Ozamiz City by crossing the bay in a launch. 8 His personal effects including the
camera, which were valued at P2,000.00 were no longer recovered.
On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate
private respondent. 9 It alleged that there was simply no more seat for private respondent on
Flight 560 since there were only six (6) seats available and the priority of accommodation on
Flight 560 was based on the check-in sequence in Cebu; that the first six (6) priority passengers
on Flight 477 chose to take Flight 560; that its Station Agent explained in a courteous and polite
manner to all passengers the reason for PAL's inability to transport all of them back to Cebu;
that the stranded passengers agreed to avail of the options and had their respective tickets
exchanged for their onward trips; that it was
only the private respondent who insisted on being given priority in the accommodation; that
pieces of checked-in baggage and had carried items of the Ozamiz City passengers were
removed from the aircraft; that the reason for their pilot's inability to land at Ozamis City airport
was because the runway was wet due to rains thus posing a threat to the safety of both
passengers and aircraft; and, that such reason of force majeure was a valid justification for the
pilot to bypass Ozamiz City and proceed directly to Cotabato City.
On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Philippine AirLines, Inc. ordering the latter to pay:
(1) As actual damages, the sum of Two Hundred Pesos (P200.00) representing plaintiff's expenses for
transportation, food and accommodation during his stranded stay at Cotabato City; the sum of
Forty-Eight Pesos (P48.00) representing his flight fare from Cotabato City to Iligan city; the sum
of Five Hundred Pesos (P500.00) representing plaintiff's transportation expenses from Iligan City
to Ozamiz City; and the sum of Five Thousand Pesos (P5,000.00) as loss of business opportunities
during his stranded stay in Cotabato City;
(2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00) for plaintiff's hurt feelings,
serious anxiety, mental anguish and unkind and discourteous treatment perpetrated by defendant's
employees during his stay as stranded passenger in Cotabato City;
(3) As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00) to set a precedent to the
defendant airline that it shall provide means to give comfort and convenience to stranded
passengers;
(4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;
(5) To pay the costs of this suit.

PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error,
affirmed the judgment of the court a quo. 11
PAL then sought recourse to this Court by way of a petition for review on certiorari 12 upon the
following issues: (1) Can the Court of Appeals render a decision finding petitioner (then
defendant-appellant in the court below) negligent and, consequently, liable for damages on a
question of substance which was neither raised on a question nor proved at the trial? (2) Can the
Court of Appeals award actual and moral damages contrary to the evidence and established
jurisprudence? 13
An assiduous examination of the records yields no valid reason for reversal of the judgment on
appeal; only a modification of its disposition.
In its petition, PAL vigorously maintains that private respondent's principal cause of action was
its alleged denial of private respondent's demand for priority over the confirmed passengers on
Flight 560. Likewise, PAL points out that the complaint did not impute to PAL neglect in failing
to attend to the needs of the diverted passengers; and, that the question of negligence was not
and never put in issue by the pleadings or proved at the trial.
Contrary to the above arguments, private respondent's amended complaint touched on PAL's
indifference and inattention to his predicament. The pertinent portion of the amended complaint
14
reads:
10. That by virtue of the refusal of the defendant through its agent in Cotabato to accommodate
(sic) and allow the plaintiff to take and board the plane back to Cebu, and by accomodating (sic)
and allowing passengers from Cotabato for Cebu in his stead and place, thus forcing the plaintiff
against his will, to be left and stranded in Cotabato, exposed to the peril and danger of muslim
rebels plundering at the time, the plaintiff, as a consequence, (have) suffered mental anguish,
mental torture, social humiliation, bismirched reputation and wounded feeling, all amounting to a
conservative amount of thirty thousand (P30,000.00) Pesos.

To substantiate this aspect of apathy, private respondent testified 15

A I did not even notice that I was I think the last passenger or the last person
out of the PAL employees and army personnel that were left there. I did not
notice that when I was already outside of the building after our conversation.
Q What did you do next?
A I banished (sic) because it seems that there was a war not far from the
airport. The sound of guns and the soldiers were plenty.
Q After that what did you do?
A I tried to look for a transportation that could bring me down to the City of
Cotabato.
Q Were you able to go there?

A I was at about 7:00 o'clock in the evening more or less and it was a private
jeep that I boarded. I was even questioned why I and who am (sic) I then. Then
I explained my side that I am (sic) stranded passenger. Then they brought me
downtown at Cotabato.
Q During your conversation with the Manager were you not offered any
vehicle or transportation to Cotabato airport downtown?
A In fact I told him (Manager) now I am by-passed passenger here which is not
my destination what can you offer me. Then they answered, "it is not my fault.
Let us forget that."
Q In other words when the Manager told you that offer was there a vehicle
ready?
A Not yet. Not long after that the Ford Fiera loaded with PAL personnel
was passing by going to the City of Cotabato and I stopped it to take me a
ride because there was no more available transportation but I was not
accommodated.

Significantly, PAL did not seem to mind the introduction of evidence which focused on its
alleged negligence in caring for its stranded passengers. Well-settled is the rule in evidence that
the protest or objection against the admission of evidence should be presented at the time the
evidence is offered, and that the proper time to make protest or objection to the admissibility of
evidence is when the question is presented to the witness or at the time the answer thereto is
given. 16 There being no objection, such evidence becomes property of the case and all the
parties are amenable to any favorable or unfavorable effects resulting from the evidence. 17
PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to substantiate
its counter allegation for want of concrete proof 18
Atty. Rubin O. Rivera PAL's counsel:
Q You said PAL refused to help you when you were in Cotabato, is that right?
Private respondent:
A Yes.
Q Did you ask them to help you regarding any offer of transportation or of any
other matter asked of them?
A Yes, he (PAL PERSONNEL) said what is? It is not our fault.
Q Are you not aware that one fellow passenger even claimed that he was
given Hotel accommodation because they have no money?
xxx xxx xxx
A No, sir, that was never offered to me. I said, I tried to stop them but they were
already riding that PAL pick-up jeep, and I was not accommodated.

Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL
cannot now turn around and feign surprise at the outcome of the case. When issues not raised by
the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. 19
With regard to the award of damages affirmed by the appellate court, PAL argues that the same
is unfounded. It asserts that it should not be charged with the task of looking after the
passengers' comfort and convenience because the diversion of the flight was due to a fortuitous
event, and that if made liable, an added burden is given to PAL which is over and beyond its
duties under the contract of carriage. It submits that granting arguendo that negligence exists,
PAL cannot be liable in damages in the absence of fraud or bad faith; that private respondent
failed to apprise PAL of the nature of his trip and possible business losses; and, that private
respondent himself is to be blamed for unreasonably refusing to use the free ticket which PAL
issued.
The contract of air carriage is a peculiar one. Being imbued with public interest, the law
requires common carriers to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard for all the
circumstances. 20 In Air France v. Carrascoso, 21 we held that
A contract to transport passengers is quite different in kind and degree from any other contractual
relation. And this, because of the relation which an air carrier sustains with the public. Its
business is mainly with the travelling public. It invites people to avail of the comforts and
advantages it offers. The contract of air carriage, therefore, generates a relation attended with a
public duty . . . . ( emphasis supplied).

The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard
required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a
fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its
passengers. Being in the business of air carriage and the sole one to operate in the country, PAL
is deemed equipped to deal with situations as in the case at bar. What we said in one case once
again must be stressed, i.e., the relation of carrier and passenger continues until the latter has
been landed at the port of destination and has left the carrier's premises. 22 Hence, PAL
necessarily would still have to exercise extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers until they have reached their final destination.
On this score, PAL grossly failed considering the then ongoing battle between government
forces and Muslim rebels in Cotabato City and the fact that the private respondent was a stranger
to the place. As the appellate court correctly ruled
While the failure of plaintiff in the first instance to reach his destination at Ozamis City in
accordance with the contract of carriage was due to the closure of the airport on account of rain
and inclement weather which was radioed to defendant 15 minutes before landing, it has not been
disputed by defendant airline that Ozamis City has no all-weather airport and has to cancel its
flight to Ozamis City or by-pass it in the event of inclement weather. Knowing this fact, it
becomes the duty of defendant to provide all means of comfort and convenience to its passengers
when they would have to be left in a strange place in case of such by-passing. The steps taken by
defendant airline company towards this end has not been put in evidence, especially for those 7
others who were not accommodated in the return trip to Cebu, only 6 of the 21 having been so
accommodated. It appears that plaintiff had to leave on the next flight 2 days later. If the cause of
non-fulfillment of the contract is due to a fortuitous event, it has to be the sole and only cause
(Art.

1755 CC., Art. 1733 C.C.) Since part of the failure to comply with the obligation of common
carrier to deliver its passengers safely to their destination lay in the defendant's failure to provide
comfort and convenience to its stranded passengers using extra-ordinary diligence, the cause of
non-fulfillment is not solely and exclusively due to fortuitous event, but due to something which
defendant airline could have prevented, defendant becomes liable to plaintiff. 23

While we find PAL remiss in its duty of extending utmost care to private respondent while
being stranded in Cotabato City, there is no sufficient basis to conclude that PAL failed to
inform him about his non-accommodation on Flight 560, or that it was inattentive to his queries
relative thereto.
On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that
3. Of the fifteen stranded passengers two pax elected to take F478 on August 05, three pax opted
to take F442 August 03. The remaining ten (10) including subject requested that they be instead
accommodated (sic) on F446 CBO-IGN the following day where they intended to take the surface
transportation to OZC. Mr. Pedro Zapatos had by then been very vocal and boiceterous (sic) at the
counter and we tactfully managed to steer him inside the Station Agent's office. Mr. Pedro
Zapatos then adamantly insisted that all the diverted passengers should have been given priority
over the originating passengers of F560 whether confirmed or otherwise. We explained our
policies and after awhile he seemed pacified and thereafter took his ticket (in-lieued (sic) to CBOIGN, COCON basis), at the counter in the presence of five other passengers who were waiting for
their tickets too. The rest of the diverted pax had left earlier after being assured their tickets will
be ready the following day. 24

Aforesaid Report being an entry in the course of business is prima facie evidence of the facts
therein stated. Private respondent, apart from his testimony, did not offer any controverting
evidence. If indeed PAL omitted to give information about the options available to its diverted
passengers, it would have been deluged with complaints. But, only private respondent
complained
Atty. Rivera (for PAL)
Q I understand from you Mr. Zapatos that at the time you were waiting at
Cotabato Airport for the decision of PAL, you were not informed of the decision
until after the airplane left is that correct?
A

Yes.

COURT:
Q What do you mean by "yes"? You meant you were not informed?
A Yes, I was not informed of their decision, that they will only
accommodate few passengers.
Q Aside from you there were many other stranded passengers?
A I believed, yes.

Q And you want us to believe that PAL did not explain (to) any of these
passengers about the decision regarding those who will board the aircraft back
to Cebu?
A No, Sir.
Q Despite these facts Mr. Zapatos did any of the other passengers
complained (sic) regarding that incident?
xxx xxx xxx
A There were plenty of argument and I was one of those talking about my
case. Q Did you hear anybody complained (sic) that he has not been informed
of the
decision before the plane left for Cebu?
A No. 25

Admittedly, private respondent's insistence on being given priority in accommodation was

unreasonable considering the fortuitous event and that there was a sequence to be observed in the
booking, i.e., in the order the passengers checked-in at their port of origin. His intransigence in
fact was the main cause for his having to stay at the airport longer than was necessary.
Atty. Rivera:
Q And, you were saying that despite the fact that according to your testimony
there were at least 16 passengers who were stranded there in Cotabato airport
according to your testimony, and later you said that there were no other
people left there at that time, is that correct?
A Yes, I did not see anyone there around. I think I was the only civilian who
was left there.
Q Why is it that it took you long time to leave that
place? A Because I was arguing with the PAL personnel.
26

Anent the plaint that PAL employees were disrespectful and inattentive toward private
respondent, the records are bereft of evidence to support the same. Thus, the ruling of
respondent Court of Appeals in this regard is without basis. 27 On the contrary, private
respondent was attended to not only by the personnel of PAL but also by its Manager." 28
In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos
(P50,000.00) unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos
(P10,000.00). Conformably herewith, the award of exemplary damages is also reduced to five
Thousand Pesos (5,000.00). Moral damages are not intended to enrich the private respondent.
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. 29

With regard to the award of actual damages in the amount of P5,000.00 representing private
respondent's alleged business losses occasioned by his stay at Cotabato City, we find the
same unwarranted. Private respondent's testimony that he had a scheduled business
"transaction of shark liver oil supposedly to have been consummated on August 3, 1975 in
the morning" and that "since (private respondent) was out for nearly two weeks I missed to
buy about 10 barrels of shark liver oil," 30 are purely speculative. Actual or compensatory
damages cannot be presumed but must be duly proved with reasonable degree of certainty. A
court cannot rely on speculation, conjecture or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have suffered and on evidence of
the actual amount thereof. 31
WHEREFORE the decision appealed from is AFFIRMED with modification however that
the award of moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten
Thousand Pesos (P10,000.00) while the exemplary damages of Ten Thousand Pesos
(P10,000.00) is also reduced to Five Thousand Pesos (P5,000.00). The award of actual
damages in the amount Five Thousand Pesos (P5,000.00) representing business losses
occasioned by private respondent's being stranded in Cotabato City is deleted.
SO ORDERED.
Cruz, Grio-Aquino, Davide, Jr. and Quiason, JJ., concur.

