HUIBONHOA VS CA but if it is not completed within eight (8) months from date hereof as
provided for in par. 4 above, the monthly rental shall already accrue and
These two petitions for review on certiorari under Rule 45 of the Rules
of Court seek the reversal of the Decisions of the Court of Appeals in CA-
G.R. CV No. 16575 and CA-G.R. SP No. 24654 which affirmed, respectively,
the decision of Branch 148 of the Regional Trial Court of Makati City,
dismissing the complaint for reformation of contract, and the decision of
Branch 55 of the Regional Trial Court of Manila, reversing that of Branch
13 of the Metropolitan Trial Court of Manila, which favorably acted in the
ejectment case. Both petitions involve the same parties.
Culled from the records on hand, the facts giving rise to the two cases
are as follows:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum
of agreement with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta
Gojocco Chua stipulating that Florencia T. Huibonhoa would lease from
them (Gojoccos) three (3) adjacent commercial lots at Ilaya Street, Binondo,
Manila, described as lot nos. 26-A, 26-B and 26-C, covered by Transfer
Certificates of Title Nos. 76098, 80728 and 155450, all in their (Gojoccos)
names.
On June 30, 1983, pursuant to the said memorandum of agreement,
the parties inked a contract of lease of the same three lots for a period of
fifteen (15) years commencing on July 1, 1983 and renewable upon
agreement of the parties. Subject contract was to enable the lessee,
Florencia T. Huibonhoa, to construct a four-storey reinforced concrete
building with concrete roof deck, according to plans and specifications
approved by the City Engineers Office. The parties agreed that the lessee
could let/sublease the building and/or its spaces to interested parties
under such terms and conditions as the lessee would determine and that
all amounts collected as rents or income from the property would belong
exclusively to the lessee. The lessee undertook to complete construction of
the building within eight (8) months from the date of the execution of the
contract of lease. The contract further provided as follows:
5. Good will Money and Rate of Monthly Rental: Upon the signing of this
Contract of Lease, LESSEE shall pay to each of the LESSOR the sum
of P300,000.00 each or a total sum of P900,000.00, as goodwill money.
LESSEE shall pay to each of the LESSOR the sum of P15,000.00 each or a
total amount of P45,000.00 as monthly rental for the leased premises,
within the first five (5) days of each calendar month, at the office of the
LESSOR or their authorized agent; Provided, however, that LESSEEs
obligation to pay the rental shall start only upon completion of the building,
shall be paid by LESSEE to LESSOR. In other words, during the period of
construction, no monthly rental shall be collected from LESSEE; Provided,
Finally, that the monthly rental shall be adjusted/increased upon the
corresponding increase in the rental of sub-leasees (sic) using the
percentage increase in the totality of rentals of the sub-leasees (sic) as basis
for the percentage increase of monthly rental that LESSEE will pay to
LESSOR.
The parties also agreed that upon the termination of the lease, the
ownership and title to the building thus constructed on the said lots would
automatically transfer to the lessor, even without any implementing
document therefor. Real estate taxes on the land would be borne by the
lessor while that on the building, by the lessee, but the latter was
authorized to advance the money needed to meet the lessors obligations
such as the payment of real estate taxes on their lots. The lessors would
deduct from the monthly rental due all such advances made by the lessee.
After the execution of the contract, the Gojoccos executed a power of
attorney granting Huibonhoa the authority to obtain credit facilities in
order that the three lots could be mortgaged for a limited one-year period
from July 1983.[1] Hence, on September 12, 1983, Huibonhoa obtained from
China Banking Corporation credit facilities not exceeding One Million
(P1,000.000.00) Pesos.Simultaneously, she mortgaged the three lots to the
creditor bank.[2] Fifteen days later or on September 27, 1983, to be precise,
Huibonhoa signed a contract amending the real estate mortgage in favor of
China Banking Corporation whereby the credit facilities were increased to
the principal sum of Three Million (P3,000,000.00) Pesos.[3]
During the construction of the building which later became known as
Poulex Merchandise Center,[4] former Senator Benigno Aquino, Jr. was
assassinated. The incident must have affected the countrys political and
economic stability. The consequent hoarding of construction materials and
increase in interest rates allegedly affected adversely the construction of the
building such that Huibonhoa failed to complete the same within the
stipulated eight-month period from July 1, 1983. Projected to be finished on
February 29, 1984, the construction was completed only in September
1984 or seven (7) months later.
Under the contract, Huibonhoa was supposed to start paying rental in
March 1984 but she failed to do so. Consequently, the Gojoccos made
several verbal demands upon Huibonhoa for the payment of rental
arrearages and, for her to vacate the leased premises. On December 19,
1984, lessors sent lessee a final letter of demand to pay the rental
arrearages and to vacate the leased premises. The former also notified the
latter of their intention to terminate the contract of lease. [5]
However, on January 3, 1985, Huibonhoa brought an action for
reformation of contract before Branch 148 of the Regional Trial Court in
Makati. Docketed as Civil Case No. 9402, the Complaint alleged that
although there was a meeting of the minds between the parties on the lease
contract, their true intention as to when the monthly rental would accrue
was not therein expressed due to mistake or accident. She (lessee) alleged
that the Gojoccos had erroneously considered the first accrual date of the
rents to be March 1984 when their true intention was that during the entire
period of actual construction of the building, no rents would accrue. Thus,
according to Huibonhoa, the first rent would have been due only in October
1984. Moreover, the assassination of former Senator Benigno Aquino, Jr.,
an unforeseen event, caused the countrys economy to turn from bad to
worse and as a result, the prices of commodities like construction materials
so increased that the building worth Six Million pesos escalated to
"something like 11 to 12 million pesos. However, she averred that by reason
of mistake or accident, the lease contract failed to provide that should an
unforeseen event dramatically increase the cost of construction, the
monthly rental would be reduced and the term of the lease would be
extended for such duration as may be fair and equitable to both the lessors
and the lessee.
