ART.
1159 retirees visa from the Philippine
THE METROPOLITAN BANK AND TRUST
COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK
TO, Respondents.
DECISION
DEL CASTILLO, J.:
Bank deposits, which are in the nature
of a simple loan or mutuum,1 must be
paid upon demand by the depositor. 2
This Petition for Review on
3
Certiorari under Rule 45 of the Rules
of Court assails the April 2, 2008
Decision4 and the May 30, 2008
Resolution5 of he Court of Appeals CA)
in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust
Company is a domestic banking
corporation duly organized and
existing under the laws of the
Philippines.6 Respondent Ana Grace
Rosales (Rosales) is the owner of China
Golden Bridge Travel Services,7 a
travel agency.8 Respondent Yo Yuk To is
the mother of respondent Rosales.9
In 2000, respondents opened a Joint
Peso Account10 with petitioners Pritil-
Tondo Branch.11 As of August 4, 2004,
respondents Joint Peso Account
showed a balance of P2,515,693.52.12
In May 2002, respondent Rosales
accompanied her client Liu Chiu Fang,
a Taiwanese National applying for a
Leisure and Retirement Authority
(PLRA), to petitioners branch in
Escolta to open a savings account, as
required by the PLRA.13 Since Liu Chiu
Fang could speak only in Mandarin,
respondent Rosales acted as an
interpreter for her.14
On March 3, 2003, respondents
opened with petitioners Pritil-Tondo
Branch a Joint Dollar Account15 with an
initial deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a
"Hold Out" order against respondents
accounts.17
On September 3, 2003, petitioner,
through its Special Audit Department
Head Antonio Ivan Aguirre, filed before
the Office of the Prosecutor of Manila a
criminal case for Estafa through False
Pretences, Misrepresentation, Deceit,
and Use of Falsified Documents,
docketed as I.S. No. 03I-
18
25014, against respondent
19
Rosales. Petitioner accused
respondent Rosales and an
unidentified woman as the ones
responsible for the unauthorized and
fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fangs
dollar account with petitioners Escolta
Branch.20Petitioner alleged that on
February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal
Clearance for the dollar account of Liu
Chiu Fang;21 that in the afternoon of
the same day, respondent Rosales
went to petitioners Escolta Branch to
inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu
Fang was going to withdraw her dollar
deposits in cash;22 that Gutierrez told
respondent Rosales to come back the
following day because the bank did
not have enough dollars; 23 that on
February 6, 2003, respondent Rosales
accompanied an unidentified impostor
of Liu Chiu Fang to the bank;24 that the
impostor was able to withdraw Liu
Chiu Fangs dollar deposit in the
amount of US$75,000.00;25 that on
March 3, 2003, respondents opened a
dollar account with petitioner; and that
the bank later discovered that the
serial numbers of the dollar notes
deposited by respondents in the
amount of US$11,800.00 were the
same as those withdrawn by the
impostor.26
Respondent Rosales, however, denied
taking part in the fraudulent and
unauthorized withdrawal from the
dollar account of Liu Chiu
Fang.27 Respondent Rosales claimed
that she did not go to the bank on
February 5, 2003.28Neither did she
inform Gutierrez that Liu Chiu Fang
was going to close her
29
account. Respondent Rosales further
claimed that after Liu Chiu Fang
opened an account with petitioner, she
lost track of her. 30 Respondent Rosales
version of the events that transpired
thereafter is as follows:
On February 6, 2003, she received a
call from Gutierrez informing her that
Liu Chiu Fang was at the bank to close
her account.31 At noon of the same
day, respondent Rosales went to the
bank to make a transaction. 32 While
she was transacting with the teller,
she caught a glimpse of a woman
seated at the desk of the Branch
Operating Officer, Melinda Perez
(Perez).33 After completing her
transaction, respondent Rosales
approached Perez who informed her
that Liu Chiu Fang had closed her
account and had already left.34 Perez
then gave a copy of the Withdrawal
Clearance issued by the PLRA to
respondent Rosales.35 On June 16,
2003, respondent Rosales received a
call from Liu Chiu Fang inquiring about
the extension of her PLRA Visa and her
dollar account.36 It was only then that
Liu Chiu Fang found out that her
account had been closed without her
knowledge.37 Respondent Rosales then
went to the bank to inform Gutierrez
and Perez of the unauthorized
withdrawal.38 On June 23, 2003,
respondent Rosales and Liu Chiu Fang
went to the PLRA Office, where they
were informed that the Withdrawal
Clearance was issued on the basis of a
Special Power of Attorney (SPA)
executed by Liu Chiu Fang in favor of a
certain Richard So.39 Liu Chiu Fang,
however, denied executing the
SPA.40 The following day, respondent
Rosales, Liu Chiu Fang, Gutierrez, and
Perez met at the PLRA Office to discuss
the unauthorized withdrawal.41 During
the conference, the bank officers
assured Liu Chiu Fang that the money
would be returned to her.42
On December 15, 2003, the Office of
the City Prosecutor of Manila issued a
Resolution dismissing the criminal
case for lack of probable
cause.43 Unfazed, petitioner moved for
reconsideration.
On September 10, 2004, respondents
filed before the Regional Trial Court
(RTC) of Manila a Complaint44 for
Breach of Obligation and Contract with
Damages, docketed as Civil Case No.
04110895 and raffled to Branch 21,
against petitioner. Respondents
alleged that they attempted several
times to withdraw their deposits but
were unable to because petitioner had
placed their accounts under "Hold
Out" status.45 No explanation,
however, was given by petitioner as to
why it issued the "Hold Out"
order.46 Thus, they prayed that the
"Hold Out" order be lifted and that
they be allowed to withdraw their
deposits.47 They likewise prayed for
actual, moral, and exemplary
damages, as well as attorneys fees.48
Petitioner alleged that respondents
have no cause of action because it has
a valid reason for issuing the "Hold
Out" order.49 It averred that due to the
fraudulent scheme of respondent
Rosales, it was compelled to reimburse
Liu Chiu Fang the amount of
US$75,000.0050 and to file a criminal
complaint for Estafa against
respondent Rosales. 51
While the case for breach of contract
was being tried, the City Prosecutor of
Manila issued a Resolution dated
February 18, 2005, reversing the
dismissal of the criminal
complaint.52 An Information, docketed
as Criminal Case No. 05-236103, 53 was
then filed charging respondent Rosales
with Estafa before Branch 14 of the
RTC of Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered
a Decision55 finding petitioner liable for
damages for breach of contract.56The
RTC ruled that it is the duty of
petitioner to release the deposit to
respondents as the act of withdrawal
of a bank deposit is an act of demand
by the creditor.57 The RTC also said
that the recourse of petitioner is
against its negligent employees and
not against respondents.58 The
dispositive portion of the Decision
reads:
WHEREFORE, premises considered,
judgment is hereby rendered ordering
[petitioner] METROPOLITAN BANK &
TRUST COMPANY to allow
[respondents] ANA GRACE ROSALES
and YO YUK TO to withdraw their
Savings and Time Deposits with the
agreed interest, actual damages
of P50,000.00, moral damages
of P50,000.00, exemplary damages
of P30,000.00 and 10% of the amount
due [respondents] as and for
attorneys fees plus the cost of suit.
The counterclaim of [petitioner] is
hereby DISMISSED for lack of merit.
SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the
CA.
On April 2, 2008, the CA affirmed the
ruling of the RTC but deleted the
award of actual damages because "the
basis for [respondents] claim for such
damages is the professional fee that
they paid to their legal counsel for
[respondent] Rosales defense against
the criminal complaint of [petitioner]
for estafa before the Office of the City
Prosecutor of Manila and not this
case."60 Thus, the CA disposed of the
case in this wise:
WHEREFORE, premises considered, the
Decision dated January 15, 2007 of the
RTC, Branch 21, Manila in Civil Case
No. 04-110895 is AFFIRMED with
MODIFICATION that the award of
actual damages to [respondents]
Rosales and Yo Yuk To is hereby
DELETED.
SO ORDERED.61
Petitioner sought reconsideration but
the same was denied by the CA in its
May 30, 2008 Resolution.62
Issues
Hence, this recourse by petitioner
raising the following issues:
A. THE [CA] ERRED IN RULING
THAT THE "HOLD-OUT"
PROVISION IN THE APPLICATION
AND AGREEMENT FOR DEPOSIT
ACCOUNT DOES NOT APPLY IN
THIS CASE.