52

1174

DOCTRINE OF FORTUITOUS EVENT

G.R. No. 126389 July 10, 1998

SOUTHEASTERN COLLEGE INC., petitioner,
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE DIMAANO,
EMERITA DIMAANO, REMEDIOS DIMAANO, CONSOLACION
DIMAANO and MILAGROS DIMAANO, respondents.

PURISIMA,
J.:
Petition for review under Rule 45 of the Rules of Court seeking to set aside the
Decision 1 promulgated on July 31, 1996, and Resolution 2 dated September 12,
1996 of the Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus
vda. de Dimaano, et al. vs. Southeastern College, Inc.", which reduced the moral
damages awarded below from P1,000,000.00 to P200,000.00. 4 The Resolution
under attack denied petitioner's motion for reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while
petitioner owns a four-storey school building along the same College Road. On
October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit
Metro Manila. Buffeted by very strong winds, the roof of petitioner's building was
partly ripped off and blown away, landing on and destroying portions of the
roofing of private respondents' house. After the typhoon had passed, an ocular
inspection of the destroyed building was conducted by a team of engineers
headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the
latter's Report 5 dated October 18, 1989 stated, as follows:
5. One of the factors that may have led to this calamitous event is the
formation of the building in the area and the general direction of the wind.
Situated in the peripheral lot is an almost U-shaped formation of 4-storey
building. Thus, with the strong winds having a westerly direction, the general
formation of the building becomes a big funnel- like structure, the one
situated along College Road, receiving the heaviest impact of the strong
winds. Hence, there are portions of the

53

roofing, those located on both ends of the building, which remained

intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging of the
roofing structural trusses is the improper anchorage of the said trusses to the
roof beams. The 1/2' diameter steel bars embedded on the concrete roof
beams which serve as truss anchorage are not bolted nor nailed to the trusses.
Still, there are other steel bars which were not even bent to the trusses, thus,
those trusses are not anchored at all to the roof beams.
It then recommended that "to avoid any further loss and damage to lives,
limbs and property of persons living in the vicinity," the fourth floor of
subject school building be declared as a "structural hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for
damages based on culpa aquiliana, private respondents alleged that the damage to
their house rendered the same uninhabitable, forcing them to stay temporarily in
others' houses. And so they sought to recover from petitioner P117,116.00, as
actual damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary
damages and P100,000.00, for and as attorney's fees; plus costs.
In its Answer, petitioner averred that subject school building had withstood several
devastating typhoons and other calamities in the past, without its roofing or any
portion thereof giving way; that it has not been remiss in its responsibility to see to
it that said school building, which houses school children, faculty members, and
employees, is "in tip-top condition"; and furthermore, typhoon "Saling" was "an
act of God and therefore beyond human control" such that petitioner cannot be
answerable for the damages wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the effect that
subject school building had a "defective roofing structure," found that, while
typhoon "Saling" was accompanied by strong winds, the damage to private
respondents' houses "could have been avoided if the construction of the roof of
[petitioner's] building was not faulty." The dispositive portion of the lower court's
decision 7 reads, thus:
WHEREFORE, in view of the foregoing, the Court renders judgment
(sic) in favor of the plaintiff (sic) and against the defendants, (sic)
ordering the latter to pay jointly and severally the former as follows:

54

a) P117,116.00, as actual damages, plus litigation expenses;

b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that the
defendants (sic) did in a wanton fraudulent, reckless, oppressive or
malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as errors, 8 that:
I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON
"SALING", AS AN ACT OF GOD, IS NOT "THE SOLE AND
ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE SMALL
PORTION OF THE ROOF OF SOUTHEASTERN'S FOUR (4)
STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT "THE
CONSTRUCTION OF THE ROOF OF DEFENDANT'S SCHOOL
BUILDING WAS FAULTY" NOTWITHSTANDING THE
ADMISSION THAT THERE WERE TYPHOONS BEFORE BUT
NOT AS GRAVE AS TYPHOON "SALING" WHICH IS THE
DIRECT AND PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND
MORAL DAMAGES AS WELL AS ATTORNEY'S FEES AND
LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS
WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT
ALL AS DIMAANOS HAVE ALREADY SOLD THEIR
PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS
CASE MOOT AND ACADEMIC.

IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF
THE WRIT OF EXECUTION INSPITE OF THE PERFECTION OF
SOUTHEASTERN'S APPEAL WHEN THERE IS NO
COMPELLING REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with modification the
trial court's disposition by reducing the award of moral damages from
P1,000,000.00 to P200,000.00. Hence, petitioner's resort to this Court, raising
for resolution the issues of:
1. Whether or not the award of actual damages [sic] to respondent
Dimaanos on the basis of speculation or conjecture, without proof or
receipts of actual damage, [sic] legally feasible or justified.
2. Whether or not the award of moral damages to respondent Dimaanos, with
the latter having suffered, actual damage has legal basis.
3. Whether or not respondent Dimaanos who are no longer the owner of the
property, subject matter of the case, during its pendency, has the right to
pursue their complaint against petitioner when the case was already moot
and academic by the sale of the property to third party.
4. Whether or not the award of attorney's fees when the case was already
moot academic [sic] legally justified.
5. Whether or not petitioner is liable for damage caused to others by typhoon
"Saling" being an act of God.
6. Whether or not the issuance of a writ of execution pending appeal,
ex-parte or without hearing, has support in law.
The pivot of inquiry here, determinative of the other issues, is whether the damage
on the roof of the building of private respondents resulting from the impact of the
falling portions of the school building's roof ripped off by the strong winds of
typhoon "Saling", was, within legal contemplation, due to fortuitous event? If so,
petitioner cannot be held liable for the damages suffered by the private
respondents. This conclusion finds support in Article 1174 of Civil Code, which
provides:

Art 1174. Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though
foreseen, were inevitable.
The antecedent of fortuitous event or caso fortuito is found in the Partidas which
defines it as "an event which takes place by accident and could not have been
foreseen." 9 Escriche elaborates it as "an unexpected event or act of God which
could neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino adds that
"[f]ortuitous events may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man, such as
an armed invasion, attack by bandits, governmental prohibitions, robbery, etc." 11
In order that a fortuitous event may exempt a person from liability, it is necessary
that he be free from any previous negligence or misconduct by reason of which the
loss may have been occasioned. 12 An act of God cannot be invoked for the
protection of a person who has been guilty of gross negligence in not trying to
forestall its possible adverse consequences. When a person's negligence concurs
with an act of God in producing damage or injury to another, such person is not
exempt from liability by showing that the immediate or proximate cause of the
damages or injury was a fortuitous event. When the effect is found to be
partly the result of the participation of man whether it be from active
intervention, or neglect, or failure to act the whole occurrence is hereby
humanized, and removed from the rules applicable to acts of God. 13
In the case under consideration, the lower court accorded full credence to the
finding of the investigating team that subject school building's roofing had "no
sufficient anchorage to hold it in position especially when battered by strong
winds." Based on such finding, the trial court imputed negligence to petitioner and
adjudged it liable for damages to private respondents.
After a thorough study and evaluation of the evidence on record, this Court
believes otherwise, notwithstanding the general rule that factual findings by the
trail court, especially when affirmed by the appellate court, are binding and
conclusive upon this Court. 14 After a careful scrutiny of the records and the
pleadings submitted by the parties, we find exception to this rule and hold that
the lower courts misappreciated the evidence proffered.

There is no question that a typhoon or storm is a fortuitous event, a natural

occurrence which may be foreseen but is unavoidable despite any amount of
foresight, diligence or care. 15 In order to be exempt from liability arising from any
adverse consequence engendered thereby, there should have been no human
participation amounting to a negligent act. 16 In other words; the person seeking
exoneration from liability must not be guilty of negligence. Negligence, as
commonly understood, is conduct which naturally or reasonably creates undue risk
or harm to others. It may be the failure to observe that degree of care, precaution,
and vigilance which the circumstances justify demand, 17 or the omission to do
something which a prudent and reasonable man, guided by considerations which
ordinarily
regulate
the
conduct
of
human
affairs,
would
18
do.
From these premises, we proceed to determine whether petitioner was
negligent, such that if it were not, the damage caused to private respondents' house
could have been avoided?
At the outset, it bears emphasizing that a person claiming damages for the
negligence of another has the burden of proving the existence of fault or
negligence causative of his injury or loss. The facts constitutive of negligence
must be affirmatively established by competent evidence, 19 not merely by
presumptions and conclusions without basis in fact. Private respondents, in
establishing the culpability of petitioner, merely relied on the aforementioned
report submitted by a team which made an ocular inspection of petitioner's school
building after the typhoon. As the term imparts, an ocular inspection is one by
means of actual sight or viewing. 20 What is visual to the eye through, is not
always reflective of the real cause behind. For instance, one who hears a gunshot
and then sees a wounded person, cannot always definitely conclude that a third
person shot the victim. It could have been self-inflicted or caused accidentally by
a stray bullet. The relationship of cause and effect must be clearly shown.
In the present case, other than the said ocular inspection, no investigation was
conducted to determine the real cause of the partial unroofing of petitioner's school
building. Private respondents did not even show that the plans, specifications and
design of said school building were deficient and defective. Neither did they prove
any substantial deviation from the approved plans and specifications. Nor did they
conclusively establish that the construction of such building was basically flawed.
21

On the other hand, petitioner elicited from one of the witnesses of private
respondents, city building official Jesus Reyna, that the original plans and design
of petitioner's school building were approved prior to its construction. Engr.
Reyna admitted that it was a legal requirement before the construction of any
building to

obtain a permit from the city building official (city engineer, prior to the passage of
the Building Act of 1977). In like manner, after construction of the building, a
certification must be secured from the same official attesting to the readiness for
occupancy of the edifice. Having obtained both building permit and certificate of
occupancy, these are, at the very least, prima facie evidence of the regular and
proper construction of subject school building. 22
Furthermore, when part of its roof needed repairs of the damage inflicted by
typhoon "Saling", the same city official gave the go-signal for such repairs
without any deviation from the original design and subsequently, authorized
the use of the entire fourth floor of the same building. These only prove that
subject building suffers from no structural defect, contrary to the report that its "Ushaped" form was "structurally defective." Having given his unqualified
imprimatur, the city building official is presumed to have properly performed his
duties 23 in connection therewith.
In addition, petitioner presented its vice president for finance and administration
who testified that an annual maintenance inspection and repair of subject school
building were regularly undertaken. Petitioner was even willing to present its
maintenance supervisor to attest to the extent of such regular inspection but
private respondents agreed to dispense with his testimony and simply stipulated
that it would be corroborative of the vice president's narration.
Moreover, the city building official, who has been in the city government service
since 1974, admitted in open court that no complaint regarding any defect on the
same structure has ever been lodged before his office prior to the institution of the
case at bench. It is a matter of judicial notice that typhoons are common
occurrences in this country. If subject school building's roofing was not firmly
anchored to its trusses, obviously, it could not have withstood long years and
several typhoons even stronger than "Saling."
In light of the foregoing, we find no clear and convincing evidence to sustain the
judgment of the appellate court. We thus hold that petitioner has not been shown
negligent or at fault regarding the construction and maintenance of its school
building in question and that typhoon "Saling" was the proximate cause of the
damage suffered by private respondents' house.
With this disposition on the pivotal issue, private respondents' claim for actual and
moral damages as well as attorney's fees must fail. 24 Petitioner cannot be made to
answer for a purely fortuitous event. 25 More so because no bad faith or willful act
to cause damage was alleged and proven to warrant moral damages.

Private respondents failed to adduce adequate and competent proof of the

pecuniary loss they actually incurred. 26 It is not enough that the damage be
capable of proof but must be actually proved with a reasonable degree of
certainty, pointing out specific facts that afford a basis for measuring whatever
compensatory damages are borne. 27 Private respondents merely submitted an
estimated amount needed for the repair of the roof their subject building. What
is more, whether the "necessary repairs" were caused ONLY by petitioner's
alleged negligence in the maintenance of its school building, or included the
ordinary wear and tear of the house itself, is an essential question that remains
indeterminable.
The Court deems unnecessary to resolve the other issues posed by petitioner.
As regards the sixth issue, however, the writ of execution issued on April 1, 1993
by the trial court is hereby nullified and set aside. Private respondents are
ordered to reimburse any amount or return to petitioner any property which they
may have received by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is
REVERSED. The complaint of private respondents in Civil Case No. 7314 before
the trial court a quo is ordered DISMISSED and the writ of execution issued on
April 1, 1993 in said case is SET ASIDE. Accordingly, private respondents are
ORDERED to return to petitioner any amount or property received by them by
virtue of said writ. Costs against the private respondents.
SO ORDERED.
Narvasa, C.J., Romero and Kapunan, JJ., concur.