Huibonhoa then prayed that the contract of lease be reformed so as to
reflect the true intention of the parties; that its terms be novated so that
the accrual of rents should be computed from October 1984; that the
monthly rent of P45,000.00 be equitably reduced to P30,000.00, and the
term of the lease be extended by five (5) years. [6]
Eleven days later or on January 14, 1985, to be exact, the Gojoccos
filed Civil Case No. 106097 against Huibonhoa for cancellation of lease,
ejectment and collection with the Metropolitan Trial Court of Manila. They
theorized that despite the expiration of the 8-month construction period,
Huibonhoa failed to pay the rents that had accrued since March 1, 1984,
their verbal demands therefor notwithstanding; that, in their letter of
December 19, 1984, they had notified Huibonhoa of their intention to
terminate and cancel the lease for violation of its terms and that they
demanded from her the restitution of the land in question and the payment
of all rentals due thereunder; that Huibonhoa refused to pay the rentals in
bad faith because she had sublet the stalls, bodegas and offices to
numerous tenants and/or stallholders from whom she had collected
goodwill money and exorbitant rentals even prior to the completion of the
building or as of March 1984; that she was about to sublease the vacant
spaces in the building; that she was able to finish construction of the
building without utilizing her own capital or investment on account of the
mortgages of their land in the amount of P3,700,000 (sic); that because the
mortgage indebtedness with China Banking Corporation had remained
outstanding and unpaid, they had revoked the power of attorney in
Huibonhoas favor on December 21, 1984, and that, because Huibonhoa
was about to depart from the Philippines, the rentals due and owing from
the leased premises should be held to answer for their claim by virtue of a
writ of attachment.
The Gojoccos prayed that Huibonhoa and all persons claiming rights
under her be ordered to vacate the leased premises, to surrender to them
actual and physical possession thereof and to pay the rents due and unpaid
at the agreed rate of P45,000.00 a month from March 1984 to January
1985, with legal interest thereon. They also prayed that Huibonhua be
ordered to pay the fair rental value of P60,000.00 a month beginning
February 5, 1985 and every 5 th of the month until the premises shall be
actually vacated and restored to them and that, considering the nature of
the action, the Rules on Summary Procedure be applied to prevent further
losses, damages and expenses on their part.[7]
Meanwhile, in Civil Case No. 9402, the Gojoccos submitted an answer
to the complaint for reformation of contract; asserting that the true
intention of the parties was to obligate Huibonhoa to pay rents immediately
upon the expiration of the maximum period of eight (8) months from the
execution of the lease contract, which intention was meant to avoid a
situation wherein Huibonhoa would deliberately delay the completion of the
building within the 8-month period to elude payment of rental starting
March 1984. They also claimed that Huibonhoa instituted the case in
anticipation of the ejectment suit they would file against her; that she was
estopped from questioning the enforceability of the lease contract after
having received monetary benefits as a result of her utilization of the
premises to her sole profit and advantage; that the financial reverses she
suffered after the assassination of Senator Benigno Aquino, Jr. could not be
considered a fortuitous event that would justify the reduction of the
monthly rental and extension of the contract of lease for five years; and that
the principle of contract of adhesion in interpreting the lease contract
should be strictly applied to Huibonhoa because it was her counsel who
prepared it.[8]
The Gojoccos prayed that Huibonhoa be ordered to pay them the sum
of P495,000.00 representing unpaid rents from March 1, 1984 to January
31, 1985 and the monthly rent of P60,000.00 from February 1, 1985 until
Huibonhoa shall have surrendered the premises to them, and that she be
ordered to pay attorneys fees, moral and exemplary damages and the costs
of suit.
On January 31, 1985, Rufina Gojocco Lim entered into an
agreement[9] with Huibonhoa whereby, to put an end to Civil Case No. 9402,
the former agreed to extend the term of the lease by three (3) more years or
for eighteen (18) years from July 1, 1983. The agreement expressly provided
that no rents would be collected unless and until the construction work was
already completed or that during the construction, no monthly rental
should be collected. It also provided that in case some unforeseen event
should dramatically increase the cost of the building, then the amount of
monthly rent shall be reduced to such sum and the term of the lease
extended for such duration as may be fair and equitable, bearing in mind
the actual construction cost of the building. The agreement recognized the
fact that the Aquino assassination that resulted in the hoarding of
construction materials and the skyrocketing of the interest rates on
Huibonhoas loans, resulted in the increase in actual cost of the
construction from P6,000,000.00 to between P11,000,000.00
and P12,000,000.00.
There is no record that Rufina Gojocco Lim was dropped as a
defendant in Civil Case No. 9402 but only Loretta Gojocco Chua and the
Spouses Severino and Priscilla Gojocco filed the memorandum for the
defendants in that case.[10]
On March 9, 1987, the Makati RTC[11] rendered a decision holding that
Huibonhoa had not presented clear and convincing evidence to justify the
reformation of the lease contract. It considered as misplaced her contention
that the Aquino assassination was an accident within the purview of Art.
1359 of the Civil Code. It held that the act of Rufina G. Lim in entering into
an agreement with Huibonhoa that, in effect, reformed the lease contract,
was not binding upon Severino and Loretta Gojocco considering that they
were separate and independent owners of the lots subject of the lease. On
this point, the trial court cited Sec. 25, Rule 130 of the Rules of Court
which provides that the rights of a party cannot be prejudiced by the act,
declaration or omission of another. It thus decided Civil Case No. 9402 as
follows:
WHEREFORE, judgment is hereby rendered:
a) Dismissing the plaintiffs complaint and defendant Rufina Lims
counterclaim, with costs against them;
b) Ordering the plaintiff to pay to defendant Loretta Gojocco Chua the
amount of P360,000.00, representing rentals due from March 1,
1984 to February 28, 1987, with interests thereon at the legal
rate from date of the filing of the complaint until full payment
thereof, plus the sum of P15,000.00 per month beginning March,
1987 and for as long as the plaintiff is in possession of the leased
premises;
c) Ordering the plaintiff to pay to defendant Severino Gojocco Chua the
amount of P360,000.00, representing rentals due from March 1,
1984 to February 28, 1987, with interests thereon at the legal
rate from date of the filing of the complaint until full payment
thereof, plus the sum of P15,000.00 per month beginning March,
1987 and for as long as the plaintiff is in possession of the leased
premises;
d) Ordering the plaintiff to pay attorneys fees in favor of the above-
named defendants in the sum of P36,000.00, aside from costs of
suit.