B. THE [CA] ERRED WHEN IT
RULED THAT PETITIONERS
EMPLOYEES WERE NEGLIGENT
IN RELEASING LIU CHIU FANGS
FUNDS.
C. THE [CA] ERRED IN
AFFIRMING THE AWARD OF
MORAL DAMAGES, EXEMPLARY
DAMAGES, AND ATTORNEYS
FEES.63
Petitioners Arguments
Petitioner contends that the CA erred
in not applying the "Hold Out" clause
stipulated in the Application and
Agreement for Deposit Account. 64 It
posits that the said clause applies to
any and all kinds of obligation as it
does not distinguish between
obligations arising ex contractu or ex
delictu.65 Petitioner also contends that
the fraud committed by respondent
Rosales was clearly established by
evidence;66 thus, it was justified in
issuing the "Hold-Out"
67
order. Petitioner likewise denies that
its employees were negligent in
releasing the dollars.68 It claims that it
was the deception employed by
respondent Rosales that caused
petitioners employees to release Liu
Chiu Fangs funds to the impostor. 69
Lastly, petitioner puts in issue the
award of moral and exemplary
damages and attorneys fees. It insists
that respondents failed to prove that it
acted in bad faith or in a wanton,
fraudulent, oppressive or malevolent
manner.70
Respondents Arguments
Respondents, on the other hand, argue
that there is no legal basis for
petitioner to withhold their deposits
because they have no monetary
obligation to petitioner.71 They insist
that petitioner miserably failed to
prove its accusations against
respondent Rosales.72 In fact, no
documentary evidence was presented
to show that respondent Rosales
participated in the unauthorized
withdrawal.73 They also question the
fact that the list of the serial numbers
of the dollar notes fraudulently
withdrawn on February 6, 2003, was
not signed or acknowledged by the
alleged impostor.74 Respondents
likewise maintain that what was
established during the trial was the
negligence of petitioners employees
as they allowed the withdrawal of the
funds without properly verifying the
identity of the
depositor.75 Furthermore, respondents
contend that their deposits are in the
nature of a loan; thus, petitioner had
the obligation to return the deposits to
them upon demand.76 Failing to do so
makes petitioner liable to pay
respondents moral and exemplary
damages, as well as attorneys fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in
this case are (1) whether petitioner
breached its contract with
respondents, and (2) if so, whether it
is liable for damages. The issue of
whether petitioners employees were
negligent in allowing the withdrawal of
Liu Chiu Fangs dollar deposits has no
bearing in the resolution of this case.
Thus, we find no need to discuss the
same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach
its contract with respondents because
it has a valid reason for issuing the
"Hold Out" order. Petitioner anchors its
right to withhold respondents deposits
on the Application and Agreement for
Deposit Account, which reads:
Authority to Withhold, Sell and/or Set
Off:
The Bank is hereby authorized to
withhold as security for any and all
obligations with the Bank, all monies,
properties or securities of the
Depositor now in or which may
hereafter come into the possession or
under the control of the Bank, whether
left with the Bank for safekeeping or
otherwise, or coming into the hands of
the Bank in any way, for so much
thereof as will be sufficient to pay any
or all obligations incurred by Depositor
under the Account or by reason of any
other transactions between the same
parties now existing or hereafter
contracted, to sell in any public or
private sale any of such properties or
securities of Depositor, and to apply
the proceeds to the payment of any
Depositors obligations heretofore
mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its
discretion and with or without notice
to all of the Depositors, assert a lien
on any balance of the Account and
apply all or any part thereof against
any indebtedness, matured or
unmatured, that may then be owing to
the Bank by any or all of the
Depositors. It is understood that if said
indebtedness is only owing from any of
the Depositors, then this provision
constitutes the consent by all of the
depositors to have the Account answer
for the said indebtedness to the extent
of the equal share of the debtor in the
amount credited to the Account.78
Petitioners reliance on the "Hold Out"
clause in the Application and
Agreement for Deposit Account is
misplaced.
The "Hold Out" clause applies only if
there is a valid and existing obligation
arising from any of the sources of
obligation enumerated in Article
115779 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and
quasi-delict. In this case, petitioner
failed to show that respondents have
an obligation to it under any law,
contract, quasi-contract, delict, or
quasi-delict. And although a criminal
case was filed by petitioner against
respondent Rosales, this is not enough
reason for petitioner to issue a "Hold
Out" order as the case is still pending
and no final judgment of conviction
has been rendered against respondent
Rosales. In fact, it is significant to note
that at the time petitioner issued the
"Hold Out" order, the criminal
complaint had not yet been filed.
Thus, considering that respondent
Rosales is not liable under any of the
five sources of obligation, there was
no legal basis for petitioner to issue
the "Hold Out" order. Accordingly, we
agree with the findings of the RTC and
the CA that the "Hold Out" clause does
not apply in the instant case.
In view of the foregoing, we find that
petitioner is guilty of breach of
contract when it unjustifiably refused
to release respondents deposit
despite demand. Having breached its
contract with respondents, petitioner
is liable for damages.
Respondents are entitled to moral and
exemplary damages and attorneys
fees.1wphi1
In cases of breach of contract, moral
damages may be recovered only if the
defendant acted fraudulently or in bad
faith,80 or is "guilty of gross negligence
amounting to bad faith, or in wanton
disregard of his contractual
81
obligations."
In this case, a review of the
circumstances surrounding the
issuance of the "Hold Out" order
reveals that petitioner issued the
"Hold Out" order in bad faith. First of
all, the order was issued without any
legal basis. Second, petitioner did not
inform respondents of the reason for
the "Hold Out."82 Third, the order was
issued prior to the filing of the criminal
complaint. Records show that the
"Hold Out" order was issued on July
31, 2003,83 while the criminal
complaint was filed only on September
3, 2003.84 All these taken together
lead us to conclude that petitioner
acted in bad faith when it breached its
contract with respondents. As we see
it then, respondents are entitled to
moral damages.
As to the award of exemplary
damages, Article 222985 of the Civil
Code provides that exemplary
damages may be imposed "by way of
example or correction for the public
good, in addition to the moral,
temperate, liquidated or
compensatory damages." They are
awarded only if the guilty party acted
in a wanton, fraudulent, reckless,
oppressive or malevolent manner.86
In this case, we find that petitioner
indeed acted in a wanton, fraudulent,
reckless, oppressive or malevolent
manner when it refused to release the
deposits of respondents without any
legal basis. We need not belabor the
fact that the banking industry is
impressed with public interest. 87 As
such, "the highest degree of diligence
is expected, and high standards of
integrity and performance are even
required of it."88 It must therefore
"treat the accounts of its depositors
with meticulous care and always to
have in mind the fiduciary nature of its
relationship with them."89 For failing to
do this, an award of exemplary
damages is justified to set an
example.
The award of attorney's fees is
likewise proper pursuant to paragraph
1, Article 220890 of the Civil Code.
In closing, it must be stressed that
while we recognize that petitioner has
the right to protect itself from fraud or
suspicions of fraud, the exercise of his
right should be done within the
bounds of the law and in accordance
with due process, and not in bad faith
or in a wanton disregard of its
contractual obligation to respondents.
WHEREFORE, the Petition is hereby
DENIED. The assailed April 2, 2008
Decision and the May 30, 2008
Resolution of the Court of Appeals in
CA-G.R. CV No. 89086 are hereby
AFFIRMED. SO ORDERED.
ART 1169
GENERAL MILLING
CORPORATION, Petitioner,
vs.
SPS. LIBRADO RAMOS and REMEDIOS
RAMOS, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review of the April
15, 2010 Decision of the Court of
Appeals (CA) in CA-G.R. CR-H.C. No.
85400 entitled Spouses Librado Ramos
& Remedios Ramos v. General Milling
Corporation, et al., which affirmed the
May 31, 2005 Decision of the Regional
Trial Court (RTC), Branch 12 in Lipa
City, in Civil Case No. 00-0129 for
Annulment and/or Declaration of
Nullity of Extrajudicial Foreclosure Sale
with Damages.