1174 DOCTRINE OF FORTUITOUS EVENT

G.R. No. 147324

May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION,

petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and
Radio Corporation), respondents.
x ----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION,
respondent.
DECISION
TINGA,
J.:
Before the Court are two Petitions for Review assailing the Decision of the Court of
Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now
Globe Telecom, Inc. (Globe), had been engaged in the coordination of the
provision of various communication facilities for the military bases of the
United States of America (US) in Clark Air Base, Angeles, Pampanga and Subic
Naval Base in Cubi Point, Zambales. The said communication facilities were
installed and configured for the exclusive use of the US Defense
Communications Agency (USDCA), and for security reasons, were operated
only by its personnel or those of American companies contracted by it to
operate said facilities. The USDCA contracted with said American companies,
and the latter, in turn, contracted with Globe for the use of the communication
facilities. Globe, on the other hand, contracted with local service providers
such as the Philippine Communications Satellite Corporation (Philcomsat) for
the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby
Philcomsat obligated itself to establish, operate and provide an IBS Standard B
earth

station (earth station) within Cubi Point for the exclusive use of the USDCA. 2 The
term of the contract was for 60 months, or five (5) years.3 In turn, Globe promised
to pay Philcomsat monthly rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that the Military
Bases Agreement between the Republic of the Philippines and the US (RP-US
Military Bases Agreement), which was the basis for the occupancy of the Clark Air
Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25,
Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities,
which include those located at the US Naval Facility in Cubi Point, shall not be
allowed in the Philippines unless a new treaty is duly concurred in by the Senate
and ratified by a majority of the votes cast by the people in a national referendum
when the Congress so requires, and such new treaty is recognized as such by
the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point
and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141,
expressing its decision not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements that was supposed to
extend the term of the use by the US of Subic Naval Base, among others.5 The last
two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the
continuing relationship between the two countries in the spirit of friendship,
cooperation and sovereign equality: Now, therefore, be it Resolved by the
Senate, as it is hereby resolved, To express its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements, at the same time reaffirming its desire to
continue friendly relations with the government and people of the United
States of America.6
On 31 December 1991, the Philippine Government sent a Note Verbale to the US
Government through the US Embassy, notifying it of the Philippines termination
of the RP-US Military Bases Agreement. The Note Verbale stated that since the
RP- US Military Bases Agreement, as amended, shall terminate on 31 December
1992, the withdrawal of all US military forces from Subic Naval Base should be
completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to
discontinue the use of the earth station effective 08 November 1992 in view of the

withdrawal of US military personnel from Subic Naval Base after the termination
of the RP-US Military Bases Agreement. Globe invoked as basis for the letter
of termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to
perform its obligation under this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event. Either party is thus
precluded from performing its obligation until such force majeure or
fortuitous event shall terminate. For the purpose of this paragraph, force
majeure shall mean circumstances beyond the control of the party involved
including, but not limited to, any law, order, regulation, direction or request
of the Government of the Philippines, strikes or other labor difficulties,
insurrection riots, national emergencies, war, acts of public enemies, fire,
floods, typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we
expect [Globe] to know its commitment to pay the stipulated rentals for the
remaining terms of the Agreement even after [Globe] shall have discontinue[d]
the use of the earth station after November 08, 1992."7 Philcomsat referred to
Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it
has been put into operation, a written notice shall be served to
PHILCOMSAT at least sixty (60) days prior to the expected date of
termination. Notwithstanding the non-use of the earth station, [Globe] shall
continue to pay PHILCOMSAT for the rental of the actual number of T1
circuits in use, but in no case shall be less than the first two (2) T1 circuits,
for the remaining life of the agreement. However, should PHILCOMSAT
make use or sell the earth station subject to this agreement, the obligation of
[Globe] to pay the rental for the remaining life of the agreement shall be at
such monthly rate as may be agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter
dated 24 November 1993 demanding payment of its outstanding obligations under
the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees.
However, Globe refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a
Complaint against Globe, praying that the latter be ordered to pay liquidated

damages under the Agreement, with legal interest, exemplary damages, attorneys
fees and costs of suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to the termination of the RP-US Military Bases Agreement and the
non-ratification by the Senate of the Treaty of Friendship and Cooperation, which
events constituted force majeure under the Agreement. Globe explained that the
occurrence of said events exempted it from paying rentals for the remaining period
of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two
Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or its
equivalent in Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment) representing rentals for
the month of December 1992 with interest thereon at the legal rate of
twelve percent (12%) per annum starting December 1992 until the
amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three
Hundred Thousand (P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of merit;
and
4.

With costs against the defendant. SO

ORDERED.9

Both parties appealed the trial courts Decision to the Court of

Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification
by the Senate of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements constitutes force majeure which exempts Globe from
complying with its obligations under the Agreement; (2) Globe is not liable to pay
the rentals for the remainder of the term of the Agreement; and (3) Globe is not
liable to Philcomsat for exemplary damages.

Globe, on the other hand, contended that the RTC erred in holding it liable for
payment of rent of the earth station for December 1992 and of attorneys fees. It
explained that it terminated Philcomsats services on 08 November 1992; hence, it
had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing
Philcomsats appeal for lack of merit and affirming the trial courts finding that
certain events constituting force majeure under Section 8 the Agreement occurred
and justified the non-payment by Globe of rentals for the remainder of the term of
the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security, and its Supplementary Agreements, and the
termination by the Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine Governments Note
Verbale to the US Government, are acts, directions, or requests of the
Government of the Philippines which constitute force majeure. In addition, there
were circumstances beyond the control of the parties, such as the issuance of a
formal order by Cdr. Walter Corliss of the US Navy, the issuance of the letter
notification from ATT and the complete withdrawal of all US military forces and
personnel from Cubi Point, which prevented further use of the earth station under
the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate
Philcomsats services by 08 November 1992, it is still liable to pay rentals for the
December 1992, amounting to US$92,238.00 plus interest, considering that the US
military forces and personnel completely withdrew from Cubi Point only on 31
December 1992.10
Both parties filed their respective Petitions for Review assailing the Decision of the
Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of
error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A
DEFINITION OF FORCE MAJEURE DIFFERENT FROM WHAT ITS
LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE,
PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM
COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT

GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS
FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE
CLEAR TENOR OF SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING
THE TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF
PHILCOMSAT.
D.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT

GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR
EXEMPLARY DAMAGES.12

Philcomsat argues that the termination of the RP-US Military Bases Agreement
cannot be considered a fortuitous event because the happening thereof was
foreseeable. Although the Agreement was freely entered into by both parties,
Section 8 should be deemed ineffective because it is contrary to Article 1174 of
the Civil Code. Philcomsat posits the view that the validity of the parties
definition of force majeure in Section 8 of the Agreement as "circumstances
beyond the control of the party involved including, but not limited to, any law,
order, regulation, direction or request of the Government of the Philippines,
strikes or other labor difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other catastrophies or acts of
God," should be deemed subject to Article 1174 which defines fortuitous events
as events which could not be foreseen, or which, though foreseen, were
inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that Globe is
not liable to pay for the rental of the earth station for the entire term of the
Agreement because it runs counter to what was plainly stipulated by the parties
in Section 7 thereof. Moreover, said ruling is inconsistent with the appellate
courts pronouncement that Globe is liable to pay rentals for December 1992 even
though it terminated Philcomsats services effective 08 November 1992,
because the US military and personnel completely withdrew from Cubi Point
only in December 1992. Philcomsat points out that it was Globe which proposed
the five-year term of the Agreement, and that the other provisions of the
Agreement, such as Section 4.114 thereof, evince the intent of Globe to be bound to
pay rentals for the entire five-year term.15
Philcomsat also maintains that contrary to the appellate courts findings, it is
entitled to attorneys fees and exemplary damages.16

In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the

Agreement is not contrary to Article 1174 of the Civil Code because said provision
does not prohibit parties to a contract from providing for other instances when they
would be exempt from fulfilling their contractual obligations. Globe also claims
that the termination of the RP-US Military Bases Agreement constitutes force
majeure and exempts it from complying with its obligations under the
Agreement.17 On the issue of the propriety of awarding attorneys fees and
exemplary damages to Philcomsat, Globe maintains that Philcomsat is not
entitled thereto because in refusing to pay rentals for the remainder of the term
of the Agreement, Globe only acted in accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of
Appeals erred in finding it liable for the amount of US$92,238.00, representing
rentals for December 1992, since Philcomsats services were actually terminated
on 08 November 1992.20
In its Comment, Philcomsat claims that Globes petition should be dismissed as it
raises a factual issue which is not cognizable by the Court in a petition for review
on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsats
Petition in G.R. No.
147324 and required the parties to submit their respective
memoranda.22
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to
the Petition filed by Globe in G.R. No. 147334 and required both parties to submit
their memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in
the two cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of
the RP-US Military Bases Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security, and the consequent withdrawal of US
military forces and personnel from Cubi Point constitute force majeure which
would exempt Globe from complying with its obligation to pay rentals under its
Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and (3) whether Philcomsat is
entitled to attorneys fees and exemplary damages.

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

5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the
control of the parties. There is nothing in the enumeration that runs contrary to, or
expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may
establish such stipulations, clauses, terms and conditions as they may deem fit, as
long as the same do not run counter to the law, morals, good customs, public order
or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising from
contracts have the force of law between the contracting parties and should be
complied with in good faith."28 Courts cannot stipulate for the parties nor amend
their agreement where the same does not contravene law, morals, good customs,
public order or public policy, for to do so would be to alter the real intent of the
parties, and would run contrary to the function of the courts to give force and effect
thereto.29
Not being contrary to law, morals, good customs, public order, or public policy,
Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has
the force of law between them.30
In order that Globe may be exempt from non-compliance with its obligation to pay
rentals under Section 8, the concurrence of the following elements must be
established: (1) the event must be independent of the human will; (2) the
occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and (3) the obligor must be free of participation in, or aggravation
of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat and Globe
had no control over the non-renewal of the term of the RP-US Military Bases
Agreement

when the same expired in 1991, because the prerogative to ratify the treaty
extending the life thereof belonged to the Senate. Neither did the parties have
control over the subsequent withdrawal of the US military forces and personnel
from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases
Agreement (and its Supplemental Agreements) under its Resolution No. 141.
(Exhibit "2") on September 16, 1991 is beyond the control of the parties.
This resolution was followed by the sending on December 31, 1991 o[f] a
"Note Verbale" (Exhibit "3") by the Philippine Government to the US
Government notifying the latter of the formers termination of the RP-US
Military Bases Agreement (as amended) on 31 December 1992 and that
accordingly, the withdrawal of all U.S. military forces from Subic Naval
Base should be completed by said date. Subsequently, defendant [Globe]
received a formal order from Cdr. Walter F. Corliss II Commander USN
dated July 31, 1992 and a notification from ATT dated July 29, 1992 to
terminate the provision of T1s services (via an IBS Standard B Earth
Station) effective November 08, 1992. Plaintiff [Philcomsat] was furnished
with copies of the said order and letter by the defendant on August 06,
1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the
Philippine Government to the US Government are acts, direction or request
of the Government of the Philippines and circumstances beyond the control
of the defendant. The formal order from Cdr. Walter Corliss of the USN, the
letter notification from ATT and the complete withdrawal of all the military
forces and personnel from Cubi Point in the year-end 1992 are also acts and
circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the aforenarrated circumstances constitute "force majeure or fortuitous event(s)
as defined under paragraph 8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from
paying the rentals for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases
Agreement (as amended) the continued stay of all US Military forces and
personnel from Subic Naval Base would no longer be allowed, hence,

plaintiff would no longer be in any position to render the service it was

obligated under the

Agreement. To put it blantly (sic), since the US military forces and

personnel left or withdrew from Cubi Point in the year end December 1992,
there was no longer any necessity for the plaintiff to continue
maintaining the IBS facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement
until the end of its five-year term without fault on the part of either party. The
Court of Appeals was thus correct in ruling that the happening of such
fortuitous events rendered Globe exempt from payment of rentals for the
remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even
though Philcomsat cannot be compelled to perform its corresponding obligation
under the Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSATs position.
PHILCOMSAT would like to charge GLOBE rentals for the balance of the
lease term without there being any corresponding telecommunications
service subject of the lease. It will be grossly unfair and iniquitous to hold
GLOBE liable for lease charges for a service that was not and could not
have been rendered due to an act of the government which was clearly
beyond GLOBEs control. The binding effect of a contract on both
parties is based on the principle that the obligations arising from
contracts have the force of law between the contracting parties, and there
must be mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract while
leaving the other party free therefrom (Allied Banking Corporation v.
Court of Appeals, 284 SCRA 357).33
With respect to the issue of whether Globe is liable for payment of rentals for the
month of December 1992, the Court likewise affirms the appellate courts ruling
that Globe should pay the same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective
08 November 1992 pursuant to the formal order issued by Cdr. Corliss of the US
Navy, the date when they actually ceased using the earth station subject of the
Agreement was not established during the trial.34 However, the trial court found
that the US military forces and personnel completely withdrew from Cubi Point
only on 31 December 1992.35 Thus, until that date, the USDCA had control over
the earth station and had the option of using the same. Furthermore, Philcomsat
could not have removed or rendered ineffective said communication facility
until after 31

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

1174 DOCTRINE
EVENT
G.R. No. 147839

OF

FORTUITOUS

June 8, 2006

GAISANO CAGAYAN, INC.