SO ORDERED.
Upon motion of the Gojocco, the trial court amended the dispositive
portion of its aforesaid decision in that Huibonhua was ordered to pay each
of Loretta Gojocco Chua and Severino Gojocco the amount of P540,000.00
instead of P360,000.00 and that attorneys fees of P54,000.00, instead
of P36,000.00, be paid by Huibonhoa.
On the other hand, in Civil Case No. 102604, the Metropolitan Trial
Court of Manila granted Huibonhoas prayer that the case be excluded from
the operation of the Rule on Summary Procedure for the reason that the
unpaid rents sued upon amounted to P495,000.00.[12] Thereafter,
Huibonhoa presented a motion to dismiss or, in the alternative, to suspend
proceedings in the case, contending that the pendency of the action for
reformation of contract constituted a ground of lis pendens or at the very
least, posed a prejudicial question to the ejectment case. The Gojoccos
opposed such motion, pointing out that while there was identity of parties
between the two cases, the causes of action, subject matter and reliefs
sought for therein were different.
On May 10, 1985, after Huibonhoa had sent in her reply to the said
opposition, Rufina G. Lim, through counsel, prayed that she be dropped as
plaintiff in the case, and counsel begged leave to withdraw as the lawyer of
the latter in the case. Subsequently, Severino Gojocco and Loretta Gojocco
Chua filed a motion praying for an order requiring Huibonhoa to deposit the
rents. On March 25, 1986, the court below issued an Omnibus Order
denying Huibonhoas motion to dismiss, requiring her to pay monthly rental
of P30,000.00 starting March 1984 and every month thereafter, and
denying Rufina G. Lims motion that she be dropped as plaintiff in the case.
[13]
Huibonhoa moved for reconsideration of said order but the plaintiffs,
apparently including Rufina, opposed the motion.
On July 21, 1986, Severino Gojocco and Huibonhoa entered into an
agreement that altered certain terms of the lease contract in the same way
that the agreement between Huibonhoa and Rufina G. Lim novated the
contract.[14]
On March 24, 1987, the Metropolitan Trial Court of Manila issued an
Order denying Huibonhoas motion for reconsideration and the Gojoccos
motion for issuance of a writ of preliminary attachment, and allowing
Huibonhoa a period of fifteen (15) days within which to deposit P30,000.00
a month starting March 1984 and every month thereafter. [15] Huibonhoa
interposed a second motion for reconsideration of the March 25, 1986 order
on the ground that she had amicably settled the case with Severino Gojocco
and Rufina G. Lim. She therein alleged that only P15,000.00 was due
Loretta G. Chua. She informed the court of the decision of the Makati
Regional Trial Court in Civil Case No. 9402 and argued that since that
court had awarded the Gojoccos rental arrearages, it would be unjust
should she be made to pay rental arrearages, once again.
On June 30, 1987, the Metropolitan Trial Court of Manila issued an
Order reiterating its decision to assume jurisdiction over Civil Case No.
106097 and modified its March 24, 1987 Order by deleting the portion
thereof which required Huibonhua to deposit monthly rents. It also required
Huibonhoa to file her answer within fifteen (15) days from receipt of the
copy of the courts order.Accordingly, on July 21, 1987, Huibonhoa sent in
her answer alleging that the lease contract had been novated by the
agreements she had signed on January 31, 1985 and July 21, 1986, with
Rufina G. Lim and Severino Gojocco, respectively. Huibonhoa added that
she had paid Severino Gojocco the amount of P228,000.00 through an
Allied Bank managers check.[16]
On August 27, 1987, the Metropolitan Trial Court of Manila issued a
Pre-trial Order limiting the issues in Civil Case No. 106097 to: (a) whether
or not plaintiffs had the right to eject the defendant on the ground of
violation of the conditions of the lease contract and (b) whether or not
Severino Gojocco had the right to pursue the ejectment case in view of the
agreement he had entered into with Huibonhoa on July 21, 1986.
On July 30, 1990, the Metropolitan Trial Court of Manila [17] came out
with a decision in favor of plaintiffs Severino Gojocco and Loreta Gojocco
Chua and against Florencia T. Huibonhoa. It ordered Huibonhoa to vacate
the lots owned by Severino Gojocco and Loreta Gojocco Chua and to pay
each of them the amounts P5,000.00 as attorneys fees and P1,000.00 as
appearance fee. All three (3) party-litigants appealed to the Regional Trial
Court of Manila.
On February 14, 1991, the Regional Trial Court of Manila, Branch 55,
[18]
reversed the decision of the Metropolitan Trial Court and ordered the
dismissal of the complaint in Civil Case No. 106097. The reversal of the
inferior courts decision was based primarily on its finding that:
1. The suit below is intrinsically and inherently an action for cancellation of
lease or rescission of contract. In fact, the plaintiffs themselves recognized
this intrinsic nature of the action by categorizing the same action as one for
cancellation of lease, ejectment and collection. The suit cannot properly be
reduced to one of simple ejectment as rights of the parties to the still
existing contracts have yet to be determined and resolved. Necessarily, to
put an end to the parties relation, the contract between them has got to be
abrogated, rescinded or resolved. The action for the purpose is however
cognizable by the Regional Trial Court as its subject-matter is incapable of
pecuniary estimation (See Sec. 19(1), B.P. 129).
Hence, Civil Case Nos. 9402 and 106097 (that was docketed before the
RTC of Manila as Civil Case No. 90-54557) were both elevated to the Court
of Appeals.