The Facts
On August 24, 1989, General Milling
Corporation (GMC) entered into a
Growers Contract with spouses Librado
and Remedios Ramos (Spouses
Ramos). Under the contract, GMC was
to supply broiler chickens for the
spouses to raise on their land in
Barangay Banaybanay, Lipa City,
Batangas.1 To guarantee full
compliance, the Growers Contract was
accompanied by a Deed of Real Estate
Mortgage over a piece of real property
upon which their conjugal home was
built. The spouses further agreed to
put up a surety bond at the rate of PhP
20,000 per 1,000 chicks delivered by
GMC. The Deed of Real Estate
Mortgage extended to Spouses Ramos
a maximum credit line of PhP 215,000
payable within an indefinite period
with an interest of twelve percent
(12%) per annum.2
The Deed of Real Estate Mortgage
contained the following provision:
WHEREAS, the MORTGAGOR/S
has/have agreed to guarantee and
secure the full and faithful compliance
of [MORTGAGORS] obligation/s with
the MORTGAGEE by a First Real Estate
Mortgage in favor of the MORTGAGEE,
over a 1 parcel of land and the
improvements existing thereon,
situated in the Barrio/s 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. 0107-97
is hereby declared null and void;
2. The Deed of Real Estate Mortgage is
hereby declared valid and legal for all
intents and puposes;
3. Defendant-corporation General
Milling Corporation is ordered to pay
Spouses Librado and Remedios Ramos
attorneys fees in the total amount of
P 57,000.00 representing acceptance
fee of P30,000.00 and P3,000.00
appearance fee for nine (9) trial dates
or a total appearance fee of P
27,000.00;
4. The claims for moral and exemplary
damages are denied for lack of merit.
IT IS SO ORDERED.13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial
court erred in: (1) declaring the
extrajudicial foreclosure proceedings
null and void; (2) ordering GMC to pay
Spouses Ramos attorneys fees; and
(3) not awarding damages in favor of
GMC.
The CA sustained the decision of the
trial court but anchored its ruling on a
different ground. Contrary to the
findings of the trial court, the CA ruled
that the requirements of posting and
publication of notices under Act No.
3135 were complied with. The CA,
however, still found that GMCs action
against Spouses Ramos was
premature, as they were not in default
when the action was filed on May 7,
1997.14
The CA ruled:
In this case, a careful scrutiny of the
evidence on record shows that
defendant-appellant GMC made no
demand to spouses Ramos for the full
payment of their obligation. While it
was alleged in the Answer as well as in
the Affidavit constituting the direct
testimony of Joseph Dominise, the
principal witness of defendant-
appellant GMC, that demands were
sent to spouses Ramos, the
documentary evidence proves
otherwise. A perusal of the letters
presented and offered as evidence by
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) Matters not specifically assigned as
errors on appeal but raised in the trial
court and are matters of record having
some bearing on the issue submitted
which the parties failed to raise or
which the lower court ignored;
(e) Matters not assigned as errors on
appeal but closely related to an error
assigned;
(f) Matters not assigned as errors on
appeal but upon which the
determination of a question properly
assigned, is dependent.
Paragraph (c) above applies to the
instant case, for there would be a just
and complete resolution of the appeal
if there is a ruling on whether the
Spouses Ramos were actually in
default of their obligation to GMC.
Was there sufficient demand?
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.
SANTOS VENTURA HOCORMA
FOUNDATION, INC., petitioner,
vs.
ERNESTO V. SANTOS and
RIVERLAND, INC., respondents.
DECISION
QUISUMBING, J.:
Subject of the present petition for
review on certiorari is the
Decision,1 dated January 30, 2002, as
well as the April 12, 2002,
Resolution2 of the Court of Appeals in
CA-G.R. CV No. 55122. The appellate
court reversed the Decision,3 dated
October 4, 1996, of the Regional Trial
Court of Makati City, Branch 148, in
Civil Case No. 95-811, and likewise
denied petitioner's Motion for
Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura
Hocorma Foundation, Inc. (SVHFI) were
the plaintiff and defendant,
respectively, in several civil cases filed
in different courts in the Philippines.
On October 26, 1990, the parties
executed a Compromise
Agreement4 which amicably ended all
their pending litigations. The pertinent
portions of the Agreement read as
follows:
1. Defendant Foundation shall pay
Plaintiff Santos P14.5 Million in the
following manner:
a. P1.5 Million immediately upon the
execution of this agreement;
b. The balance of P13 Million shall be
paid, whether in one lump sum or in
installments, at the discretion of the
Foundation, within a period of not
more than two (2) years from the
execution of this agreement; provided,
however, that in the event that the
Foundation does not pay the whole or
any part of such balance, the same
shall be paid with the corresponding
portion of the land or real properties
subject of the aforesaid cases and
previously covered by the notices of lis
pendens, under such terms and
conditions as to area, valuation, and
location mutually acceptable to both
parties; but in no case shall the
payment of such balance be later than
two (2) years from the date of this
agreement; otherwise, payment of any
unpaid portion shall only be in the
form of land aforesaid;
2. Immediately upon the execution of
this agreement (and [the] receipt of
the P1.5 Million), plaintiff Santos shall
cause the dismissal with prejudice of
Civil Cases Nos. 88-743, 1413OR, TC-
1024, 45366 and 18166 and
voluntarily withdraw the appeals in
Civil Cases Nos. 4968 (C.A.-G.R. No.
26598) and 88-45366 (C.A.-G.R. No.
24304) respectively and for the
immediate lifting of the aforesaid
various notices of lis pendens on the
real properties aforementioned (by
signing herein attached corresponding
documents, for such lifting); provided,
however, that in the event that
defendant Foundation shall sell or
dispose of any of the lands previously
subject of lis pendens, the proceeds of
any such sale, or any part thereof as
may be required, shall be partially
devoted to the payment of the
Foundation's obligations under this
agreement as may still be subsisting
and payable at the time of any such
sale or sales;
...
5. Failure of compliance of any of the
foregoing terms and conditions by
either or both parties to this
agreement shall ipso facto and ipso
jure automatically entitle the
aggrieved party to a writ of execution
for the enforcement of this agreement.
[Emphasis supplied]5
In compliance with the Compromise
Agreement, respondent Santos moved
for the dismissal of the aforesaid civil
cases. He also caused the lifting of the
notices of lis pendens on the real
properties involved. For its part,
petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance
of P13 million.
Subsequently, petitioner SVHFI sold to
Development Exchange Livelihood
Corporation two real properties, which
were previously subjects of lis
pendens. Discovering the disposition
made by the petitioner, respondent
Santos sent a letter to the petitioner
demanding the payment of the
remaining P13 million, which was
ignored by the latter. Meanwhile, on
September 30, 1991, the Regional Trial
Court of Makati City, Branch 62, issued
a Decision6approving the compromise
agreement.
On October 28, 1992, respondent
Santos sent another letter to petitioner
inquiring when it would pay the
balance of P13 million. There was no
response from petitioner.
Consequently, respondent Santos
applied with the Regional Trial Court of
Makati City, Branch 62, for the
issuance of a writ of execution of its
compromise judgment dated
September 30, 1991. The RTC granted
the writ. Thus, on March 10, 1993, the
Sheriff levied on the real properties of
petitioner, which were formerly
subjects of the lis pendens. Petitioner,
however, filed numerous motions to
block the enforcement of the said writ.
The challenge of the execution of the
aforesaid compromise judgment even
reached the Supreme Court. All these
efforts, however, were futile.
On November 22, 1994, petitioner's
real properties located in Mabalacat,
Pampanga were auctioned. In the said
auction, Riverland, Inc. was the
highest bidder for P12 million and it
was issued a Certificate of Sale
covering the real properties subject of
the auction sale. Subsequently,
another auction sale was held on
February 8, 1995, for the sale of real
properties of petitioner in Bacolod City.
Again, Riverland, Inc. was the highest
bidder. The Certificates of Sale issued
for both properties provided for the
right of redemption within one year
from the date of registration of the
said properties.
On June 2, 1995, Santos and Riverland
Inc. filed a Complaint for Declaratory
Relief and Damages7 alleging that
there was delay on the part of
petitioner in paying the balance of P13
million. They further alleged that
under the Compromise Agreement,
the obligation became due on October
26, 1992, but payment of the
remaining P12 million was effected
only on November 22, 1994. Thus,
respondents prayed that petitioner be
ordered to pay legal interest on the
obligation, penalty, attorney's fees and
costs of litigation. Furthermore, they
prayed that the aforesaid sales be
declared final and not subject to legal
redemption.
In its Answer,8 petitioner countered
that respondents have no cause of
action against it since it had fully paid
its obligation to the latter. It further
claimed that the alleged delay in the
payment of the balance was due to its
valid exercise of its rights to protect its
interests as provided under the Rules.