Petitioner,
vs
.
INSURANCE COMPANY OF NORTH AMERICA,
Respondent. D E C I S I O N
AUSTRIA-MARTINEZ,
J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the Court of Appeals
(CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court,
Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance
Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April
11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as
follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the
local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained
from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines."2 The policies defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."3 The
policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the
date of the covering invoice or actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid and thus become receivable item from their
customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore
Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in
the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed
with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of
February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with
IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by
virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands
for payment upon petitioner but these went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the
property covered by the insurance policies were destroyed due to fortuities event or force majeure; that
respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the
loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured
their properties; that it never consented to paying the claim of the insured.6

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits
ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the fire was
purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been
established that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed
that merely for purpose of securing the payment of purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods
and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the
decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is
entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss
Phil., Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendantappellee. SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the
thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales
invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit domino;
that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account
and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous event; that by
subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book debt endorsements,
what was insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11,
2001.13 Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS
ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE
INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since
an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not
credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of
the non- payment by petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no
loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner for
payment of the debt and such demands came from respondent only after it had already paid IMC and LSPI under the fire
insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the
risk of loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid
insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the
goods; that petitioner was not privy to the insurance contract or the payment between respondent and its insured nor was
its consent or approval ever secured; that this lack of privity forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon
delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was caused through
petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property because
electric wires do not usually short circuit unless there are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses and cost of
suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited
to reviewing questions of law which involves no examination of the probative value of the evidence presented by the
litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh
evidence all over again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme
Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court,
such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the
CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.21
Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing
a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies
to loss of the ready-made clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's
stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction.22
In this case, the questioned insurance policies provide coverage for "book debts in connection with ready-made
clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."23
; and defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the
time
of the loss covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of
the insurance is the goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.25
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days
after the loss through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in
the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the
above described merchandise remains the property of the vendor until the purchase price thereof is fully paid."26

The
Court
persuaded.

is

not

The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the
buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the
value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but
whether insured has substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an
existing interest;
(b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out
of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against which it is insured.29 Anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its destruction.30 Indeed, a vendor or seller
retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he
would suffer by its destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI
pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the
policies.
The next question is: Is petitioner liable for the unpaid
accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code
is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts
with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of
money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to
make the payment even by reason of a fortuitous event shall not relieve him of his liability.33 The rationale for this is
that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable
even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything
of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is
designated merely by its class or genus without any particular designation or physical segregation from all others of the
same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has incurred
in delay will not have the effect of extinguishing the obligation.35 This rule is based on the principle that the genus of

a thing can never perish. Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant
here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner
has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing
payment to IMC. Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the
insurance proceeds. All these documents have been properly identified, presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the
insured, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment
by the insurance company of the insurance claim.41 Respondent's action against petitioner is squarely sanctioned by
Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x
Petitioner
evidence.

failed

to

refute

respondent's

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be
given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S.
Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in
evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of
P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated
April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the
order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis.
No pronouncement as to
costs. SO ORDERED

1174 DOCTRINE OF FORTUITOUS EVENT

G.R. No. 159617
2007

August 8,

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,

vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr.
(petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner corporation)
seeking to annul the Decision1 of the Court of Appeals dated March 31, 2003,
and its Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge
(respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a
loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault. The incident was
entered in the police blotter of the Southern Police District, Paraaque Police
Station as follows:
Investigation shows that at above TDPO, while victims were inside the
office, two (2) male unidentified persons entered into the said office with
guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an electric wire while suspects
(sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and
ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the
case and assorted pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a Marson
Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing
her of the loss of her jewelry due to the robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu then wrote a letter4 to petitioner Sicam
expressing disbelief

stating that when the robbery happened, all jewelry pawned were deposited with
Far East Bank near the pawnshop since it had been the practice that before they
could withdraw, advance notice must be given to the pawnshop so it could
withdraw the jewelry from the bank. Respondent Lulu then requested petitioner
Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but
petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed
a complaint against petitioner Sicam with the Regional Trial Court of Makati
seeking indemnification for the loss of pawned jewelry and payment of actual,
moral and exemplary damages as well as attorney's fees. The case was docketed as
Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-ininterest as the pawnshop was incorporated on April 20, 1987 and known as
Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care
and diligence in the safekeeping of the articles pledged with it and could not be
made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner
corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned
considering that he is not the real party-in-interest. Respondents opposed the same.
The RTC denied the motion in an Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993,
dismissing respondents complaint as well as petitioners counterclaim. The RTC
held that petitioner Sicam could not be made personally liable for a claim arising
out of a corporate transaction; that in the Amended Complaint of respondents,
they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop";
and that as a consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable for the
loss of the pawned jewelry since it had not been rebutted by respondents that the
loss of the pledged pieces of jewelry in the possession of the corporation was
occasioned by armed robbery; that robbery is a fortuitous event which exempts the
victim from liability for the loss, citing the case of Austria v. Court of Appeals;7
and that the parties transaction was that of a pledgor and pledgee and under Art.
1174 of the

Civil Code, the pawnshop as a pledgee is not responsible for those events which
could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31,
2003, the CA reversed the RTC, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and
the Decision dated January 12, 1993,of the Regional Trial Court of Makati,
Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees
to pay appellants the actual value of the lost jewelry amounting to
P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA
applied the doctrine of piercing the veil of corporate entity reasoning that
respondents were misled into thinking that they were dealing with the pawnshop
owned by petitioner Sicam as all the pawnshop tickets issued to them bear the
words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop
tickets that it was the petitioner corporation that owned the pawnshop which
explained why respondents had to amend their complaint impleading petitioner
corporation.
The CA further held that the corresponding diligence required of a pawnshop is
that it should take steps to secure and protect the pledged items and should take
steps to insure itself against the loss of articles which are entrusted to its custody as
it derives earnings from the pawnshop trade which petitioners failed to do; that
Austria is not applicable to this case since the robbery incident happened in
1961 when the criminality had not as yet reached the levels attained in the present
day; that they are at least guilty of contributory negligence and should be held
liable for the loss of jewelries; and that robberies and hold-ups are foreseeable
risks in that those engaged in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable
to respondents for the loss of the pawned jewelry.
Petitioners motion for reconsideration was denied in a Resolution dated August 8,
2003.
Hence, the instant petition for review with the following assignment of
errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN
FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME

ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN

THEIR
BRIEF,
WHICH
ARGUMENT
WAS
PALPABLY
UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT
AGAIN
ADOPTED
UNCRITICALLY
(BUT
WITHOUT
ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS
IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO
DESPITE THE FACT THAT THE SAID ARGUMENT OF THE
RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF
UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CAs finding that
petitioner Sicam is personally liable for the loss of the pawned jewelries is "a
virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the
Appellants brief."10
Petitioners argue that the reproduced arguments of respondents in their Appellants
Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their
Amended Complaint that Agencia de R.C. Sicam, Inc. is the present
owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA
cannot rule against said conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those
raised and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to have
pierced the corporate veil since a corporation has a personality
distinct and separate from its individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on their
negligence is likewise an unedited reproduction of respondents brief which had
the following defects:
(1) There were unrebutted evidence on record that petitioners had observed the
diligence required of them, i.e, they wanted to open a vault with a nearby
bank for purposes of safekeeping the pawned articles but was discouraged by

the Central Bank (CB) since CB rules provide that they can only store the
pawned articles in a vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against the
loss of the pledged jelweries, but it is judicial notice that due to high
incidence of crimes, insurance companies refused to cover pawnshops and
banks because of high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the
victim of robbery was exonerated from liability for the sum of money
belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The
parties subsequently submitted their respective Memoranda.
We find no merit in the
petition.
To begin with, although it is true that indeed the CA findings were exact
reproductions of the arguments raised in respondents (appellants) brief filed with
the CA, we find the same to be not fatally infirmed. Upon examination of the
Decision, we find that it expressed clearly and distinctly the facts and the law on
which it is based as required by Section 8, Article VIII of the Constitution. The
discretion to decide a case one way or another is broad enough to justify the
adoption of the arguments put forth by one of the parties, as long as these are
legally tenable and supported by law and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of
errors of law committed by the appellate court. Generally, the findings of fact
of the appellate court are deemed conclusive and we are not duty-bound to
analyze and calibrate all over again the evidence adduced by the parties in the
court a quo.12 This rule, however, is not without exceptions, such as where the
factual findings of the Court of Appeals and the trial court are conflicting or
contradictory13 as is obtaining in the instant case.
However, after a careful examination of the records, we find no justification to
absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner
Sicam liable together with petitioner corporation. The rule is that the veil of
corporate fiction may be pierced when made as a shield to perpetrate fraud and/or

confuse legitimate issues. 14 The theory of corporate entity was not meant to
promote unfair objectives or otherwise to shield them.15
Notably, the evidence on record shows that at the time respondent Lulu pawned
her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly
observed by the CA, in all the pawnshop receipts issued to respondent Lulu in
September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding
that the pawnshop was allegedly incorporated in April 1987. The receipts issued
after such alleged incorporation were still in the name of "Agencia de R. C.
Sicam," thus inevitably misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that the pawnshop was owned
solely by petitioner Sicam and not by a corporation.
Even petitioners counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15,
1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the
proprietor of the pawnshop notwithstanding the alleged incorporation in April
1987.
We also find no merit in petitioners' argument that since respondents had alleged in
their Amended Complaint that petitioner corporation is the present owner of the
pawnshop, the CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or
written, made by a party in the course of the proceedings in the same case, does
not require proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the party
making it and does not require proof, admits of two exceptions, to wit: (1) when it
is shown that such admission was made through palpable mistake, and (2) when it
is shown that no such admission was in fact made. The latter exception
allows one to contradict an admission by denying that he made such an
admission.17
The Committee on the Revision of the Rules of Court explained the
second exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the
admission "out of context," then the one making the "admission" may show
that he made no "such" admission, or that his admission was taken out of
context.

x x x that the party can also show that he made no "such admission",
i.e., not in the sense in which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply states
that the admission may be contradicted by showing that "no admission was
made," the rule would not really be providing for a contradiction of the
admission but just a denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that petitioner
corporation is the present owner of the pawnshop, they did so only because
petitioner Sicam alleged in his Answer to the original complaint filed against him
that he was not the real party-in-interest as the pawnshop was incorporated in
April 1987. Moreover, a reading of the Amended Complaint in its entirety
shows that respondents referred to both petitioner Sicam and petitioner corporation
where they (respondents) pawned their assorted pieces of jewelry and ascribed to
both the failure to observe due diligence commensurate with the business which
resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners Motion to Dismiss
Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original complaint
because the pawnshop tickets involved in this case did not show that the
R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2 of the Complaint. He
merely added "that defendant is not now the real party in interest in this
case."
It was defendant Sicam's omission to correct the pawnshop tickets used in
the subject transactions in this case which was the cause of the instant
action. He cannot now ask for the dismissal of the complaint against him
simply on the mere allegation that his pawnshop business is now
incorporated. It is a matter of defense, the merit of which can only be
reached after consideration of the evidence to be presented in due course.19
Unmistakably, the alleged admission made in respondents' Amended Complaint
was taken "out of context" by petitioner Sicam to suit his own purpose.
Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts
under his name and not under the corporation's name militates for the piercing of
the corporate veil.

We likewise find no merit in petitioners' contention that the CA erred in piercing

the veil of corporate fiction of petitioner corporation, as it was not an issue raised
and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was not
the real party-in-interest because since April 20, 1987, the pawnshop business
initiated by him was incorporated and known as Agencia de R.C. Sicam. In the pretrial brief filed by petitioner Sicam, he submitted that as far as he was concerned,
the basic issue was whether he is the real party in interest against whom the
complaint should be directed.20 In fact, he subsequently moved for the dismissal
of the complaint as to him but was not favorably acted upon by the trial court.
Moreover, the issue was squarely passed upon, although erroneously, by the trial
court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is
concerned for the reason that he cannot be made personally liable for a claim
arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr.
The amended complaint itself asserts that "plaintiff pawned assorted
jewelries in defendant's pawnshop." It has been held that " as a consequence
of the separate juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of the stockholder, nor is the stockholder's
debt or credit that of a corporation.21
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether
petitioner Sicam is personally liable is inextricably connected with the
determination of the question whether the doctrine of piercing the corporate veil
should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the pawned
articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they
are not negligent at all.
We
are
persuaded.

not

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the happening is not impossibility to
foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation of the injury
or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on him who
invokes it.24 And, in order for a fortuitous event to exempt one from liability, it is
necessary that one has committed no negligence or misconduct that may have
occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who has
failed to take steps to forestall the possible adverse consequences of such a loss.
One's negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of
the damage or injury was a fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a person's participation -whether by active intervention, neglect or failure to act -- the whole occurrence
is humanized and removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at
the time of the robbery. He likewise testified that when he started the pawnshop
business in 1983, he thought of opening a vault with the nearby bank for the
purpose of safekeeping the valuables but was discouraged by the Central Bank
since pawned articles should only be stored in a vault inside the pawnshop. The
very measures which petitioners had allegedly adopted show that to them the
possibility of robbery

was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicams
testimony, in effect, contradicts petitioners defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by
which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose
the possibility of negligence on the part of herein petitioners. In Co v. Court of
Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability
simply because the damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully
and forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To
be considered as such, carnapping entails more than the mere forceful
taking of another's property. It must be proved and established that the
event was an act of God or was done solely by third parties and that
neither the claimant nor the person alleged to be negligent has any
participation. In accordance with the Rules of Evidence, the burden of
proving that the loss was due to a fortuitous event rests on him who
invokes it which in this case is the private respondent. However, other
than the police report of the alleged carnapping incident, no other evidence
was presented by private respondent to the effect that the incident was not
due to its fault. A police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the carnapping. Neither
does it prove that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre- trial that the car was
carnapped. Carnapping does not foreclose the possibility of fault or
negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police report of the Paraaque
Police Station on the robbery committed based on the report of petitioners'
employees which is not sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding
that petitioners are guilty of concurrent or contributory negligence as provided in
Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the special
laws and regulations concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that
the creditor shall take care of the thing pledged with the diligence of a good father
of a family. This means that petitioners must take care of the pawns the way a
prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of time and of the place.
When negligence shows bad faith, the provisions of Articles 1171 and 2201,
paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do
something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would not do.31 It is want of care
required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable
care and caution that an ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the operation of their pawnshop
business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.