In CA-G.R. CV No. 16575, the Court of Appeals rendered a
Decision[19] on May 31, 1990, affirming the decision of the Makati Regional
Trial Court in Civil Case No. 9402. Huibonhoa filed a motion for the
reconsideration of such Decision and on October 18, 1990, the Court of
Appeals modified the same accordingly, by ordering that the amount
of P270,825.00 paid by Huibonhoa to Severino and Priscilla Gojocco be
deducted from the total amount of unpaid rentals due the said spouses.
In CA-G.R. SP No. 24654, the Court of Appeals also affirmed the
decision of the Regional Trial Court of Manila in Civil Case No. 106097 by
its Decision[20] promulgated on October 29, 1991. Considering the
allegations of the complaint for cancellation of lease, ejectment and
collection, the Court of Appeals ratiocinated and concluded:
These allegations, which are denied by private respondent, raised issues
which go beyond the simple issue of unlawful possession in ejectment
cases. While the complaint does not seek the rescission of the lease
contract, ejecting the lessee would, in effect, deprive the lessee of the
income and other beneficial fruits of the building of which she is the owner
until the end of the term of the lease. Certainly this cannot be decreed in a
summary action for ejectment. The decision of the MTC, it is true, only
ordered the ejectment of the private respondent from the leased
premises. But what about the building which, according to petitioners
themselves, cost the private respondent P3,700,000.00 to construct? Will it
be demolished or will its ownership vest, even before the end of the 15-year
term, in the petitioners as owners of the land? Indeed, inextricably linked to
the question of physical possession is the ownership of the building which
the lessee was permitted to put up on the land. To evict the lessee from the
land would be to bar her not only from entering the building which she
owns but also from collecting the rents from its tenants.
 With respect to the contention of the Gojoccos that since Huibonhoa
had submitted to the jurisdiction of the Metropolitan Trial Court, the
jurisdictional issue had been foreclosed, the Court of Appeals opined:
Petitioners point out that private respondent can no longer raise the
question of jurisdiction because she filed a motion to dismiss in the MTC
but she did not raise this question (Rule 15, sec. 8). But the Omnibus
motion rule does not cover two grounds which, although not raised in a
motion to dismiss, are not waived. These are (1) failure to state a cause of
action and (2) lack of jurisdiction over the subject matter. (Rule 9, sec.
2). These grounds can be invoked any time. Moreover, in this case it was not
really private respondent who questioned the jurisdiction over the
Metropolitan Trial Court. It was the Regional Trial Court which did so motu
propio.
On February 19, 1992, [21] the Court resolved that these two petitions
for review on certiorari be consolidated. Although they sprang from the
same factual milieu, the petitions are to be discussed separately, however,
because the issues raised are cognate yet independent from each other.
In G.R. No. 95897
Petitioner Huibonhoa contends that:
1. THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
AND SERIOUS ERROR, CONSTITUTING ABUSE OF
DISCRETION, IN FINDING THE AGREEMENT BETWEEN
PETITIONER AND PRIVATE RESPONDENT SEVERINO GOJOCCO
(ANNEX E) WORTHLESS AND USELESS ALTHOUGH IT HAS
RECOGNIZED THE PAYMENTS WHICH RESPONDENT
SEVERINO GOJOCCO HAS RECEIVED FROM THE PETITIONER
WHICH ACTUALLY CONSTITUTED AN ACT OF RATIFICATION;
2. THE RESPONDENT COURT FAILED TO CONSIDER THE TRAGIC
ASSASSINATION OF FORMER SENATOR BENIGNO AQUINO AS
A FORTUITOUS EVENT OR FORCE MAJEURE WHICH JUSTIFIES
THE ADJUSTMENT OF THE TERMS OF THE CONTRACT OF
LEASE.[22]
Article 1305 of the Civil Code defines a contract as a meeting of the
minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service. Once the minds of the
contacting parties meet, a valid contract exists, whether it is reduced to
writing or not. When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon. As such,
there can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written agreement,
except when it fails to express the true intent and agreement of the parties.
[23]
In such an exception, one of the parties may bring an action for the
reformation of the instrument to the end that their true intention may be
expressed.[24]
Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real
intention of the parties.[25] As to its nature, in Toyota Motor Philippines
Corporation v. Court of Appeals,[26] the Court said:
An action for reformation is in personam, not in rem, xxx even when real
estate is involved. xxx It is merely an equitable relief granted to the parties
where through mistake or fraud, the instrument failed to express the real
agreement or intention of the parties. While it is a recognized remedy
afforded by courts of equity it may not be applied if it is contrary to well-
settled principles or rules. It is a long-standing principle that equity follows
the law. It is applied in the absence of and never against statutory law. xxx
Courts are bound by rules of law and have no arbitrary discretion to
disregard them. xxx Courts of equity must proceed with outmost caution
especially when rights of third parties may intervene. xxx.
Article 1359 of the Civil Code provides that (w)hen, there having been a
meeting of the minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement, by
reason of mistake, fraud, inequitable conduct or accident, one of the parties
may ask for the reformation of the instrument to the end that such
intention may be expressed.xxx. An action for reformation of instrument
under this provision of law may prosper only upon the concurrence of the
following requisites: (1) there must have been a meeting of the minds of the
parties to the contact; (2) the instrument does not express the true
intention of the parties; and (3) the failure of the instrument to express the
true intention of the parties is due to mistake, fraud, inequitable conduct or
accident.[27]
The meeting of the minds between Huibonhoa, on the one hand, and
the Gojoccos, on the other, is manifest in the written lease contract duly
executed by them. The success of the action for reformation of the contract
of lease at bar should therefore, depend on the presence of the two other
requisites aforementioned.