Petitioner counterclaimed for
attorney's fees and exemplary
damages.
On October 4, 1996, the trial court
rendered a Decision9 dismissing herein
respondents' complaint and ordering
them to pay attorney's fees and
exemplary damages to petitioner.
Respondents then appealed to the
Court of Appeals. The appellate court
reversed the ruling of the trial court:
WHEREFORE, finding merit in the
appeal, the appealed Decision is
hereby REVERSED and judgment is
hereby rendered ordering appellee
SVHFI to pay appellants Santos and
Riverland, Inc.: (1) legal interest on
the principal amount of P13 million at
the rate of 12% per annum from the
date of demand on October 28, 1992
up to the date of actual payment of
the whole obligation; and (2) P20,000
as attorney's fees and costs of suit.
SO ORDERED.
Hence this petition for review on
certiorari where petitioner assigns the
following issues:
I compromise
WHETHER OR NOT THE COURT OF
APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT AWARDED LEGAL
INTEREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS AND
RIVERLAND, INC., NOTWITHSTANDING
THE FACT THAT NEITHER IN THE
COMPROMISE AGREEMENT NOR IN THE
COMPROMISE JUDGEMENT OF HON.
JUDGE DIOKNO PROVIDES FOR
PAYMENT OF INTEREST TO THE
RESPONDENT
II
WHETHER OF NOT THE COURT OF
APPEALS ERRED IN AWARDING LEGAL
IN[T]EREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS AND
RIVERLAND, INC., NOTWITHSTANDING
THE FACT THAT THE OBLIGATION OF
THE PETITIONER TO RESPONDENT
SANTOS TO PAY A SUM OF MONEY HAD
BEEN CONVERTED TO AN OBLIGATION
TO PAY IN KIND DELIVERY OF REAL
PROPERTIES OWNED BY THE
PETITIONER WHICH HAD BEEN FULLY
PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE
BARRED FROM DEMANDING PAYMENT
OF INTEREST BY REASON OF THE
WAIVER PROVISION IN THE
COMPROMISE AGREEMENT, WHICH
BECAME THE LAW AMONG THE
PARTIES10
The only issue to be resolved is
whether the respondents are entitled
to legal interest.
Petitioner SVHFI alleges that where a
agreement or
compromise judgment does not
provide for the payment of interest,
the legal interest by way of penalty on
account of fault or delay shall not be
due and payable, considering that the
obligation or loan, on which the
payment of legal interest could be
based, has been superseded by the
compromise
agreement.11 Furthermore, the
petitioner argues that the respondents
are barred by res judicata from
seeking legal interest on account of
the waiver clause in the duly approved
compromise agreement.12 Article 4 of
the compromise agreement provides:
Plaintiff Santos waives and renounces
any and all other claims that he and
his family may have on the defendant
Foundation arising from and in
connection with the aforesaid civil
cases, and defendant Foundation, on
the other hand, also waives and
renounces any and all claims that it
may have against plaintiff Santos in
connection with such
13
cases. [Emphasis supplied.]
Lastly, petitioner alleges that since the
compromise agreement did not
provide for a period within which the
obligation will become due and
demandable, it is incumbent upon
respondent Santos to ask for judicial
intervention for purposes of fixing the
period. It is only when a fixed period
exists that the legal interests can be
computed.
Respondents profer that their right to
damages is based on delay in the
payment of the obligation provided in
the Compromise Agreement. The
Compromise Agreement provides that
payment must be made within the
two-year period from its execution.
This was approved by the trial court
and became the law governing their
contract. Respondents posit that
petitioner's failure to comply entitles
them to damages, by way of interest. 14
The petition lacks merit.
A compromise is a contract whereby
the parties, by making reciprocal
concessions, avoid a litigation or put
an end to one already commenced. 15 It
is an agreement between two or more
persons, who, for preventing or putting
an end to a lawsuit, adjust their
difficulties by mutual consent in the
manner which they agree on, and
which everyone of them prefers in the
hope of gaining, balanced by the
danger of losing.16
The general rule is that a compromise
has upon the parties the effect and
authority of res judicata, with respect
to the matter definitely stated therein,
or which by implication from its terms
should be deemed to have been
included therein.17 This holds true
even if the agreement has not been
judicially approved.18
In the case at bar, the Compromise
Agreement was entered into by the
parties on October 26, 1990.19 It was
judicially approved on September 30,
1991.20 Applying existing
jurisprudence, the compromise
agreement as a consensual contract
became binding between the parties
upon its execution and not upon its
court approval. From the time a
compromise is validly entered into, it
becomes the source of the rights and
obligations of the parties thereto. The
purpose of the compromise is
precisely to replace and terminate
controverted claims.21
In accordance with the compromise
agreement, the respondents asked for
the dismissal of the pending civil
cases. The petitioner, on the other
hand, paid the initial P1.5 million upon
the execution of the agreement. This
act of the petitioner showed that it
acknowledges that the agreement was
immediately executory and
enforceable upon its execution.
As to the remaining P13 million, the
terms and conditions of the
compromise agreement are clear and
unambiguous. It provides:
...
b. The balance of P13 Million shall be
paid, whether in one lump sum or in
installments, at the discretion of the
Foundation, within a period of not
more than two (2) years from the
execution of this agreement
22
[Emphasis supplied.]
...
The two-year period must be counted
from October 26, 1990, the date of
execution of the compromise
agreement, and not on the judicial
approval of the compromise
agreement on September 30, 1991.
When respondents wrote a demand
letter to petitioner on October 28,
1992, the obligation was already due
and demandable. When the petitioner
failed to pay its due obligation after
the demand was made, it incurred
delay.
Article 1169 of the New Civil Code
provides:
Those obliged to deliver or to do
something incur in delay from the time
the obligee judicially or extrajudicially
demands from them the fulfillment of
their obligation. [Emphasis supplied]
Delay as used in this article is
synonymous to default or mora which
means delay in the fulfillment of
obligations. It is the non-fulfillment of
the obligation with respect to time.23
In order for the debtor to 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 or
extrajudicially.24
In the case at bar, the obligation was
already due and demandable after the
lapse of the two-year period from the
execution of the contract. The two-
year period ended on October 26,
1992. When the respondents gave a
demand letter on October 28, 1992, to
the petitioner, the obligation was
already due and demandable.
Furthermore, the obligation is
liquidated because the debtor knows
precisely how much he is to pay and
when he is to pay it.
The second requisite is also present.
Petitioner delayed in the performance.
It was able to fully settle its
outstanding balance only on February
8, 1995, which is more than two years
after the extra-judicial demand.
Moreover, it filed several motions and
elevated adverse resolutions to the
appellate court to hinder the execution
of a final and executory judgment, and
further delay the fulfillment of its SOLAR HARVEST, INC., Petitioner,
obligation. vs.
DAVAO CORRUGATED CARTON
Third, the demand letter sent to the CORPORATION, Respondent.
petitioner on October 28, 1992, was in
accordance with an extra-judicial DECISION
demand contemplated by law.
NACHURA, J.:
Verily, the petitioner is liable for
damages for the delay in the Petitioner seeks a review of the Court
performance of its obligation. This is of Appeals (CA) Decision1 dated
provided for in Article 117025 of the September 21, 2006 and
2
New Civil Code. Resolution dated February 23, 2007,
which denied petitioners motion for
When the debtor knows the amount reconsideration. The assailed Decision
and period when he is to pay, interest denied petitioners claim for
as damages is generally allowed as a reimbursement for the amount it paid
matter of right.26 The complaining to respondent for the manufacture of
party has been deprived of funds to corrugated carton boxes.
which he is entitled by virtue of their
compromise agreement. The goal of The case arose from the following
compensation requires that the antecedents:
complainant be compensated for the In the first quarter of 1998, petitioner,
loss of use of those funds. This Solar Harvest, Inc., entered into an
compensation is in the form of agreement with respondent, Davao
interest.27 In the absence of Corrugated Carton Corporation, for the
agreement, the legal rate of interest purchase of corrugated carton boxes,
shall prevail.28 The legal interest for specifically designed for petitioners
loan as forbearance of money is 12% business of exporting fresh bananas,
per annum29 to be computed from at US$1.10 each. The agreement was
default, i.e., from judicial or not reduced into writing. To get the
extrajudicial demand under and production underway, petitioner
subject to the provisions of Article deposited, on March 31, 1998,
1169 of the Civil Code.30 US$40,150.00 in respondents US
WHEREFORE, the petition is DENIED Dollar Savings Account with Westmont
for lack of merit. The Decision dated Bank, as full payment for the ordered
January 30, 2002 of the Court of boxes.