Q. Then how come that the robbers were able to enter the premises
when according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that
there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock
in the afternoon and it happened on a Saturday and everything was quiet in
the area BF Homes Paraaque they pretended to pawn an article in the
pawnshop, so one of my employees allowed him to come in and it was only
when it was announced that it was a hold up.
Q. Did you come to know how the vault was
opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is
partly open. The combination is off.
Q. No one open (sic) the vault for the
robbers?
A. No one your honor it was open at the time of the
robbery.
Q. It is clear now that at the time of the robbery the vault was open the
reason why the robbers were able to get all the items pawned to you inside
the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the
operation of the pawnshop. Evidently, no sufficient precaution and vigilance were
adopted by petitioners to protect the pawnshop from unlawful intrusion. There was
no clear showing that there was any security guard at all. Or if there was one, that
he had sufficient training in securing a pawnshop. Further, there is no showing that
the alleged security guard exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were allowed to enter the
premises. In fact, it is even doubtful that there was a security guard, since it is quite
impossible that he would not have noticed that the robbers were armed with caliber

.45 pistols each, which were allegedly poked at the employees.33 Significantly, the
alleged security guard was not presented at all to corroborate petitioner Sicam's
claim; not one of petitioners' employees who were present during the robbery
incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of
robbery is clearly a proof of petitioners' failure to observe the care, precaution and
vigilance that the circumstances justly demanded. Petitioner Sicam testified that
once the pawnshop was open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took place on a Saturday afternoon
and the area in BF Homes Paraaque at that time was quiet, there was more
reason for petitioners to have exercised reasonable foresight and diligence in
protecting the pawned jewelries. Instead of taking the precaution to protect them,
they let open the vault, providing no difficulty for the robbers to cart away the
pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not
taking steps to insure themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for
Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to
Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns
pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and
against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which
took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns The office
building/premises and pawns of a pawnshop must be insured against fire.
(emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the
Central Bank considered it not feasible to require insurance of pawned articles
against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted
amendment, there is no statutory duty imposed on petitioners to insure the pawned
jewelry in which case it was error for the CA to consider it as a factor in
concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to
exercise the diligence required of them under the Civil Code.

The diligence with which the law requires the individual at all times to govern his
conduct varies with the nature of the situation in which he is placed and the
importance of the act which he is to perform.34 Thus, the cases of Austria v. Court
of Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v.
Gangan37 cited by petitioners in their pleadings, where the victims of robbery were
exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds
to be sold on commission basis, but which Abad failed to subsequently return
because of a robbery committed upon her in 1961. The incident became the subject
of a criminal case filed against several persons. Austria filed an action against
Abad and her husband (Abads) for recovery of the pendant or its value, but the
Abads set up the defense that the robbery extinguished their obligation. The RTC
ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed,
that Maria Abad was guilty of negligence. The CA, however, reversed the RTC
decision holding that the fact of robbery was duly established and declared the
Abads not responsible for the loss of the jewelry on account of a fortuitous event.
We held that for the Abads to be relieved from the civil liability of returning the
pendant under Art. 1174 of the Civil Code, it would only be sufficient that the
unforeseen event, the robbery, took place without any concurrent fault on the
debtors part, and this can be done by preponderance of evidence; that to be
free from liability for reason of fortuitous event, the debtor must, in addition to
the casus itself, be free of any concurrent or contributory fault or negligence.38
We found in Austria that under the circumstances prevailing at the time the
Decision was promulgated in 1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that rendered travel after nightfall
a matter to be sedulously avoided without suitable precaution and protection; that
the conduct of Maria Abad in returning alone to her house in the evening
carrying jewelry of considerable value would have been negligence per se and
would not exempt her from responsibility in the case of robbery. However we did
not hold Abad liable for negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not reached the level of incidence
obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already
prevalent and petitioners in fact had already foreseen it as they wanted to deposit
the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where
no negligence was committed, we found petitioners negligent in securing their
pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of
the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of
July 1, 1983, a Friday, he went to Manila to encash two checks covering the
wages of the employees and the operating expenses of the project. However for
some reason, the processing of the check was delayed and was completed at
about 3 p.m. Nevertheless, he decided to encash the check because the project
employees would be waiting for their pay the following day; otherwise, the
workers would have to wait until July 5, the earliest time, when the main office
would open. At that time, he had two choices: (1) return to Ternate, Cavite that
same afternoon and arrive early evening; or (2) take the money with him to his
house in Marilao, Bulacan, spend the night there, and leave for Ternate the
following day. He chose the second option, thinking it was the safer one. Thus, a
little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep
was on Epifanio de los Santos Avenue, the jeep was held up and the money kept
by Hernandez was taken, and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one robber who was
subsequently charged with robbery and pleaded guilty. The other robber who
held the stolen money escaped. The Commission on Audit found Hernandez
negligent because he had not brought the cash proceeds of the checks to his office
in Ternate, Cavite for safekeeping, which is the normal procedure in the handling
of funds. We held that Hernandez was not negligent in deciding to encash the
check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due
to the lateness of the hour for the following reasons: (1) he was moved by
unselfish motive for his co-employees to collect their wages and salaries the
following day, a Saturday, a non-working, because to encash the check on July 5,
the next working day after July 1, would have caused discomfort to laborers who
were dependent on their wages for sustenance; and (2) that choosing Marilao as
a safer destination, being nearer, and in view of the comparative hazards in the
trips to the two places, said decision seemed logical at that time. We further
held that the fact that two robbers attacked him in broad daylight in the jeep
while it was on a busy highway and in the presence of other passengers could
not be said to be a result of his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in
this case took place in the pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who were allowed entrance to the
premises and to protect itself from unlawful intrusion. Petitioners had failed to

exercise precautionary measures in ensuring that the robbers were prevented from
entering the pawnshop and for keeping the vault open for the day, which paved the
way for the robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological

Education and Skills Development Authority (TESDA), boarded the Light Rail
Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was
slashed and the contents were stolen by an unidentified person. Among those stolen
were her wallet and the government-issued cellular phone. She then reported the
incident to the police authorities; however, the thief was not located, and the
cellphone was not recovered. She also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from accountability for the cellphone.
The Resident Auditor denied her request on the ground that she lacked the
diligence required in the custody of government property and was ordered to pay
the purchase value in the total amount of P4,238.00. The COA found no sufficient
justification to grant the request for relief from accountability. We reversed the
ruling and found that riding the LRT cannot per se be denounced as a negligent act
more so because Cruzs mode of transit was influenced by time and money
considerations; that she boarded the LRT to be able to arrive in Caloocan in time
for her 3 pm meeting; that any prudent and rational person under similar
circumstance can reasonably be expected to do the same; that possession of a
cellphone should not hinder one from boarding the LRT coach as Cruz did
considering that whether she rode a jeep or bus, the risk of theft would have also
been present; that because of her relatively low position and pay, she was not
expected to have her own vehicle or to ride a taxicab; she did not have a
government assigned vehicle; that placing the cellphone in a bag away from
covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a
cellphone while traveling on board the LRT; that the records did not show any
specific act of negligence on her part and negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop
and they were negligent in not exercising the precautions justly demanded of a
pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court of
Appeals dated March 31, 2003 and its Resolution dated August 8, 2003, are
AFFIRMED.
Costs against petitioners.
SO ORDERED.
Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, JJ., concur.

1174 DOCTRINE
EVENT

OF

FORTUITOUS

SECOND
DIVISION
G.R. No. 177921
2013

December 4,

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN,
SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA
DYCHIAO,
Petitioners,
vs.
ALLIED
BANK
CORPORATION,
Respondent.
RESOLUTION
PERLAS-BERNABE,
J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated February 12, 2007 and the Resolution3 dated
May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896 which reversed and set aside the Decision4 dated
January 17, 2006 of the Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case No. 00-1563, thereby ordering
petitioners Metro Concast Steel Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses
Guillermo and Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao (individual petitioners) to solidarily pay
respondent Allied Bank Corporation (Allied Bank) the aggregate amount of P51,064,094.28, with applicable interests and
penalty charges.
The
Facts
On various dates and for different amounts, Metro Concast, a corporation duly organized and existing under and by
virtue of Philippine laws and engaged in the business of manufacturing steel,5 through its officers, herein individual
petitioners, obtained several loans from Allied Bank. These loan transactions were covered by a promissory note and
separate letters of credit/trust receipts.
The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.), with penalty charge of
3% per month in case of default; while the twelve (12) trust receipts uniformly provided for an interest rate of 14% p.a.
and 1% penalty charge. By way of security, the individual petitioners executed several Continuing
Guaranty/Comprehensive Surety Agreements19 in favor of Allied Bank. Petitioners failed to settle their obligations
under the aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent them demand
letters,20 all dated December 10, 1998, seeking payment of the total amount of P51,064,093.62, but to no avail. Thus,
Allied Bank was prompted to file a complaint for collection of sum of money21 (subject complaint) against petitioners
before the RTC, docketed as Civil Case No. 00- 1563. In their second22 Amended Answer,23 petitioners admitted their
indebtedness to Allied Bank but denied liability for the interests and penalties charged, claiming to have paid the total
sum of P65,073,055.73 by way of interest charges for the period covering 1992 to 1997.24
They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation of
the peso against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the business of
Metro Concast and eventually leading to its cessation. Hence, in order to settle their debts with Allied Bank, petitioners
offered the sale of Metro Concasts remaining assets, consisting of machineries and equipment, to Allied Bank, which
the latter, however, refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of the
sale to their outstanding obligations. Accordingly, petitioners offered the equipment for sale, but since there were

no takers, the equipment was reduced into ferro scrap or scrap metal over the years. In 2002, Peakstar Oil
Corporation (Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest in buying the scrap metal.
During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Banks
legal department, acted as the latters agent. Eventually, with the alleged conformity of Allied Bank, through Atty. Saw,
a Memorandum of Agreement25 dated November 8, 2002 (MoA) was drawn between Metro Concast, represented by
petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar obligated itself to purchase the scrap
metal for a total consideration of P34,000,000.00, payable as follows:

(a) P4,000,000.00 by way of earnest money P2,000,000.00 to be paid in cash and the other P2,000,000.00 to be
paid in two (2) post-dated checks of P1,000,000.00 each;26 and
(b) the balance of P30,000,000.00 to be paid in ten (10) monthly installments of P3,000,000.00, secured by bank
guarantees from Bankwise, Inc. (Bankwise) in the form of separate post-dated checks.27
Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard, petitioners asseverated
that:
(a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as force majeure
; and
(b) since Allied Bank was the party that accepted the terms and conditions of payment proposed by Peakstar,
petitioners must therefore be deemed to have settled their obligations to Allied Bank. To bolster their defense,
petitioner Jose Dychiao (Jose Dychiao) testified28 during trial that it was Atty. Saw himself who drafted the MoA
and subsequently received29 the P2,000,000.00 cash and the two (2) Bankwise post-dated checks worth
P1,000,000.00 each from Camiling. However, Atty. Saw turned over only the two (2) checks and P1,500,000.00
in cash to the wife of Jose Dychiao.30
Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the award of moral damages
in the amount of P20,000,000.00 in favor of Metro Concast and at least P25,000,000.00 for each individual
petitioner, P25,000,000.00 as exemplary damages, P1,000,000.00 as attorneys fees, P500,000.00 for other litigation
expenses, including costs of suit.
The
Ruling

RTC

After trial on the merits, the RTC, in a Decision31 dated January 17, 2006, dismissed the subject complaint, holding
that the "causes of action sued upon had been paid or otherwise extinguished." It ruled that since Allied Bank was
duly represented by its agent, Atty. Saw, in all the negotiations and transactions with Peakstar considering that Atty.
Saw
(a) drafted
MoA,

the

(b) accepted the bank guarantee issued by Bankwise,

and
(c) was apprised of developments regarding the sale and disposition of the scrap metal then it stands to reason
that the MoA between Metro Concast and Peakstar was binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007, reversed and set aside the ruling of
the RTC, ratiocinating that there was "no legal basis in fact and in law to declare that when Bankwise reneged its
guarantee under the [MoA], herein [petitioners] should be deemed to be discharged from their obligations lawfully
incurred in favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast, as seller of the ferro scrap, and Peakstar, as the buyer
thereof, and found that the same did not indicate that Allied Bank intervened or was a party thereto. It also pointed out
the fact that the post-dated checks pursuant to the MoA were issued in favor of Jose Dychiao. Likewise, the CA found
no sufficient evidence on record showing that Atty. Saw was duly and legally authorized to act for and on behalf of Allied
Bank, opining that the RTC was "indulging in hypothesis and speculation"34 when it made a contrary pronouncement.
While Atty. Saw received the earnest money from Peakstar, the receipt was signed by him on behalf of Jose Dychiao.35

It also added that "[i]n the final analysis, the aforesaid checks and receipts were signed by [Atty.] Saw either as
representative of [petitioners] or as partner of the latters legal counsel, and not in anyway as representative of [Allied
Bank]."36
Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank their corresponding
obligations under the aforementioned promissory note and trust receipts, plus interests, penalty charges and attorneys
fees. Petitioners sought reconsideration37 which was, however, denied in a Resolution38 dated May 10, 2007.
Hence, this petition.