 To prove that the lease contract does not evince the true intention of
the parties, specifically as regards the time when Huibonhoa should start
paying rents, she presented as a witness one of the lessors, Rufina G. Lim,
who testified that prior to the execution of the lease contract on June 30,
1983, the parties had entered into a Memorandum of Agreement on June 8,
1983; that on December 21, 1984, the lessors revoked the special power of
attorney in favor of Huibonhoa; that on January 31, 1985, she entered into
an agreement with Huibonhoa whereby the amount of the rent was reduced
to P10,000 a month and the term of the lease was extended by three (3)
years, and that Huibonhoa started paying rental in September 1984. [28]
There is no statement in such testimony that categorically points to
the fact that the contract of lease has failed to express the true intention of
the parties. While it is true that paragraph 4 of the Memorandum of
Agreement[29] states that the P15,000 monthly rental due each of the three
lessors shall be collected in advance within the first five (5) days of each
month upon completion of the building, the same memorandum of
agreement also provides as follows:
8. This Memorandum of Agreement shall bind the SECOND PARTY only
after the signing of the Contact of Lease by both parties which shall not be
later than June 30, 1983, provided, however, that should the SECOND
PARTY decide not to proceed with the signing on the deadline aforestated,
the FIRST PARTY shall not hold her liable therefor.
In view thereof, reliance on the provisions of the Memorandum of
Agreement is misplaced considering that its provisions would bind the
parties only upon the signing of the lease contract.However, the lease
contract that was later entered into by the parties qualified the time when
the lessee should start paying the monthly rentals. Paragraph 5 of the lease
contract states that the LESSEEs obligation to pay the rental shall start
only upon the completion of the building, but if it is not completed within
eight (8) months from date hereof as provided for in par. 5 (sic) above, the
monthly rental shall already accrue and shall be paid by LESSEE to
LESSOR. That qualification applies even though the next sentence states
that (I)n other words, during the period of construction, no monthly rentals
shall be collected from LESSEE. Otherwise, there was no reason for the
insertion of that qualification on the period of construction of the building
the termination of which would signal the accrual of the monthly
rentals. Non-inclusion of that qualification would also give the lessee the
unbridled discretion as to the period of construction of the building to the
detriment of the lessors right to exercise ownership thereover upon the
expiration of the 15-year lease period.
In actions for reformation of contact, the onus probandi is upon the
party who insists that the contract should be reformed. [30] Huibonhoa
having failed to discharge that burden of proving that the true intention of
the parties has not been accurately expressed in the lease contract sought
to be reformed, the trial court correctly held that no clear and convincing
proof warrants the reformation thereof.
In the complaint, Huibonhoa alleged:
5.9 By reason of mistake or accident, the contract (Annex A) fails to state
the true intention and real agreement of the parties to the effect that in
case some unforeseen event should dramatically increase the cost of the
building, then the amount of monthly rent shall be reduced to such sum
and the term of the lease extended for such duration as may be fair and
equitable to both parties, bearing in mind the actual construction cost of
the building.
5.10. As a direct result of the tragic Aquino assassination on 21 August
1983, which the parties did not foresee and coming as it did barely two (2)
months after the contract (Annex A) had been signed, the countrys
economy dramatically turned from bad to worse, and the resulting ill effects
thereof specifically the hoarding of construction materials adversely affected
the plaintiff resulting, among others, in delaying the construction work and
the skyrocketing of the interest rates on plaintiffs loans, such that instead
of roughly P6 Million as originally budgeted the building in question now
actually cost the plaintiff something like 11 to 12 million pesos, more or
less.
In the present petition, Huibonhoa asserts that: by reason of oversight
or mistake, the true intention of the parties that should some unforeseen
event dramatically increase the cost of the building, then the amount of
monthly rent shall be reduced to such sum and the term of the lease
extended to such period as would be fair and equitable to both sides,
bearing in mind always that petitioner was ordinary LESSEE but was an
investor-developer. She insists that (i)n truth, the contract, while that of
lease, really amounted to a common business venture of the parties. [31]
On account of her failure to prove what costly mistake allegedly
suppressed the true intention of the parties, Huibonhoa honestly admitted
that there was an oversight in the drafting of the contract by her own
counsel. By such admission, oversight may not be attributed to all the
parties to the contract and therefore, it cannot be considered a valid reason
for the reformation of the same contract. In fact, because it was
Huibonhoas counsel himself who drafted the contract, any obscurity
therein should be construed against her. [32] Unable to substantiate her
stance that the true intention of the parties is not expressed in the lease
contract in question, Huibonhoa nonetheless contends that paragraph 5
thereof should be interpreted in such a way that she should only begin
paying monthly rent in October 1984 and not in March 1984. [33]
Such contention betrays Huibonhoas confusion on the distinction
between interpretation and reformation of contracts. In National Irrigation
Administration v. Gamit,[34] the Court distinguished the two concepts as
follows:
Interpretation is the act of making intelligible what was before not
understood, ambiguous, or not obvious. It is a method by which the
meaning of language is ascertained. The interpretation of a contract is the
determination of the meaning attached to the words written or spoken
which make the contract. On the other hand, reformation is that remedy in
equity by means of which a written instrument is made or construed so as
to express or conform to the real intention of the parties. In granting
reformation, therefore, equity is not really making a new contract for the
parties, but is confirming and perpetuating the real contract between the
parties which, under the technical rules of law, could not be enforced but
for such reformation. As aptly observed by the Code Commission, the
rationale of the doctrine is that it would be unjust and inequitable to allow
the enforcement of a written instrument which does not reflect or disclose
the real meeting of the minds of the parties.
By bringing an action for the reformation of subject lease contract,
Huibonhoa chose to reform the instrument and not the contract itself.
[35]
She is thus precluded from inserting stipulations that are not extant in
the lease contract itself lest the very agreement embodied in the instrument
is altered.
Neither does the Court find merit in her submission that the
assassination of the late Senator Benigno Aquino, Jr. was a fortuitous event
that justified a modification of the terms of the lease contract.
A fortuitous event is that which could not be foreseen, or which even if
foreseen, was inevitable. To exempt the obligor from liability for a breach of
an obligation due to an act of God, the following requisites must concur: (a)
the cause of the breach of the obligation must be independent of the will of
the debtor; (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. [36]
In the case under scrutiny, the assassination of Senator Aquino may
indeed be considered a fortuitous event. However, the said incident per se
could not have caused the delay in the construction of the building. What
might have caused the delay was the resulting escalation of prices of
commodities including construction materials. Be that as it may, there is no
merit in Huibonhoas argument that the inflation borne by the Filipinos in
1983 justified the delayed accrual of monthly rental, the reduction of its
amount and the extension of the lease by three (3) years.