Appeals and its April 12, 2002 Despite such payment, petitioner did
Resolution in CA-G.R. CV No. 55122 not receive any boxes from
are AFFIRMED. Costs against respondent. On January 3, 2001,
petitioner. petitioner wrote a demand letter for
SO ORDERED. reimbursement of the amount
3
paid. On February 19, 2001,
respondent replied that the boxes had
been completed as early as April 3,
1998 and that petitioner failed to pick
them up from the formers warehouse
30 days from completion, as agreed
upon. Respondent mentioned that
petitioner even placed an additional
order of 24,000 boxes, out of which,
14,000 had been manufactured
without any advanced payment from
petitioner. Respondent then demanded
petitioner to remove the boxes from
the factory and to pay the balance of
US$15,400.00 for the additional boxes
and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a
Complaint for sum of money and
damages against respondent. The
Complaint averred that the parties
agreed that the boxes will be delivered
within 30 days from payment but
respondent failed to manufacture and
deliver the boxes within such time. It
further alleged
6. That repeated follow-up was made
by the plaintiff for the immediate
production of the ordered boxes, but
every time, defendant [would] only
show samples of boxes and ma[k]e
repeated promises to deliver the said
ordered boxes.
7. That because of the failure of the
defendant to deliver the ordered
boxes, plaintiff ha[d] to cancel the
same and demand payment and/or
refund from the defendant but the
latter refused to pay and/or refund the
US$40,150.00 payment made by the
former for the ordered
boxes.41avvphi1
In its Answer with
5
Counterclaim, respondent insisted
that, as early as April 3, 1998, it had
already completed production of the
36,500 boxes, contrary to petitioners
allegation. According to respondent,
petitioner, in fact, made an additional
order of 24,000 boxes, out of which,
14,000 had been completed without
waiting for petitioners payment.
Respondent stated that petitioner was
to pick up the boxes at the factory as
agreed upon, but petitioner failed to
do so. Respondent averred that, on
October 8, 1998, petitioners
representative, Bobby Que (Que),
went to the factory and saw that the
boxes were ready for pick up. On
February 20, 1999, Que visited the
factory again and supposedly advised
respondent to sell the boxes as rejects
to recoup the cost of the unpaid
14,000 boxes, because petitioners
transaction to ship bananas to China
did not materialize. Respondent
claimed that the boxes were
occupying warehouse space and that
petitioner should be made to pay
storage fee at P60.00 per square
meter for every month from April
1998. As counterclaim, respondent
prayed that judgment be rendered
ordering petitioner to pay $15,400.00,
plus interest, moral and exemplary
damages, attorneys fees, and costs of
the suit.
In reply, petitioner denied that it made
a second order of 24,000 boxes and
that respondent already completed
the initial order of 36,500 boxes and
14,000 boxes out of the second order.
It maintained that
respondent only manufactured a
sample of the ordered boxes and that
respondent could not have produced
14,000 boxes without the required pre-
payments.6
During trial, petitioner presented Que
as its sole witness. Que testified that
he ordered the boxes from respondent
and deposited the money in
respondents account.7 He specifically
stated that, when he visited
respondents factory, he saw that the
boxes had no print of petitioners
logo.8 A few months later, he followed-
up the order and was told that the
company had full production, and
thus, was promised that production of
the order would be rushed. He told
respondent that it should indeed rush
production because the need for the
boxes was urgent. Thereafter, he
asked his partner, Alfred Ong, to
cancel the order because it was
already late for them to meet their
commitment to ship the bananas to
China.9 On cross-examination, Que
further testified that China Zero Food,
the Chinese company that ordered the
bananas, was sending a ship to Davao
to get the bananas, but since there
were no cartons, the ship could not
proceed. He said that, at that time,
bananas from Tagum Agricultural
Development Corporation (TADECO)
were already there. He denied that
petitioner made an additional order of
24,000 boxes. He explained that it
took three years to refer the matter to
counsel because respondent promised
to pay.10
For respondent, Bienvenido Estanislao
(Estanislao) testified that he met Que
in Davao in October 1998 to inspect
the boxes and that the latter got
samples of them. In February 2000,
they inspected the boxes again and
Que got more samples. Estanislao said
that petitioner did not pick up the
boxes because the ship did not
arrive.11 Jaime Tan (Tan), president of
respondent, also testified that his
company finished production of the
36,500 boxes on April 3, 1998 and that
petitioner made a second order of
24,000 boxes. He said that the
agreement was for respondent to
produce the boxes and for petitioner to
pick them up from the
12
warehouse. He also said that the
reason why petitioner did not pick up
the boxes was that the ship that was
to carry the bananas did not
arrive.13 According to him, during the
last visit of Que and Estanislao, he
asked them to withdraw the boxes
immediately because they were
occupying a big space in his plant, but
they, instead, told him to sell the
cartons as rejects. He was able to sell
5,000 boxes at P20.00 each for a total
of P100,000.00. They then told him to
apply the said amount to the unpaid
balance.
In its March 2, 2004 Decision, the
Regional Trial Court (RTC) ruled that
respondent did not commit any breach
of faith that would justify rescission of
the contract and the consequent
reimbursement of the amount paid by
petitioner. The RTC said that
respondent was able to produce the
ordered boxes but petitioner failed to
obtain possession thereof because its
ship did not arrive. It thus dismissed
the complaint and respondents
counterclaims, disposing as follows:
WHEREFORE, premises considered,
judgment is hereby rendered in favor
of defendant and against the plaintiff
and, accordingly, plaintiffs complaint
is hereby ordered DISMISSED without
pronouncement as to cost.
Defendants counterclaims are
similarly dismissed for lack of merit.
SO ORDERED.14
Petitioner filed a notice of appeal with
the CA.
On September 21, 2006, the CA
denied the appeal for lack of
merit.15 The appellate court held that
petitioner failed to discharge its
burden of proving what it claimed to
be the parties agreement with respect
to the delivery of the boxes. According
to the CA, it was unthinkable that,
over a period of more than two years,
petitioner did not even demand for the
delivery of the boxes. The CA added
that even assuming that the
agreement was for respondent to
deliver the boxes, respondent would
not be liable for breach of contract as
petitioner had not yet demanded from
it the delivery of the boxes.16
Petitioner moved for
17
reconsideration, but the motion was
denied by the CA in its Resolution of
February 23, 2007.18
In this petition, petitioner insists that
respondent did not completely
manufacture the boxes and that it was
respondent which was obliged to
deliver the boxes to TADECO.
We find no reversible error in the
assailed Decision that would justify the
grant of this petition.
Petitioners claim for reimbursement is
actually one for rescission (or
resolution) of contract under Article
1191 of the Civil Code, which reads:
Art. 1191. The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
should not comply with what is
incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of
the obligation, with the payment of
damages in either case. He may also
seek rescission, even after he has
chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with Articles 1385 and
1388 and the Mortgage Law.
The right to rescind a contract arises
once the other party defaults in the
performance of his obligation. In
determining when default occurs, Art.
1191 should be taken in conjunction
with Art. 1169 of the same law, which
provides:
Art. 1169. Those obliged to deliver or
to do something incur in delay from
the time the obligee judicially or
extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor
shall not be necessary in order that
delay may exist:
(1) 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.
In reciprocal obligations, as in a
contract of sale, the general rule is
that the fulfillment of the parties
respective obligations should be
simultaneous. Hence, no demand is
generally necessary because, once a
party fulfills his obligation and the
other party does not fulfill his, the
latter automatically incurs in delay.
But when different dates for
performance of the obligations are
fixed, the default for each obligation
must be determined by the rules given
in the first paragraph of the present
article,19 that is, the other party would
incur in delay only from the moment
the other party demands fulfillment of
the formers obligation. Thus, even in
reciprocal obligations, if the period for
the fulfillment of the obligation is
fixed, demand upon the obligee is still
necessary before the obligor can be
considered in default and before a
cause of action for rescission will
accrue.
Evident from the records and even
from the allegations in the complaint
was the lack of demand by petitioner
upon respondent to fulfill its obligation
to manufacture and deliver the boxes.
The Complaint only alleged that
petitioner made a "follow-up" upon
respondent, which, however, would
not qualify as a demand for the
fulfillment of the obligation.