The Issue
Court

Before

the

At the core of the present controversy is the sole issue of whether or not the loan obligations incurred by the
petitioners under the subject promissory note and various trust receipts have already been extinguished.
The
Ruling

Courts

Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance, the loss of
the thing due, the condonation or remission of the debt, the confusion or merger of the rights of creditor and
debtor, compensation or novation.
In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already been
extinguished due to Peakstars failure to perform its own obligations to Metro Concast pursuant to the MoA.
Petitioners classify Peakstars default as a form of force majeure in the sense that they have, beyond their control, lost
the funds they expected to have received from the Peakstar (due to the MoA) which they would, in turn, use to pay their
own loan obligations to Allied Bank. They further state that Allied Bank was equally bound by Metro Concasts MoA
with Peakstar since its agent, Atty. Saw, actively represented it during the negotiations and execution of the said
agreement. Petitioners arguments are untenable. At the outset, the Court must dispel the notion that the MoA would
have any relevance to the performance of petitioners obligations to Allied Bank. The MoA is a sale of assets contract,
while petitioners obligations to Allied Bank arose from various loan transactions. Absent any showing that the terms and
conditions of the latter transactions have been, in any way, modified or novated by the terms and conditions in the MoA,
said contracts should be treated separately and distinctly from each other, such that the existence, performance or
breach of one would not depend on the existence, performance or breach of the other. In the foregoing respect, the
issue on whether or not Allied Bank expressed its conformity to the assets sale transaction between Metro Concast
and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues related to petitioners loan obligations to
the bank. Besides, as the CA pointed out, the fact of Allied Banks representation has not been proven in this case and
hence, cannot be deemed as a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank.
Now, anent petitioners reliance on force majeure, suffice it to state that Peakstars breach of its obligations to Metro
Concast arising from the MoA cannot be classified as a fortuitous event under jurisprudential formulation. As discussed
in Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that
the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a
fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of
the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and (d) the
obligor must be free from any participation in the aggravation of the injury or loss.40 (Emphases supplied)
While it may be argued that Peakstars breach of the MoA was unforseen by petitioners, the same us clearly not
"impossible"to foresee or even an event which is independent of human will." Neither has it been shown that said
occurrence rendered it impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the
formers force majeure theory altogether. In any case, as earlier stated, the performance or breach of the MoA bears
no relation to the performance or breach of the subject loan transactions, they being separate and distinct sources of
obligations. The fact of the matter is that petitioners loan obligations to Allied Bank remain subsisting for the basic
reason that the former has not been able to prove that the same had already been paid41 or, in any way, extinguished. In
this regard, petitioners liability, as adjudged by the CA, must perforce stand. Considering, however, that Allied Banks
extra-judicial demand on petitioners appears to have been made only on December 10, 1998, the computation of the
applicable interests and penalty charges should be reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution dated May 10, 2007 of
the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with MODIFICATION reckoning the
applicable interests and penalty charges from the date of the extrajudicial demand or on December 10, 1998. The rest of
the appellate courts dispositions stand.

1181 ACQUISITION/EXTINGUISHMENT OF RIGHTS

G.R. No. 118180 September 20, 1996

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, Sps. NORMY D. CARPIO and CARMEN ORQUISA; Sps.
ROLANDO D. CARPIO and RAFAELA VILLANUEVA; Sps. ELISEO D. CARPIO and
ANUNCIACION del ROSARIO; LUZ C. REYES, MARIO C. REYES, JULIET REYESRUBIN, respondents.

PADILLA, J.:
This is a petitioner for review on certiorari under Rule 45 of the Rules of Court which seeks to
set aside the decision 1 of the Court of Appeals (CA) dated 28 February 1994 in CA-G.R. CV
No. 37158, as well as the resolution dated 11 August 1994 denying petitioner's motion for
reconsideration.
The facts are undisputed:
Private respondents were the original owner of a parcel of agricultural land covered by TCT
No T-1432, situated in Barrio Capucao, Ozamis City, with an area of 113,695 square meters,
more or less.
On 30 May 1977, Private respondents mortgaged said land to petitioner. When private
respondents defaulted on their obligation, petitioner foreclosed the mortgage on the land and
emerged as sole bidder in the ensuing auction sale. Consequently. Transfer Certificate of
Title No. T-10913 was eventually issued in petitioner's name.
On 6 April 1984 petitioner and private respondents entered into a Deed of Conditional Sale
wherein petitioner agreed to reconvey the foreclosed property to private respondents.
The pertinent stipulations of the Deed provided that:
WHEREAS, the VENDOR acquired a parcel of land in an auction sale by the City Sheriff of
Ozamiz City, pursuant to Act 3135, As amended, and subject to the redemption period pursuant to
CA 141, described as follows:
xxx xxx xxx
WHEREAS, the VENDEES offered to repurchase and the VENDOR agreed to sell the abovedescribed property, subject to the terms and stipulations as hereinafter stipulated, for the sum of
SEVENTY THREE THOUSAND SEVEN HUNDRED ONLY (P73,700.00), with a down
payment of P8,900.00 and the balance of P64,800 shall be payable in six (6) years on equal
quarterly amortization plan at 18% interest per annum. The first quarterly amortization of
P4,470.36 shall be payable three months from the date of the execution of the documents and all
subsequent amortization shall be due and payable every quarter thereafter.

xxx xxx xxx

That, upon completion of the payment herein stipulated and agreed, the Vendor agrees to deliver
to the Vendee/s(,) his heirs, administrators and assigns(,) a good and sufficient deed of
conveyance covering the property, subject matter of this deed of conditional sale, in accordance
with the provision of law. (Exh. "A", p. 5, Records) 2

On 6 April 1990, upon completing the payment of the full repurchase price, private respondents
demanded from petitioner the execution of a Deed of Conveyance in their favor.
Petitioner then informed private respondents that the prestation to execute and deliver a deed of
conveyance in their favor had become legally impossible in view of Sec. 6 of Rep. Act 6657 (the
Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec. 1 of E.O. 407
issued 10 June 1990.
Aggrieved, private respondents filed a complaint for specific performance with damages against
petitioner before the Regional Trial Court of Ozamis City, Branch XV. During the pre-trial
court narrowed down the issue to whether or not Sec. 6 of the CARL (Rep. Act 6657) had
rendered legally impossible compliance by petitioner with its obligation to execute a deed of
conveyance of the subject land in favor of private respondents. The trial court ordered both
parties to file their separate memorandum and deemed the case submitted for decision thereafter.
On 30 January 1992, the trial court rendered judgment, the dispositive part of which reads:
WHEREFORE, judgment is rendered ordering defendant to execute and deliver unto plaintiffs a
deed of final sale of there land subject of their deed of conditional sale Lot 5259-A, to pay
plaintiffs P10,000.00 as nominal damages, P5,000.00 as attorney's fees, P3,000.00 as litis
expenses and costs. 3

The trial court held that petitioner interpreted the fourth paragraph of Sec. 6, Rep. Act
6657 literally in conjunction with Sec. 1 of E. O. 407.
The fourth paragraph of Sec. 6, Rep. Act 6657 states that:
Upon the effectivity of this Act, any sale, disposition, lease, management contract or transfer of
possession of private lands executed by the original landowner in violation of this act shall be null
and void; Provided, however, that those executed prior to this act shall be valid only when
registered with the Registers of Deeds after the effectivity of this Act. Thereafter, all Registers of
Deeds shall inform the DAR WITHIN 320 days of any transaction involving agricultural lands in
excess of five hectares.

while Sec. 1 of E.O. 407 states that:

Sec. 1. All government instrumentalities but not limited to . . . financial institutions such as the
DBP . . . shall immediately execute deeds of transfer in favor of the Republic of the Philippines
as represented by the Department of Agrarian Reform and surrender to the latter department all
land holdings suitable for agriculture.

The court a quo noted that Sec 6 of Rep. Act 6657, taken in its entirety, is a provision dealing
primarily with retention limits in agricultural land allowed the landowner and his family and that
the fourth paragraph, which nullifies any sale . . . by the original landowner in violation of the
Act, does not cover the sale by petitioner (not the original land owner) to private respondents.
On the other hand, according to the trial court, E.O. 407 took effect on June 1990. But private
respondents completed of the price for the property, object of the conditional sale, as early as 6
April 1990. Hence, with the fulfillment of the condition for the sale, the land covered thereby,
was detached from the mass of foreclosed properties held by DBP, and, therefore, fell beyond
the ambit or reach of E.O. 407.
Dissatisfied, petitioner appealed to the Court of Appeals (CA), still insisting that its obligation
to execute a Deed of Sale in favor of private respondents had become a legal impossibility and
that the non-impairment clause of the Constitution must yield to the demands of police power.
On 28 February 1994, the CA rendered judgment dismissing petitioner's appeal on the basis of
the following disquisitions:
It is a rule that if the obligation depends upon a suspensive condition, the demandability as well
as the acquisition or effectivity of the rights arising from the obligation is suspended pending the
happening or fulfillment of the fact or event which constitutes the condition. Once the event
which constitutes the condition is fulfilled resulting in the effectivity of the obligation, its effects
retroact to the moment when the essential elements which gave birth to the obligation have taken
place (8 Manresa, 5th Ed. Bk. 1, pa. 33). Applying this precept to the case, the full payment by
the appellee on April 6, 1990 retracts to the time the contract of conditional sale was executed on
April 6, 1984. From that time, all elements of the contract of sale were present. Consequently,
the contract of sale was perfected. As such, the said sale does not come under the coverage of
R.A. 6657.
It is likewise interesting to note that despite the mandate of Sec. 1, R.A. 6657, appellant
continued to accept the payments made by the appellant until it was fully paid on April 6, 1990.
All that the appellant has to do now is to execute the final deed of sale in favor of the appellee.
To follow the line of argument of the appellant would only result in an unconscionable injury to
the appellee. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith (Flavio Macasaet & Associates, Inc. vs.
Commission on Audit, 173 SCRA 352).
Going now to E.O. 407, We hold that the same can neither affect appellant's obligation under the
deed of conditional sale. Under the said law, appellant is required to transfer to the Republic of
the Philippines "all lands foreclosed" effective June 10, 1990. Under the facts obtaining, the
subject property has ceased to belong to the mass of foreclosed property failing within the reach
of said law. As earlier explained, the property has already been sold to herein appellees even
before the said E.O. has been enacted. On this same reason, We therefore need not delve on the
applicability of DBP Circular No. 11. 4

In the present petitioner for review on certiorari, petitioner still insists on its position that Rep.
Act 6657, E.O. 407 and DBP Circular No.11 rendered its obligation to execute a Deed of Sale to
private respondents "a legal impossibility." 5 Petitioner also questions the award of attorney's
fees, nominal damages, and cost in favor of private respondents, as not in accord with law and
the evidence. 6

We rule in favor of private respondents.

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition. 7
The deed of conditional sale between petitioner and private respondents was executed on 6 April
1984. Private respondents had religiously paid the agreed installments on the property until they
completed payment on 6 April 1990. Petitioner, in fact, allowed private respondents to fulfill the
condition of effecting full payment, and invoked Section 6 of Rep. Act 6657 only after private
respondents, having fully paid the repurchase price, demanded the execution of a Deed of Sale
in their favor.
It will be noted that Rep. Act 6657 was enacted on 10 June 1988. Following petitioner's
argument in this case, its prestation to execute the deed of sale was rendered legally
impossible by Section 6 said law. In other words, the deed of conditional sale was
extinguished by a supervening event, giving rise to an impossibility of performance.
We reject petitioner's contention as we rule as the trial court and CA have correctly ruled
that neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair the obligation
of contract petitioner had much earlier concluded with private respondents.
More specifically, petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act 6657 to set
aside its obligations already existing prior to its enactment. In the first place, said last
paragraph clearly deals with "any sale, lease, management contract or transfer or possession of
private lands executed by the original landowner." The original owner in this case is not the
petitioner but the private respondents Petitioner acquired the land through foreclosure
proceedings but agreed thereafter to reconvey it to private respondents, albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed by
law to small landowners. Since the property here involved is more or less ten (10) hectares, it
is then within the jurisdiction of the Department of Agrarian Reform (DAR) to determine
whether or not the property can be subjected to agrarian reform. But this necessitates an
entirely differently proceeding.
The CARL (Rep. Act 6657) was not intended to take away property without due process of law.
Nor is it intended to impair the obligation of contracts. In the same manner must E.O. 407 be
regarded. It was enacted two (2) months after private respondents had legally fulfilled the
condition in the contract of conditional sale by the payment of all installment on their due dates.
These laws cannot have retroactive effect unless there is an express provision in them to that
effect. 8
As to petitioner's contention, however, that the CA erred in affirming the trial court's decision
awarding nominal damages, and attorney's fees to private respondents, we rule in favor of
petitioner.