Inflation is the sharp increase of money or credit or both without a
corresponding increase in business transaction. [37] There is inflation when
there is an increase in the volume of money and credit relative to available
goods resulting in a substantial and continuing rise in the general price
level.[38] While it is of judicial notice that there has been a decline in the
purchasing power of the Philippine peso, this downward fall of the currency
cannot be considered unforeseeable considering that since the 1970s we
have been experiencing inflation. It is simply a universal trend that has not
spared our country.[39] Conformably, this Court upheld the petitioners view
in Occea v. Jabson[40] that even a worldwide increase in prices does not
constitute a sufficient cause of action for modification of an instrument.
It is only when an extraordinary inflation supervenes that the law
affords the parties a relief in contractual obligations. [41] In Filipino Pipe and
Foundry Corporation v. NAWASA,[42] the Court explained extraordinary
inflation thus:
Extraordinary inflation exists when there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond
the common fluctuation in the value of said currency, and such decrease or
increase could not have been reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of the establishment of the
obligation.(Tolentino, Commentaries and Jurisprudence on the Civil Code,
Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of what
happened to the Deutschmark in 1920:
More recently, in the 1920s Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark was 4.2 to the
U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S.
dollar. And as prices went up rapidly, so that by October 1923, it had
reached 4.2 trillion to the U.S. dollar! (Bernardo M. Villegas & Victor R.
Abola, Economics, An Introduction [Third Edition]).
As reported, prices were going up every week, then every day, then every
hour. Women were paid several times a days so that they could rush out
and exchange their money for something of value before what little
purchasing power was left dissolved in their hands. Some workers tried to
beat the constantly rising prices by throwing their money out of the
windows to their waiting wives, who would rush to unload the nearly
worthless paper. A postage stamp cost millions of marks and a loaf of bread,
billions. (Sidney Rutberg, The Money Balloon New York: Simon and
Schuster, 1975, p. 19, cited in Economics, An Introduction by Villegas &
Abola, 3rd Ed.)
No decrease in the peso value of such magnitude having occurred,
Huibonhoa has no valid ground to ask this Court to intervene and modify
the lease agreement to suit her purpose. As it is, Huibonhoa even failed to
prove by evidence, documentary or testimonial, that there was an
extraordinary inflation from July 1983 to February 1984. Although she
repeatedly alleged that the cost of constructing the building doubled
from P6 million to P12 million, she failed to show by how much, for
instance, the price index of goods and services had risen during that
intervening period. An extraordinary inflation cannot be assumed.[43] Hence,
for Huibonhoa to claim exemption from liability by reason of fortuitous
event under Art. 1174 of the Civil Code, she must prove that inflation was
the sole and proximate cause of the loss or destruction of the contract [44]or,
in this case, of the delay in the construction of the building. Having failed to
do so, Huibonhoas contention is untenable.
Pathetically, if indeed a fortuitous event deterred the timely fulfillment
of Huibonhoas obligation under the lease contract, she chose the wrong
remedy in filing the case for reformation of the contract. Instead, she should
have availed of the remedy of recission of contract in order that the court
could release her from performing her obligation under Arts. 1266 [45] and
1267[46] of the Civil Code, so that the parties could be restored to their
status prior to the execution of the lease contract.
As regards Huibonhoas assertion that the lease contract was novated
by Rufina G. Lim and Severino Gojocco who entered into an agreement with
her on January 31, 1985 and July 21, 1986, respectively, it bears stressing
that the lease contract they had entered into is not a simple one. It is
unique in that while there is only one lessee, Huibonhoa, and the contract
refers to a LESSOR, there are actually three lessors with separate
certificates of title over the three lots on which Huibonhoa constructed the
4-storey building. As Huibonhoa herself ironically asserts, the lease
contract is an indivisible one because the lessors interests cannot be
separated even if they owned the lands separately under different
certificates of title.[47] Hence, the acts of Rufina G. Lim and Severino Gojocco
in entering into the new agreement with Huibonhoa could have affected
only their individual rights as lessors because no new agreement was forged
between Huibonhoa and all the lessors, including Loreta Gojocco.
Consequently, because the three lot owners simultaneously entered
into the lease contract with Huibonhoa, novation of the contract could only
be effected by their simultaneous act of abrogating the original contract and
at the same time forging a new one in writing. Although as a rule no form of
words or writing is necessary to give effect to a novation, [48] a written
agreement signed by all the parties to the lease contract is required in this
case. Ordinary diligence on the part of the parties demanded that they
execute a written agreement if indeed they wanted to enter into a new one
because of the 15-year life span of the lease affecting real property and the
fact that third persons would be affected thereby on account of the express
agreement allowing the lessee to lease the building to third parties. [49]
Under the law, novation is never presumed. The parties to a contract
must expressly agree that they are abrogating their old contract in favor of a
new one.[50] Accordingly, it was held that no novation of a contract had
occurred when the new agreement entered into between the parties was
intended to give life to the old one. [51] Giving life to the contract was the very
purpose for which Rufina G. Lim signed the agreement on January 31,
1986 with Huibonhoa. It was intended to graft into the lease contract
provisions that would facilitate fulfillment of Huibonhoas obligation therein.