Petitioners witness also testified that
they made a follow-up of the boxes,
but not a demand. Note is taken of the
fact that, with respect to their claim
for reimbursement, the Complaint
alleged and the witness testified that a
demand letter was sent to respondent.
Without a previous demand for the
fulfillment of the obligation, petitioner
would not have a cause of action for
rescission against respondent as the
latter would not yet be considered in
breach of its contractual obligation.
Even assuming that a demand had
been previously made before filing the
present case, petitioners claim for
reimbursement would still fail, as the
circumstances would show that
respondent was not guilty of breach of
contract.
The existence of a breach of contract
is a factual matter not usually
reviewed in a petition for review under
Rule 45.20 The Court, in petitions for
review, limits its inquiry only to
questions of law. After all, it is not a
trier of facts, and findings of fact made
by the trial court, especially when
reiterated by the CA, must be given
great respect if not considered as
final.21 In dealing with this petition, we
will not veer away from this doctrine
and will thus sustain the factual
findings of the CA, which we find to be
adequately supported by the evidence
on record.
As correctly observed by the CA, aside
from the pictures of the finished boxes
and the production report thereof,
there is ample showing that the boxes
had already been manufactured by
respondent. There is the testimony of
Estanislao who accompanied Que to
the factory, attesting that, during their
first visit to the company, they saw the
pile of petitioners boxes and Que took
samples thereof. Que, petitioners
witness, himself confirmed this
incident. He testified that Tan pointed
the boxes to him and that he got a
sample and saw that it was blank.
Ques absolute assertion that the
boxes were not manufactured is,
therefore, implausible and suspicious.
In fact, we note that respondents
counsel manifested in court, during
trial, that his client was willing to
shoulder expenses for a representative
of the court to visit the plant and see
the boxes.22 Had it been true that the
boxes were not yet completed,
respondent would not have been so
bold as to challenge the court to
conduct an ocular inspection of their
warehouse. Even in its Comment to
this petition, respondent prays that
petitioner be ordered to remove the
boxes from its factory site,23 which
could only mean that the boxes are,
up to the present, still in respondents
premises.
We also believe that the agreement
between the parties was for petitioner
to pick up the boxes from respondents
warehouse, contrary to petitioners
allegation. Thus, it was due to
petitioners fault that the boxes were
not delivered to TADECO.
Petitioner had the burden to prove that
the agreement was, in fact, for
respondent to deliver the boxes within
30 days from payment, as alleged in
the Complaint. Its sole witness, Que,
was not even competent to testify on
the terms of the agreement and,
therefore, we cannot give much
credence to his testimony. It appeared
from the testimony of Que that he did
not personally place the order with
Tan, thus:
Q. No, my question is, you went to
Davao City and placed your order
there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr.
Alf[re]d Ong. Alfred Ong has a contact
with Mr. Tan.
Q. So, your first statement that you
were the one who placed the order is
not true?
A. Thats true. The Solar Harvest made
a contact with Mr. Tan and I deposited
the money in the bank.
Q. You said a while ago [t]hat you were
the one who called Mr. Tan and placed
the order for 36,500 boxes, isnt it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the
order[,] not you?
24
A. Yes, sir.
Q. Is it not a fact that the cartons were
ordered through Mr. Bienvenido
Estanislao?
A. Yes, sir.25
Moreover, assuming that respondent
was obliged to deliver the boxes, it
could not have complied with such
obligation. Que, insisting that the
boxes had not been manufactured,
admitted that he did not give
respondent the authority to deliver the
boxes to TADECO:
Q. Did you give authority to Mr. Tan to
deliver these boxes to TADECO?
A. No, sir. As I have said, before the
delivery, we must have to check the
carton, the quantity and quality. But I
have not seen a single carton.
Q. Are you trying to impress upon the
[c]ourt that it is only after the boxes
are completed, will you give authority
to Mr. Tan to deliver the boxes to
TADECO[?]
A. Sir, because when I checked the
plant, I have not seen any carton. I
asked Mr. Tan to rush the carton but
not26
Q. Did you give any authority for Mr.
Tan to deliver these boxes to TADECO?
A. Because I have not seen any of my
carton.
Q. You dont have any authority yet
given to Mr. Tan?
A. None, your Honor.27
Surely, without such authority,
TADECO would not have allowed
respondent to deposit the boxes within
its premises.
In sum, the Court finds that petitioner
failed to establish a cause of action for
rescission, the evidence having shown
that respondent did not commit any
breach of its contractual obligation. As
previously stated, the subject boxes
are still within respondents premises.
To put a rest to this dispute, we
therefore relieve respondent from the
burden of having to keep the boxes
within its premises and, consequently,
give it the right to dispose of them,
after petitioner is given a period of
time within which to remove them
from the premises.
WHEREFORE, premises considered, the
petition is DENIED. The Court of
Appeals Decision dated September 21,
2006 and Resolution dated February
23, 2007 are AFFIRMED. In addition,
petitioner is given a period of 30 days
from notice within which to cause the
removal of the 36,500
boxes from respondents warehouse.
After the lapse of said period and
petitioner fails to effect such removal,
respondent shall have the right to
dispose of the boxes in any manner it
may deem fit.
SO ORDERED.
SOCIAL SECURITY SYSTEM, petitioner,
vs.
MOONWALK DEVELOPMENT &
HOUSING CORPORATION, ROSITA U.
ALBERTO, ROSITA U. ALBERTO, JMA
HOUSE, INC., MILAGROS SANCHEZ
SANTIAGO, in her capacity as Register
of Deeds for the Province of Cavite,
ARTURO SOLITO, in his capacity as
Register of Deeds for Metro Manila
District IV, Makati, Metro Manila and
the INTERMEDIATE APPELLATE COURT,
respondents.
The Solicitor General for petitioner.
K.V. Faylona & Associates for private
respondents.
DECISION
CAMPOS, JR., J p:
Before Us is a petition for review on
certiorari of decision 1 of the then
Intermediate Appellate Court affirming
in toto the decision of the former Court
of First Instance of Rizal, Seventh
Judicial District, Branch XXIX, Pasay
City.
The facts as found by the Appellate
Court are as follows:
"On February 20, 1980, the Social
Security System, SSS for brevity, filed
a complaint in the Court of First
Instance of Rizal against Moonwalk
Development & Housing Corporation,
Moonwalk for short, alleging that the
former had committed an error in
failing to compute the 12% interest
due on delayed payments on the loan
of Moonwalk resulting in a chain of
errors in the application of payments
made by Moonwalk and, in an unpaid
balance on the principal loan
agreement in the amount of P7,053.77
and, also in not reflecting in its
statement or account an unpaid
balance on the said penalties for
delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS'
claims and asserting that SSS had the
opportunity to ascertain the truth but
failed to do so.
The trial court set the case for pre-trial
at which pre-trial conference, the court
issued an order giving both parties
thirty (30) days within which to submit
a stipulation of facts.
The Order of October 6, 1980
dismissing the complaint followed the
submission by the parties on
September 19, 1980 of the following
stipulation of Facts:
"1. On October 6, 1971, plaintiff
approved the application of defendant
Moonwalk for an interim loan in the
amount of THIRTY MILLION PESOS
(P30,000,000.00) for the purpose of
developing and constructing a housing
project in the provinces of Rizal and
Cavite;
"2. Out of the approved loan of THIRTY
MILLION PESOS (P30,000,000.00), the
sum of P9,595,000.00 was released to
defendant Moonwalk as of November
28, 1973;
"3. A third Amended Deed of First
Mortgage was executed on December
18, 1973 Annex `D' providing for
restructuring of the payment of the
released amount of P9,595,000.00.
"4. Defendants Rosita U. Alberto and
Rosita U. Alberto, mother and
daughter respectively, under
paragraph 5 of the aforesaid Third
Amended Deed of First Mortgage
substituted Associated Construction
and Surveys Corporation, Philippine
Model Homes Development
Corporation, Mariano Z. Velarde and
Eusebio T. Ramos, as solidary obligors;
"5. On July 23, 1974, after considering
additional releases in the amount of
P2,659,700.00, made to defendant
Moonwalk, defendant Moonwalk
delivered to the plaintiff a promissory
note for TWELVE MILLION TWO
HUNDRED FIFTY FOUR THOUSAND
SEVEN HUNDRED PESOS
(P12,254,700.00) Annex `E', signed by
Eusebio T. Ramos, and the said Rosita
U. Alberto and Rosita U. Alberto;
"6. Moonwalk made a total payment of
P23,657,901.84 to SSS for the loan
principal of P12,254,700.00 released
to it. The last payment made by
Moonwalk in the amount of
P15,004,905.74 were based on the
Statement of Account, Annex "F"
prepared by plaintiff SSS for
defendant;
"7. After settlement of the account
stated in Annex 'F' plaintiff issued to
defendant Moonwalk the Release of
Mortgage for Moonwalk's mortgaged
properties in Cavite and Rizal, Annexes
'G' and 'H' on October 9, 1979 and
October 11, 1979 respectively.