It appears that the core issue in this case, being a pure question of law, did not reach the trial
stage as the case was submitted for decision after pre-trial.
The award of attorney's fees under Article 2208 of the Civil Code is more of an exception to the
general rule that it is not sound policy to place a penalty on the right to litigate. While judicial
discretion in the award of attorney's fees is not entirely left out, the same, as a rule, must have a
factual, legal or equitable justification. The matter cannot and should not be left to speculation
and conjecture. 9
As aptly stated in the Mirasol case:
. . . The matter of attorney's fees cannot be touched once and only in the dispositive portion of the
decision. The text itself must expressly state the reason why attorney's fees are being awarded.
The court, after reading through the text of the appealed decision, finds the same bereft of any
findings of fact and law to justify the award of attorney's fees. The matter of such fees was
touched but once and appears only in the dispositive portion of the decision. Simply put, the text
of the decision did not state the reason why attorney's fees are being awarded, and for this
reason, the Court finds it necessary to disallow the same for being conjectural. 10

While DBP committed egregious error in interpreting Sec. 6 of RA 6657, the same is not
equivalent to gross and evident bad faith when it refused to execute the deed of sale in favor
of private respondents.
For the same reasons stated above, the award of nominal damages in the amount of P10,000.00
should also be deleted.
The amount of P3,000.00 as litigation expenses and cost against petitioner must remain.
WHEREFORE, premises considered, the petition is hereby DENIED, and the decision of the CA
is hereby AFFIRMED, for lack of any reversible error, with the MODIFICATION that attorney's
fees and nominal damages awarded to private respondent are hereby DELETED.
Bellosillo, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes

1181 ACQUISITION/ EXTINGUISHMENT OF RIGHTS

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

BELLOSILLO,
J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the
decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City
directing petitioner to reconvey to private respondents the property donated to it by their
predecessor-in- interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of
Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed
a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of
the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the
following annotations copied from the deed of donation
1. The land described shall be utilized by the CPU exclusively for the establishment and use of a
medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said
land;
3.

The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under
obligation to erect a cornerstone bearing that name. Any net income from the land or any of its
parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be
used for improvements of said campus and erection of a building thereon. 1

On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an
action for annulment of donation, reconveyance and damages against CPU alleging that since
1939 up to the time the action was filed the latter had not complied with the conditions of the
donation. Private respondents also argued that petitioner had in fact negotiated with the National
Housing Authority (NHA) to exchange the donated property with another land owned by the
latter.
In its answer petitioner alleged that the right of private respondents to file the action had
prescribed; that it did not violate any of the conditions in the deed of donation because it never
used the donated property for any other purpose than that for which it was intended; and, that it
did not sell, transfer or convey it to any third party.

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

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

execution of the deed of donation up to the time of filing of the instant action, petitioner has
failed to comply with its obligation as donee. Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just and equitable now to declare the subject
donation already ineffective and, for all purposes, revoked so that petitioner as donee should
now return the donated property to the heirs of the donor, private respondents herein, by means
of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is
REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private
respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate
of Title No. T-3910-A within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.

Separate Opinions

DAVIDE,

JR.,

J.,

dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering
the conditions imposed by the donor on the donee which created reciprocal obligations upon
both parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority opinion's description of the
donation in question. In one part, it says that the donation in question is onerous. Thus, on page 4
it states:
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., give us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration which is considered the
equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value
of the donation . . . . (emphasis supplied)

Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one.
The pertinent portion thereof reads:
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts
referring to incidental circumstances of a gratuitous contract should be resolved in favor of
the least transmission of rights and interest . . . (emphasis supplied)

Second, the discussion on conditional obligations is unnecessary. There is no conditional

obligation to speak of in this case. It seems that the "conditions" imposed by the donor and as
the word is used in the law of donations is confused with "conditions" as used in the law of
obligations. In his annotation of Article 764 of the Civil Code on Donations, Arturo M.
Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and
Colin & Capitant, states clearly the context within which the term "conditions" is used in the
law of donations, to wit:
The word "conditions" in this article does not refer to uncertain events on which the birth or
extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or
charges imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but
in its broadest sense. 1 (emphasis supplied)

Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what
are referred to are actually the obligations, charges or burdens imposed by the donor upon the
donee and which would characterize the donation as onerous. In the present case, the donation
is, quite obviously, onerous, but it is more properly called a "modal donation." A modal
donation is one in which the donor imposes a prestation upon the donee. The establishment of
the medical college as the condition of the donation in the present case is one such prestation.
The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor
the extinguishment of the obligations of the donor and the donee with respect to the donation. In
fact, the conditions imposed by Don Ramon Lopez upon the donee are the very obligations
of the

donation to build the medical college and use the property for the purposes specified in the
deed of donation. It is very clear that those obligations are unconditional, the fulfillment,
performance, existence or extinguishment of which is not dependent on any future or uncertain
event or past and unknown event, as the Civil Code would define a conditional obligation. 2
Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority opinion
is erroneous in so far as the latter stated that the condition in Parks is a resolutory one and
applied this to the present case. A more careful reading of this Court's decision would reveal that
nowhere did we say, whether explicitly or impliedly, that the donation in that case, which
also has a condition imposed to build a school and a public park upon the property donated, is
a resolutory condition. 4 It is incorrect to say that the "conditions" of the donation there or in the
present case are resolutory conditions because, applying Article 1181 of the Civil Code, that
would mean that upon fulfillment of the conditions, the rights already acquired will be
extinguished. Obviously, that could not have been the intention of the parties.
What the majority opinion probably had in mind was that the conditions are resolutory because
if they are not complied with, the rights of the donee as such will be extinguished and the
donation will be revoked. To my mind, though, it is more accurate to state that the conditions
here are not resolutory conditions but, for the reasons stated above, are the obligations imposed
by the donor.
Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here.
The conditions/obligations imposed by the donor herein are subject to a period. I draw this
conclusion based on our previous ruling which, although made almost 90 years ago, still
finds application in the present case. In Barretto vs. City of Manila, 5 we said that when the
contract of donation, as the one involved therein, has no fixed period in which the
condition should be fulfilled, the provisions of what is now Article 1197 (then Article 1128) are
applicable and it is the duty of the court to fix a suitable time for its fulfillment. Indeed, from the
nature and circumstances of the conditions/obligations of the present donation, it can be inferred
that a period was contemplated by the donor. Don Ramon Lopez could not have intended his
property to remain idle for a long period of time when in fact, he specifically burdened the
donee with the obligation to set up a medical college therein and thus put his property to good
use. There is a need to fix the duration of the time within which the conditions imposed are to be
fulfilled.
It is also important to fix the duration or period for the performance of the
conditions/obligations in the donation in resolving the petitioner's claim that prescription has
already barred the present action. I disagree once more with the ruling of the majority that the
action of the petitioners is not barred by the statute of limitations. There is misplaced reliance
again on a previous decision of this Court in Osmea vs. Rama. 6 That case does not speak of a
deed of donation as erroneously quoted and cited by the majority opinion. It speaks of a
contract for a sum of money where the debtor herself imposed a condition which will determine
when she will fulfill her obligation to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have here, however, is not a contract for a sum of
money but a donation where the donee has not imposed any conditions on the fulfillment of its
obligations. Although it is admitted that the fulfillment of the conditions/obligations of the
present donation may be dependent on the will of the donee as to when it will comply therewith,
this did not arise out of a condition which the donee itself imposed. It is believed that the donee
was not meant to and does not have absolute control over the time

within which it will perform its obligations. It must still do so within a reasonable time. What
that reasonable time is, under the circumstances, for the courts to determine. Thus, the mere fact
that there is no time fixed as to when the conditions of the donation are to be fulfilled does not
ipso facto mean that the statute of limitations will not apply anymore and the action to
revoke the donation becomes imprescriptible.
Admittedly, the donation now in question is an onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmea, being one involving a contract, may apply.
But we must not lose sight of the fact that it is still a donation for which this Court itself
applied the pertinent law to resolve situations such as this. That the action to revoke the
donation can still prescribe has been the pronouncement of this Court as early as 1926 in the
case of Parks which, on this point, finds relevance in this case. There, this Court said,
[that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no
legal provision which excludes this class of action from the statute of limitations. And not only
this, the law itself recognizes the prescriptibility of the action for the revocation of a donation,
providing a special period of [four] years for the revocation by the subsequent birth of children
[Art. 646, now Art. 763], and . . . by reason of ingratitude. If no special period is provided for the
prescription of the action for revocation for noncompliance of the conditions of the donation
[Art. 647, now Art. 764], it is because in this respect the donation is considered onerous and is
governed by the law of contracts and the general rules of prescription. 7

More recently, in De Luna v. Abrigo, 8 this Court reiterated the ruling in Parks and said
that:
It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation
must be brought within four (4) years from the non-compliance of the conditions of the
donation. However, it is Our opinion that said article does not apply to onerous donations in
view of the specific provision of Article 733 providing that onerous donations are governed by
the rules on contracts.
In the light of the above, the rules on contracts and the general rules on prescription and not the
rules on donations are applicable in the case at bar.

The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a
written contract, which is what the deed of an onerous donation is. The prescriptive period is
ten years from the time the cause of action accrues, and that is, from the expiration of the time
within which the donee must comply with the conditions/obligations of the donation. As to
when this exactly is remains to be determined, and that is for the courts to do as reposed upon
them by Article 1197.
For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court
of Appeals must be upheld, except its ruling that the conditions of the donation are resolutory.
Padilla,
dissents

Separate
Opinions

J.,

DAVIDE,

JR.,

J.,

dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering
the conditions imposed by the donor on the donee which created reciprocal obligations upon
both parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority opinion's description of the
donation in question. In one part, it says that the donation in question is onerous. Thus, on page 4
it states:
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., give us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration which is considered the
equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value
of the donation . . . . (emphasis supplied)

Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one.
The pertinent portion thereof reads:
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts
referring to incidental circumstances of a gratuitous contract should be resolved in favor of
the least transmission of rights and interest . . . (emphasis supplied)

Second, the discussion on conditional obligations is unnecessary. There is no conditional

obligation to speak of in this case. It seems that the "conditions" imposed by the donor and as the
word is used in the law of donations is confused with "conditions" as used in the law of
obligations. In his annotation of Article 764 of the Civil Code on Donations, Arturo M.
Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and
Colin & Capitant, states clearly the context within which the term "conditions" is used in the
law of donations, to wit:
The word "conditions" in this article does not refer to uncertain events on which the birth or
extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or
charges imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but
in its broadest sense. 1 (emphasis supplied)

Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what
are referred to are actually the obligations, charges or burdens imposed by the donor upon the
donee and which would characterize the donation as onerous. In the present case, the donation
is, quite obviously, onerous, but it is more properly called a "modal donation." A modal
donation is one in which the donor imposes a prestation upon the donee. The establishment of
the medical college as the condition of the donation in the present case is one such prestation.
The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor
the extinguishment of the obligations of the donor and the donee with respect to the donation. In
fact, the conditions imposed by Don Ramon Lopez upon the donee are the very obligations
of the donation to build the medical college and use the property for the purposes specified in
the deed of donation. It is very clear that those obligations are unconditional, the fulfillment,
performance, existence or extinguishment of which is not dependent on any future or uncertain
event or past and unknown event, as the Civil Code would define a conditional obligation. 2

Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority opinion
is erroneous in so far as the latter stated that the condition in Parks is a resolutory one and
applied this to the present case. A more careful reading of this Court's decision would reveal that
nowhere did we say, whether explicitly or impliedly, that the donation in that case, which
also has a condition imposed to build a school and a public park upon the property donated, is
a resolutory condition. 4 It is incorrect to say that the "conditions" of the donation there or in the
present case are resolutory conditions because, applying Article 1181 of the Civil Code, that
would mean that upon fulfillment of the conditions, the rights already acquired will be
extinguished. Obviously, that could not have been the intention of the parties.
What the majority opinion probably had in mind was that the conditions are resolutory because
if they are not complied with, the rights of the donee as such will be extinguished and the
donation will be revoked. To my mind, though, it is more accurate to state that the conditions
here are not resolutory conditions but, for the reasons stated above, are the obligations imposed
by the donor.
Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here.
The conditions/obligations imposed by the donor herein are subject to a period. I draw this
conclusion based on our previous ruling which, although made almost 90 years ago, still finds
application in the present case. In Barretto vs. City of Manila, 5 we said that when the contract
of donation, as the one involved therein, has no fixed period in which the condition should
be fulfilled, the provisions of what is now Article 1197 (then Article 1128) are applicable and it
is the duty of the court to fix a suitable time for its fulfillment. Indeed, from the nature and
circumstances of the conditions/obligations of the present donation, it can be inferred that a
period was contemplated by the donor. Don Ramon Lopez could not have intended his property
to remain idle for a long period of time when in fact, he specifically burdened the donee with
the obligation to set up a medical college therein and thus put his property to good use. There is
a need to fix the duration of the time within which the conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the performance of the
conditions/obligations in the donation in resolving the petitioner's claim that prescription has
already barred the present action. I disagree once more with the ruling of the majority that the
action of the petitioners is not barred by the statute of limitations. There is misplaced reliance
again on a previous decision of this Court in Osmea vs. Rama. 6 That case does not speak of a
deed of donation as erroneously quoted and cited by the majority opinion. It speaks of a
contract for a sum of money where the debtor herself imposed a condition which will determine
when she will fulfill her obligation to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have here, however, is not a contract for a sum of
money but a donation where the donee has not imposed any conditions on the fulfillment of its
obligations. Although it is admitted that the fulfillment of the conditions/obligations of the
present donation may be dependent on the will of the donee as to when it will comply therewith,
this did not arise out of a condition which the donee itself imposed. It is believed that the donee
was not meant to and does not have absolute control over the time within which it will perform
its obligations. It must still do so within a reasonable time. What that reasonable time is, under
the circumstances, for the courts to determine. Thus, the mere fact that there is no time fixed as
to when the conditions of the donation are to be fulfilled does not ipso facto mean that the
statute of limitations will not apply anymore and the action to revoke the donation becomes
imprescriptible.