[52]
That the new agreement was meant to strengthen the enforceability of
the lease is further evidenced by the fact, although its stipulations as to the
period of the lease and as to the amount of rental were altered, the
agreement with Rufina G. Lim does not even hint that the lease itself would
be abrogated. As such, even Huibonhoas agreement with Rufina G. Lim
cannot be considered a novation of the original lease contract. Where the
parties to the new obligation expressly recognize the continuing existence
and validity of the old one, where, in other words, the parties expressly
negated the lapsing of the old obligation, there can be no novation. [53]
As regards the new agreement with Severino Gojocco, it should be
noted that he only disclaimed its existence when the check issued by
Huibonhoa to him, allegedly in accordance with the new agreement, was
dishonored. That unfortunate fact might have led Severino Gojocco to refuse
acceptance of rents paid by Huibonhoa subsequent to the dishonor of the
check. However, the non-existence of the new agreement with Severino
Gojocco is a question of fact that the courts below had properly
determined. The Court of Appeals has affirmed the trial courts finding that
not only was Gojoccos consent vitiated by fraud and false representation
there likewise was failure of consideration in the execution of Exhibit C,
(and therefore) the said agreement is legally inefficacious. [54] In the
Resolution of October 18, 1990, the Court of Appeals considered the
amount of P270,825.00 represented by the check handed by Huibonhoa to
Severino Gojocco as partial settlement or partial payment [55] clearly under
the terms of the original lease contract. There is no reason to depart from
the findings and conclusions of the appellate court on this matter.
Nevertheless, because Severino Gojocco repudiates the new agreement
even before this Court as his consent thereto had allegedly been vitiated by
fraud and false representation, [56] Huibonhoa may not escape complete
fulfillment of her obligation under the original lease contract as far as
Severino Gojocco is concerned. She is thus contractually bound to pay him
the unpaid rents.
Aside from the monthly rental that should be paid by Huibonhoa
starting March 1984, Loreto Gojocco Chua is also entitled to interest at the
rate of 6% per annum from the accrual of the rent in accordance with
Article 2209[57] of the Civil Code until it is fully paid because the monetary
award does not partake of a loan or forbearance in money. However, the
interim period from the finality of this judgment until the monetary award
is fully satisfied, is equivalent to a forbearance of credit and therefore,
during that interim period, the applicable rate of legal interest shall be 12%.
[58]
As regards Severino Gojocco, he shall be entitled to such interests only
from the time that Huibonhoa defaulted paying her monthly rentals to him
considering that he had already received from her the amount
of P270,825.00 as rentals.
The amount of monthly rentals upon which interest shall be charged
shall be that stipulated in paragraph 5 of the lease contract or P15,000.00
to each lessor. That amount, however, shall be subject to the provision
therein that the amount of rentals shall be adjusted/increased upon the
corresponding increase in the rental of subleases using the percentage
increase in the totality of rentals of the sub-lessees as basis for the
percentage increase of monthly rental that LESSEE will pay to LESSOR.
Upon remand of this case therefore, the trial court shall determine the total
monetary award in favor of Loreta Gojocco Chua and of Severino Gojocco.
From the facts of the case, it is clear that what Huibonhoa aimed for in
filing the action for reformation of the lease contract, is to absolve herself
from her delay in the payment of monthly rentals and to extend the term of
the lease, which under the original lease contract, expired in 1988. The
ostensible reasons behind the institution of the case she alleged were the
unfavorable repercussions resulting from the economic and political
upheaval on the heels of the Aquino assassination. However, a contract duly
executed is the law between the parties who are obliged to comply with its
terms. Events occurring subsequent to the signing of an agreement may
suffice to alter its terms only if, upon failure of the parties to arrive at a
valid compromise, the court deems the same to be sufficient reasons in law
for altering the terms of the contract. This court once said:
It is a long established doctrine that the law does not relieve a party from
the effects of an unwise, foolish, or disastrous contract, entered into with all
the required formalities and with full awareness of what he was
doing. Courts have no power to relieve parties from obligations voluntarily
assumed, simply because their contracts turned out to be disastrous deals
or unwise investments.[59]
In G.R. No. 102604
Petitioners Severino Gojocco and Loreta G. Chua assail the Decision of
the Court of Appeals on the following grounds;
a) RESPONDENT COURT HAS DECIDED QUESTIONS OF
SUBSTANCE NOT HERETOFORE DETERMINED BY THIS
HONORABLE COURT OR HAS DECIDED THEM IN A WAY
CLEARLY CONTRARY TO LAW OR THE APPLICABLE DECISIONS
OF THIS HONORABLE COURT;
b) RESPONDENT COURT HAS SO FAR DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS
TO CALL FOR AN EXERCISE OF THE POWERS OF SUPERVISION
BY THE HONORABLE COURT.[60]
The contentions of petitioners relate to the basic issue raised in the
petition - whether or not the Court of Appeals erred in affirming the
decision of the Regional Trial Court that dismissed for lack of jurisdiction
the complaint for ejectment brought by petitioners before the Metropolitan
Trial Court of Manila. In other words, the issue for determination here
is: whether or not the Metropolitan Trial Court had jurisdiction over the
complaint for cancellation of lease, ejectment and collection in Civil Case
No. 90-54557.
The governing law on jurisdiction when the complaint was filed on
January 14, 1985 was Sec. 33 (2) of Batas Pambansa Blg. 129 vesting
municipal courts with:
Exclusive original jurisdiction over cases of forcible entry and unlawful
detainer. Provided, That when, in such cases, the defendant raises the
question of ownership in his pleadings and the question of possession
cannot be resolved without deciding the issue of ownership, the issue of
ownership should be resolved only to determine the issue of possession.
Thereunder, when the issue of ownership is indispensable to the
resolution of the issue of possession, the Metropolitan Trial Court is
empowered to decide it as well. [61] Explaining this jurisdictional matter, in
Dizon v. Court of Appeals,[62] the Court said:
x x x. Well-settled is the rule that in an ejectment suit, the only issue is
possession de facto or physical or material possession and not
possession de jure. So that, even if the question of ownership is raised in
the pleadings, as in this case, the court may pass upon such issue but only
to determine the question of possession especially if the former is
inseparably linked with the latter. It cannot dispose with finality the issue of
ownership-such issue being inutile in an ejectment suit except to throw
light on the question of possession. This is why the issue of ownership or
title is generally immaterial and foreign to an ejectment suit.