"8. In letters to defendant Moonwalk,
dated November 28, 1979 and
followed up by another letter dated
December 17, 1979, plaintiff alleged
that it committed an honest mistake in
releasing defendant.
"9. In a letter dated December 21,
1979, defendant's counsel told plaintiff
that it had completely paid its
obligations to SSS;
"10. The genuineness and due
execution of the documents marked as
Annex (sic) 'A' to 'O' inclusive, of the
Complaint and the letter dated
December 21, 1979 of the defendant's
counsel to the plaintiff are admitted.
"Manila for Pasay City, September 2,
1980." 2
On October 6, 1990, the trial court
issued an order dismissing the
complaint on the ground that the
obligation was already extinguished by
the payment by Moonwalk of its
indebtedness to SSS and by the
latter's act of cancelling the real
estate mortgages executed in its favor
by defendant Moonwalk. The Motion
for Reconsideration filed by SSS with
the trial court was likewise dismissed
by the latter.
These orders were appealed to the
Intermediate Appellate Court.
Respondent Court reduced the errors
assigned by the SSS into this issue: ". .
. are defendants-appellees, namely,
Moonwalk Development and Housing
Corporation, Rosita U. Alberto, Rosita
U. Alberto, JMA House, Inc. still liable
for the unpaid penalties as claimed by
plaintiff-appellant or is their obligation
extinguished?" 3 As We have stated
earlier, the respondent Court held that
Moonwalk's obligation was
extinguished and affirmed the trial
court.
Hence, this Petition wherein SSS raises
the following grounds for review:
"First, in concluding that the penalties
due from Moonwalk are "deemed
waived and/or barred," the appellate
court disregarded the basic tenet that
waiver of a right must be express,
made in a clear and unequivocal
manner. There is no evidence in the
case at bar to show that SSS made a
clear, positive waiver of the penalties,
made with full knowledge of the
circumstances.
Second, it misconstrued the ruling that
SSS funds are trust funds, and SSS,
being a mere trustee, cannot perform
acts affecting the same, including
condonation of penalties, that would
diminish property rights of the owners
and beneficiaries thereof. (United
Christian Missionary Society v. Social
Security Commission, 30 SCRA 982,
988 [1969]).
Third, it ignored the fact that penalty
at the rate of 12% p.a. is not
inequitable.
Fourth, it ignored the principle that
equity will cancel a release on the
ground of mistake of fact." 4
The same problem which confronted
the respondent court is presented
before Us: Is the penalty demandable
even after the extinguishment of the
principal obligation?
The former Intermediate Appellate
Court, through Justice Eduard P.
Caguioa, held in the negative. It
reasoned, thus:
"2. As we have explained under No. 1,
contrary to what the plaintiff-appellant
states in its Brief, what is sought to be
recovered in this case is not the 12%
interest on the loan but the 12%
penalty for failure to pay on time the
amortization. What is sought to be
enforced therefore is the penal clause
of the contract entered into between
the parties.
Now, what is a penal clause. A penal
clause has been defined as
"an accessory obligation which the
parties attach to a principal obligation
for the purpose of insuring the
performance thereof by imposing on
the debtor a special presentation
(generally consisting in the payment
of a sum of money) in case the
obligation is not fulfilled or is
irregularly or inadequately fulfilled" (3
Castan 8th Ed. p. 118).
Now an accessory obligation has been
defined as that attached to a principal
obligation in order to complete the
same or take its place in the case of
breach (4 Puig Pea Part 1 p. 76). Note
therefore that an accessory obligation
is dependent for its existence on the
existence of a principal obligation. A
principal obligation may exist without
an accessory obligation but an
accessory obligation cannot exist
without a principal obligation. For
example, the contract of mortgage is
an accessory obligation to enforce the
performance of the main obligation of
indebtedness. An indebtedness can
exist without the mortgage but a
mortgage cannot exist without the
indebtedness, which is the principal
obligation. In the present case, the
principal obligation is the loan
between the parties. The accessory
obligation of a penal clause is to
enforce the main obligation of
payment of the loan. If therefore the
principal obligation does not exist the
penalty being accessory cannot exist.
Now then when is the penalty
demandable? A penalty is demandable
in case of non performance or late
performance of the main obligation. In
other words in order that the penalty
may arise there must be a breach of
the obligation either by total or partial
non fulfillment or there is non
fulfillment in point of time which is
called mora or delay. The debtor
therefore violates the obligation in
point of time if there is mora or delay.
Now, there is no mora or delay unless
there is a demand. It is noteworthy
that in the present case during all the
period when the principal obligation
was still subsisting, although there
were late amortizations there was no
demand made by the creditor,
plaintiff-appellant for the payment of
the penalty. Therefore up to the time
of the letter of plaintiff-appellant there
was no demand for the payment of the
penalty, hence the debtor was no in
mora in the payment of the penalty.
However, on October 1, 1979, plaintiff-
appellant issued its statement of
account (Exhibit F) showing the total
obligation of Moonwalk as
P15,004,905.74, and forthwith
demanded payment from defendant-
appellee. Because of the demand for
payment, Moonwalk made several
payments on September 29, October 9
and 19, 1979 respectively, all in all
totalling P15,004,905.74 which was a
complete payment of its obligation as
stated in Exhibit F. Because of this
payment the obligation of Moonwalk
was considered extinguished, and
pursuant to said extinguishment, the
real estate mortgages given by
Moonwalk were released on October 9,
1979 and October 10, 1979 (Exhibits G
and H). For all purposes therefore the
principal obligation of defendant-
appellee was deemed extinguished as
well as the accessory obligation of real
estate mortgage; and that is the
reason for the release of all the Real
Estate Mortgages on October 9 and
10, 1979 respectively.
Now, besides the Real Estate
Mortgages, the penal clause which is
also an accessory obligation must also
be deemed extinguished considering
that the principal obligation was
considered extinguished, and the
penal clause being an accessory
obligation. That being the case, the
demand for payment of the penal
clause made by plaintiff-appellant in
its demand letter dated November 28,
1979 and its follow up letter dated
December 17, 1979 (which
parenthetically are the only demands
for payment of the penalties) are
therefore ineffective as there was
nothing to demand. It would be
otherwise, if the demand for the
payment of the penalty was made
prior to the extinguishment of the
obligation because then the obligation
of Moonwalk would consist of: 1) the
principal obligation 2) the interest of
12% on the principal obligation and 3)
the penalty of 12% for late payment
for after demand, Moonwalk would be
in mora and therefore liable for the
penalty.
Let it be emphasized that at the time
of the demand made in the letters of
November 28, 1979 and December 17,
1979 as far as the penalty is
concerned, the defendant-appellee
was not in default since there was no
mora prior to the demand. That being
the case, therefore, the demand made
after the extinguishment of the
principal obligation which carried with
it the extinguishment of the penal
clause being merely an accessory
obligation, was an exercise in futility.
3. At the time of the payment made of
the full obligation on October 10, 1979
together with the 12% interest by
defendant-appellee Moonwalk, its
obligation was extinguished. It being
extinguished, there was no more need
for the penal clause. Now, it is to be
noted that penalty at anytime can be
modified by the Court. Even
substantial performance under Art.
1234 authorizes the Court to consider
it as complete performance minus
damages. Now, Art, 1229 Civil Code of
the Philippines provides:
"ART. 1229. The judge shall equitably
reduce the penalty when the principal
obligation has been partly or
irregularly complied with by the
debtor. Even if there has been no
performance, the penalty may also be
reduced by the courts if it is iniquitous
or unconscionable."
If the penalty can be reduced after the
principal obligation has been partly or
irregularly complied with by the
debtor, which is nonetheless a breach
of the obligation, with more reason the
penal clause is not demandable when
full obligation has been complied with
since in that case there is no breach of
the obligation. In the present case,
there has been as yet no demand for
payment of the penalty at the time of
the extinguishment of the obligation,
hence there was likewise an
extinguishment of the penalty.