Admittedly, the donation now in question is an onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmea, being one involving a contract, may apply.
But we must not lose sight of the fact that it is still a donation for which this Court itself
applied the pertinent law to resolve situations such as this. That the action to revoke the
donation can still prescribe has been the pronouncement of this Court as early as 1926 in the
case of Parks which, on this point, finds relevance in this case. There, this Court said,
[that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no
legal provision which excludes this class of action from the statute of limitations. And not only
this, the law itself recognizes the prescriptibility of the action for the revocation of a donation,
providing a special period of [four] years for the revocation by the subsequent birth of children
[Art. 646, now Art. 763], and . . . by reason of ingratitude. If no special period is provided for the
prescription of the action for revocation for noncompliance of the conditions of the donation
[Art. 647, now Art. 764], it is because in this respect the donation is considered onerous and is
governed by the law of contracts and the general rules of prescription. 7

More recently, in De Luna v. Abrigo, 8 this Court reiterated the ruling in Parks and said
that:
It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation
must be brought within four (4) years from the non-compliance of the conditions of the
donation. However, it is Our opinion that said article does not apply to onerous donations in
view of the specific provision of Article 733 providing that onerous donations are governed by
the rules on contracts.
In the light of the above, the rules on contracts and the general rules on prescription and not the
rules on donations are applicable in the case at bar.

The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a
written contract, which is what the deed of an onerous donation is. The prescriptive period is ten
years from the time the cause of action accrues, and that is, from the expiration of the time
within which the donee must comply with the conditions/obligations of the donation. As to
when this exactly is remains to be determined, and that is for the courts to do as reposed upon
them by Article 1197.
For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court
of Appeals must be upheld, except its ruling that the conditions of the donation are resolutory.
Padilla,
dissents

J.,

1186 Constructive
Fulfillment

G.R. No. 96053 March 3,

1993
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA,
EVELYN GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA,
petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.

MELO,
J.:
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to
his demise in 1979, and Celerina Labuguin, in favor of Albrigido Leyva involving
the undivided one-half portion of a piece of land situated at Poblacion, Guimba,
Nueva Ecija for the sum of P50,000.00 under the following terms:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY
acknowledged to have been paid upon the execution of this
agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid
within ten (10) days from and after the execution of this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the
VENDORS' indebtedness with the Philippine Veterans Bank which is
hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND
(P27,000.00.) shall be paid within one (1) year from and after the
execution of this instrument. (p. 53, Rollo)
is the subject matter of the present litigation between the heirs of Juan Galicia, Sr.
who assert breach of the conditions as against private respondent's claim anchored
on full payment and compliance with the stipulations thereof.
The court of origin which tried the suit for specific performance filed by private
respondent on account of the herein petitioners' reluctance to abide by the
covenant,

ruled in favor of the vendee (p. 64, Rollo) while respondent court practically
agreed with the trial court except as to the amount to be paid to petitioners and the
refund to private respondent are concerned (p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed as first installment was
received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to be paid
within ten days from execution of the instrument, only P9,707.00 was tendered to,
and received by, them on numerous occasions from May 29, 1975, up to
November 3, 1979. Concerning private respondent's assumption of the vendors'
obligation to the Philippine Veterans Bank, the vendee paid only the sum of
P6,926.41 while the difference the indebtedness came from Celerina Labuguin (p.
73, Rollo). Moreover, petitioners asserted that not a single centavo of the
P27,000.00 representing the remaining balance was paid to them. Because of the
apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract inked
by their predecessor, private respondent filed the complaint for specific
performance.
In addressing the issue of whether the conditions of the instrument were performed
by herein private respondent as vendee, the Honorable Godofredo Rilloraza,
Presiding Judge of Branch 31 of the Regional Trial Court, Third Judicial Region
stationed at Guimba, Nueva Ecija, decided to uphold private respondent's theory on
the basis of constructive fulfillment under Article 1186 and estoppel through
acceptance of piecemeal payments in line with Article 1235 of the Civil Code.
Anent the P10,000.00 specified as second installment, the lower court counted
against the vendors the candid statement of Josefina Tayag who sat on the witness
stand and made the admission that the check issued as payment thereof was
nonetheless paid on a staggered basis when the check was dishonored (TSN,
September 1, 1983, pp. 3-4; p. 3, Decision; p. 66, Rollo). Regarding the third
condition, the trial court noted that plaintiff below paid more than P6,000.00 to the
Philippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan
Galicia, Sr. paid P3,778.77 which circumstance was construed to be a ploy under
Article 1186 of the Civil Code that "prematurely prevented plaintiff from paying
the installment fully" and "for the purpose of withdrawing the title to the lot".
The acceptance by petitioners of the various payments even beyond the periods
agreed upon, was perceived by the lower court as tantamount to faithful
performance of the obligation pursuant to Article 1235 of the Civil Code.
Furthermore, the trial court noted that private respondent consigned P18,520.00,
an amount sufficient to offset the remaining balance, leaving the sum of
P1,315.00 to be credited to private respondent.

On September 12, 1984, judgment was rendered:

1. Ordering the defendants heirs of Juan Galicia, to execute the Deed of Sale
of their undivided ONE HALF (1/2) portion of Lot No. 1130, Guimba
Cadastre, covered by TCT No. NT-120563, in favor of plaintiff Albrigido
Leyva, with an equal frontage facing the national road upon finality of
judgment; that, in their default, the Clerk of Court II, is hereby ordered
to execute the deed of conveyance in line with the provisions of Section
10, Rule 39 of the Rules of Court;
2. Ordering the defendants, heirs of Juan Galicia, jointly and severally to pay
attorney's fees of P6,000.00 and the further sum of P3,000.00 for actual and
compensatory damages;
3. Ordering Celerina Labuguin and the other defendants herein to surrender
to the Court the owner's duplicate of TCT No. NT-120563, province of
Nueva Ecija, for the use of plaintiff in registering the portion, subject
matter of the instant suit;
4. Ordering the withdrawal of the amount of P18,520.00 now consigned with
the Court, and the amount of P17,204.75 be delivered to the heirs of Juan
Galicia as payment of the balance of the sale of the lot in question, the
defendants herein after deducting the amount of attorney's fees and damages
awarded to the plaintiff hereof and the delivery to the plaintiff of the further
sum of P1,315.25 excess or over payment and, defendants to pay the cost of
the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court, Justice Dayrit with
whom Justices Purisima and Aldecoa, Jr. concurred, modified the fourth
paragraph of the decretal portion to read:
4. Ordering the withdrawal of the amount of P18,500.00 now
consigned with the Court, and that the amount of P16,870.52 be
delivered to the heirs of Juan Galicia, Sr. as payment to the unpaid
balance of the sale, including the reimbursement of the amount paid to
Philippine Veterans Bank, minus the amount of attorney's fees and
damages awarded in favor of plaintiff. The excess of P1,649.48 will
be returned to plaintiff. The costs against defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the appellate court declared:

With respect to the fourth condition stipulated in the contract, the

period indicated therein is deemed modified by the parties when the
heirs of Juan Galicia, Sr. accepted payments without objection up to
November 3, 1979. On the basis of receipts presented by appellee
commencing from August 8, 1975 up to November 3, 1979, a
total amount of P13,908.25 has been paid, thereby leaving a
balance of P13,091.75. Said unpaid balance plus the amount
reimbursable to appellant in the amount of P3,778.77 will leave an
unpaid total of P16,870.52. Since appellee consigned in court the sum
of P18,500.00, he is entitled to get the excess of P1,629.48. Thus,
when the heirs of Juan Galicia, Sr. (obligees) accepted the
performance, knowing its incompleteness or irregularity and without
expressing any protest or objection, the obligation is deemed fully
complied with (Article 1235, Civil Code). (p. 50, Rollo)
Petitioners are of the impression that the decision appealed from, which agreed
with the conclusions of the trial court, is vulnerable to attack via the recourse
before Us on the principal supposition that the full consideration of the agreement
to sell was not paid by private respondent and, therefore, the contract must be
rescinded.
The suggestion of petitioners that the covenant must be cancelled in the light of
private respondent's so-called breach seems to overlook petitioners' demeanor who,
instead of immediately filing the case precisely to rescind the instrument because
of non-compliance, allowed private respondent to effect numerous payments
posterior to the grace periods provided in the contract. This apathy of petitioners
who even permitted private respondent to take the initiative in filing the suit
for specific performance against them, is akin to waiver or abandonment of the
right to rescind normally conferred by Article 1191 of the Civil Code. As aptly
observed by Justice Gutierrez, Jr. in Angeles vs. Calasanz (135 SCRA 323 [1985];
4 Paras, Civil Code of the Philippines Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-appellees that when the defendantsappellants, instead of availing of their alleged right to rescind, have
accepted and received delayed payments of installments, though the
plaintiffs-appellees have been in arrears beyond the grace period
mentioned in paragraph 6 of the contract, the defendants-appellants
have waived, and are now estopped from exercising their alleged right
of rescission . . .

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

spontaneous reaction may no longer be obliterated on the basis of estoppel

(Article 1431, Civil Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised
Rules on Evidence).
Insofar as the third item of the contract is concerned, it may be recalled that
respondent court applied Article 1186 of the Civil Code on constructive fulfillment
which petitioners claim should not have been appreciated because they are the
obligees while the proviso in point speaks of the obligor. But, petitioners must
concede that in a reciprocal obligation like a contract of purchase, (Ang vs. Court
of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at p. 201), both parties are
mutually obligors and also obligees (4 Padilla, supra, at p. 197), and any of the
contracting parties may, upon non-fulfillment by the other privy of his part of
the prestation, rescind the contract or seek fulfillment (Article 1191, Civil
Code). In short, it is puerile for petitioners to say that they are the only obligees
under the contract since they are also bound as obligors to respect the
stipulation in permitting private respondent to assume the loan with the
Philippine Veterans Bank which petitioners impeded when they paid the balance
of said loan. As vendors, they are supposed to execute the final deed of sale
upon full payment of the balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of payment nor
consignation of the sum of P18,520.00 which they acknowledge to have been
deposited in court on January 22, 1981 five years after the amount of P27,000.00
had to be paid (p. 23, Memorandum for Petitioners; p. 162, Rollo). Again this
suggestion ignores the fact that consignation alone produced the effect of payment
in the case at bar because it was established below that two or more heirs of Juan
Galicia, Sr. claimed the same right to collect (Article 1256, (4), Civil Code; pp. 45, Decision in Civil Case No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did
not bother to refute the evidence on hand that, aside from the P18,520.00 (not
P18,500.00 as computed by respondent court) which was consigned, private
respondent also paid the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo).
These two figures representing private respondent's payment of the fourth
condition amount to P32,428.25, less the P3,778.77 paid by petitioners to the
bank, will lead us to the sum of P28,649.48 or a refund of P1,649.48 to private
respondent as overpayment of the P27,000.00 balance.

WHEREFORE, the petition is hereby DISMISSED and the decision appealed from
is hereby AFFIRMED with the slight modification of Paragraph 4 of the
dispositive thereof which is thus amended to read:

4. ordering the withdrawal of the sum of P18,520.00 consigned with

the Regional Trial Court, and that the amount of P16,870.52 be
delivered by private respondent with legal rate of interest until fully
paid to the heirs of Juan Galicia, Sr. as balance of the sale including
reimbursement of the sum paid to the Philippine Veterans Bank,
minus the attorney's fees and damages awarded in favor of private
respondent. The excess of P1,649.48 shall be returned to private
respondent also with legal interest until fully paid by petitioners.
With costs against petitioners.
SO ORDERED.