Let Us emphasize that the obligation
of defendant-appellee was fully
complied with by the debtor, that is,
the amount loaned together with the
12% interest has been fully paid by
the appellee. That being so, there is no
basis for demanding the penal clause
since the obligation has been
extinguished. Here there has been a
waiver of the penal clause as it was
not demanded before the full
obligation was fully paid and
extinguished. Again, emphasis must
be made on the fact that plaintiff-
appellant has not lost anything under
the contract since in got back in full
the amount loan (sic) as well as the
interest thereof. The same thing would
have happened if the obligation was
paid on time, for then the penal
clause, under the terms of the
contract would not apply. Payment of
the penalty does not mean gain or loss
of plaintiff-appellant since it is merely
for the purpose of enforcing the
performance of the main obligation
has been fully complied with and
extinguished, the penal clause has lost
its raison d' entre." 5
We find no reason to depart from the
appellate court's decision. We,
however, advance the following
reasons for the denial of this petition.
Article 1226 of the Civil Code provides:
"Art. 1226. In obligations with a penal
clause, he penalty shall substitute the
indemnity for damages and the
payment of interests in case of
noncompliance, if there is no
stipulation to the contrary.
Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty
or is guilty of fraud in the fulfillment of
the obligation.
The penalty may be enforced only
when it is demandable in accordance
with the provisions of this Code."
(Emphasis Ours.)
A penal clause is an accessory
undertaking to assume greater liability
in case of breach. 6 It has a double
function: (1) to provide for liquidated
damages, and (2) to strengthen the
coercive force of the obligation by the
threat of greater responsibility in the
event of breach. 7 From the foregoing,
it is clear that a penal clause is
intended to prevent the obligor from
defaulting in the performance of his
obligation. Thus, if there should be
default, the penalty may be enforced.
One commentator of the Civil Code
wrote:
"Now when is the penalty deemed
demandable in accordance with the
provisions of the Civil Code? We must
make a distinction between a positive
and a negative obligation. With regard
to obligations which are positive (to
give and to do), the penalty is
demandable when the debtor is in
mora; hence, the necessity of demand
by the debtor unless the same is
excused . . ." 8
When does delay arise? Under the Civil
Code, delay begins from the time the
obligee judicially or extrajudicially
demands from the obligor the
performance of the obligation.
"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."
There are only three instances when
demand is not necessary to render the
obligor in default. These are the
following:
"(1) When the obligation or the law
expressly so declares;
(2) When from the nature and the
circumstances of the obligation it
appears that the designation of the
time when the thing is to be delivered
or the service is to be rendered was a
controlling motive for the
establishment of the contract; or
(3) When the demand would be
useless, as when the obligor has
rendered it beyond his power to
perform." 9
This case does not fall within any of
the established exceptions. Hence,
despite the provision in the promissory
note that "(a)ll amortization payments
shall be made every first five (5) days
of the calendar month until the
principal and interest on the loan or
any portion thereof actually released
has been fully paid," 10 petitioner is
not excused from making a demand. It
has been established that at the time
of payment of the full obligation,
private respondent Moonwalk has long
been delinquent in meeting its
monthly arrears and in paying the full
amount of the loan itself as the
obligation matured sometime in
January, 1977. But mere delinquency
in payment does not necessarily mean
delay in the legal concept. To be in
default ". . . is different from mere
delay in the grammatical sense,
because it involves the beginning of a
special condition or status which has
its own peculiar effects or results." 11
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. 12
Default generally begins from the
moment the creditor demands the
performance of the obligation. 13
Nowhere in this case did it appear that
SSS demanded from Moonwalk the
payment of its monthly amortizations.
Neither did it show that petitioner
demanded the payment of the
stipulated penalty upon the failure of
Moonwalk to meet its monthly
amortization. What the complaint itself
showed was that SSS tried to enforce
the obligation sometime in September,
1977 by foreclosing the real estate
mortgages executed by Moonwalk in
favor of SSS. But this foreclosure did
not push through upon Moonwalk's
requests and promises to pay in full.
The next demand for payment
happened on October 1, 1979 when
SSS issued a Statement of Account to
Moonwalk. And in accordance with
said statement, Moonwalk paid its loan
in full. What is clear, therefore, is that
Moonwalk was never in default
because SSS never compelled
performance. Though it tried to
foreclose the mortgages, SSS itself
desisted from doing so upon the
entreaties of Moonwalk. If the
Statement of Account could properly
be considered as demand for
payment, the demand was complied
with on time. Hence, no delay
occurred and there was, therefore, no
occasion when the penalty became
demandable and enforceable. Since
there was no default in the
performance of the main obligation
payment of the loan SSS was never
entitled to recover any penalty, not at
the time it made the Statement of
Account and certainly, not after the
extinguishment of the principal
obligation because then, all the more
that SSS had no reason to ask for the
penalties. Thus, there could never be
any occasion for waiver or even
mistake in the application for payment
because there was nothing for SSS to
waive as its right to enforce the
penalty did not arise.
SSS, however, in buttressing its claim
that it never waived the penalties,
argued that the funds it held were
trust funds and as trustee, the
petitioner could not perform acts
affecting the funds that would diminish
property rights of the owners and
beneficiaries thereof. To support its
claim, SSS cited the case of United
Christian Missionary Society v. Social
Security Commission. 14
We looked into the case and found out
that it is not applicable to the present
case as it dealt not with the right of
the SSS to collect penalties which
were provided for in contracts which it
entered into but with its right to collect
premiums and its duty to collect the
penalty for delayed payment or non-
payment of premiums. The Supreme
Court, in that case, stated:
"No discretion or alternative is granted
respondent Commission in the
enforcement of the law's mandate that
the employer who fails to comply with
his legal obligation to remit the
premiums to the System within the
prescribed period shall pay a penalty
of three (3%) per month. The
prescribed penalty is evidently of a
punitive character, provided by the
legislature to assure that employers
do not take lightly the State's exercise
of the police power in the
implementation of the Republic's
declared policy "to develop, establish
gradually and perfect a social security
system which shall be suitable to the
needs of the people throughout the
Philippines and (to) provide protection
to employers against the hazards of
disability, sickness, old age and
death . . ."
Thus, We agree with the decision of
the respondent court on the matter
which We quote, to wit:
"Note that the above case refers to the
condonation of the penalty for the non
remittance of the premium which is
provided for by Section 22(a) of the
Social Security Act . . . In other words,
what was sought to be condoned was
the penalty provided for by law for non
remittance of premium for coverage
under the Social Security Act.
The case at bar does not refer to any
penalty provided for by law nor does it
refer to the non remittance of
premium. The case at bar refers to a
contract of loan entered into between
plaintiff and defendant Moonwalk
Development and Housing
Corporation. Note, therefore, that no
provision of law is involved in this
case, nor is there any penalty imposed
by law nor a case about non-
remittance of premium required by
law. The present case refers to a
contract of loan payable in
installments not provided for by law
but by agreement of the parties.
Therefore, the ratio decidendi of the
case of United Christian Missionary
Society vs. Social Security Commission
which plaintiff-appellant relies is not
applicable in this case; clearly, the
Social Security Commission, which is a
creature of the Social Security Act
cannot condone a mandatory provision
of law providing for the payment of
premiums and for penalties for non
remittance. The life of the Social
Security Act is in the premiums
because these are the funds from
which the Social Security Act gets the
money for its purposes and the non-
remittance of the premiums is
penalized not by the Social Security
Commission but by law.
xxx xxx xxx
It is admitted that when a government
created corporation enters into a
contract with private party concerning
a loan, it descends to the level of a
private person. Hence, the rules on
contract applicable to private parties
are applicable to it. The argument
therefore that the Social Security
Commission cannot waive or condone
the penalties which was applied in the
United Christian Missionary Society
cannot apply in this case. First,
because what was not paid were
installments on a loan but premiums
required by law to be paid by the
parties covered by the Social Security
Act. Secondly, what is sought to be
condoned or waived are penalties not
imposed by law for failure to remit
premiums required by law, but a
penalty for non payment provided for
by the agreement of the parties in the
contract between them . . ." 15
WHEREFORE, in view of the foregoing,
the petition is DISMISSED and the
decision of the respondent court is
AFFIRMED. LLpr
SO ORDERED.