Detainer, being a mere quieting process, questions raised on real property
are incidentally discussed. In fact, any evidence of ownership is expressly
banned by Sec. 4, Rule 70 except to resolve the question of
possession. Thus, all that the court may do, is to make an initial
determination of who is the owner of the property so that it can resolve who
is entitled to its possession absent other evidence to resolve the latter. But
such determination of ownership is not clothed with finality. Neither will it
affect ownership of the property nor constitute a binding and conclusive
adjudication on the merits with respect to the issue of ownership. x x x.
The Court has consistently held that in forcible entry and unlawful
detainer cases, jurisdiction is determined by the nature of the action as
pleaded in the complaint.[63] The test of the sufficiency of the facts alleged in
the complaint is whether or not admitting the facts alleged therein, the
court could render a valid judgment upon the same in accordance with the
prayer of the plaintiff.[64]
In an ejectment case, or specifically in an action for unlawful detainer
like the present case, it suffices to allege that the defendant is unlawfully
withholding possession of the property in question. [65] A complaint for
unlawful detainer is therefore sufficient if it alleges that the withholding of
possession or the refusal to vacate is unlawful without necessarily
employing the terminology of the law. [66] It is therefore in order to make an
inquiry into the averments of the complaint in Civil Case No. 90-54557.
[67]
The complaint, that was called one for cancellation of lease, ejectment
and collection, alleged the following facts:
1. The parties are residents of different barangays and therefore
the provisions of P.D. No. 1508 (the law on the katarungang
pambarangay) are inapplicable;
2. The plaintiffs, Rufina G. Lim, Severino Gojocco and Loreta
Gojocco Chua are the registered owners of three parcels of
commercial land in Ilaya Street, Binondo, Manila.
3. On June 30, 1983, they entered into a lease contract with
defendant Huibonhoa whereby the latter would construct a 4-
storey building on the three lots that, after the expiration of
the 15-year period of the lease, would be owned by the lessors,
and that, upon completion of construction of the building
within eight (8) months from signing of the lease contract, the
lessee would start paying monthly rentals;
4. After the expiration of the 8-months period or in March 1984,
the rentals of P45,000.00 a month accrued.
5. Despite verbal demands, meetings and conferences by which
the plaintiffs demanded from defendant payment of the total
amount due on account of the lease contract, defendant failed
to pay;
6. On December 19, 1984, the plaintiffs, through counsel, wrote
defendant letter informing her of their intention to terminate
and cancel the lease for violation of its terms by the defendant
at the same time demanding restitution of the lots in question
and payment of all rentals due;
7. Despite such verbal and written demands, the defendant
refused to comply therewith to the damage and prejudice of
the plaintiffs considering that defendant was subleasing the
stalls, bodegas and offices to tenants who had paid her
goodwill money and exorbitant rentals since March 1984 or
prior to the completion of the building until the filing of the
complaint in amounts totaling millions of pesos;
8. Defendant continued to sublease vacant spaces while depriving
plaintiffs of reasonable compensation for the use and
occupation of the premises;
9. Defendant did not utilize her own capital in the construction of
the building as she was able to mortgage the lots to the China
Banking Corporation in the total amount of P3,700,000.00 as
well as collect goodwill money from tenants;
10. Plaintiffs revoked the authority given to defendant to
encumber the property because of her failure of pay and
liquidate the real estate loan within the one-year period which
expired on September 30, 1984;
11. That plaintiffs were forced to file the action by reason of
defendants bad faith and unwarranted refusal to satisfy their
claims; and
12. The rentals should be made to answer for plaintiffs monetary
claims on account of defendants impending departure from the
Philippines.
After praying for the issuance of a preliminary writ of attachment, the
plaintiffs prayed as follows:
WHEREFORE, premises considered, it is most respectfully prayed that
judgment be rendered in favor of plaintiffs and against the defendant as
follows:
1. Ordering defendant and all persons claiming rights under her
to forthwith vacate the leased premises described in this
Complaint and to surrender actual and physical possession to
herein plaintiffs and/or their duly authorized representatives;
2. Ordering defendant to pay plaintiff all rentals due and unpaid
at the agreed rate of P45,000.00 per month from March, 1984
to January, 1985 or for a period of 11 months with legal
interests thereon until fully paid;
3. Ordering the defendant to deposit past and future rentals with
this Honorable Court, or in a bank acceptable to both parties,
the Passbook to be turned over and submitted to this
Honorable Court for further disposition;
4. Sentencing defendant to pay the fair rental value of, and/or
reasonable compensation for, the use and occupancy of the
leased premises at the rate of P60,000 per month beginning
February 5, 1985 and every 5th of the succeeding month
thereafter until the premises is actually vacated and restored
to herein plaintiffs;
5. To pay plaintiffs a sum equivalent to 20% of the total amount
claimed in this action for and as attorneys fees exclusive of
appearance fees and costs of this action;
6. That pending hearing of this case, a writ of preliminary
attachment be issued against the credits due defendant from
the tenants or sublessees of the premises in question to serve
as security for the satisfaction of any judgment that may be
recovered in this case;
7. For such other and further relief as this Honorable Court may
deem proper, just and equitable;
8. Plaintiffs further respectfully pray that for expediency,
considering the nature of this action and to protect plaintiffs
from incurring further losses, damages and expenses
concomittant to the deprivation or loss of their possession,
that notwithstanding the amount of claim involved, they
hereby respectfully invoke the applicability of the rules on
Summary Procedure in the interest of justice.
Undoubtedly, the complaint avers ultimate facts required for a cause of
action in an unlawful detainer case. It alleges possession of the properties
by the lessee, verbal and written demands to pay rental arrearages and to
vacate the leased premises, continued refusal of the lessees to surrender
possession of the premises, and the fact that the action was filed within one
year from demand to vacate.
A reading of the allegations of the complaint and the reliefs prayed for
indeed reveals facts that appear to be extraneous to the primary aim of
recovering possession of property in an action for unlawful detainer
although these facts do not involve issue of ownership of the
premises. Thus, consonant with the allegation that defendant was leasing
the spaces in the building to the tune of millions of peso, plaintiffs pray for
an increase in monthly rentals to P60,000.00 a month starting February 5,
1985 or after construction of the building had been completed. The
prayer likewise speaks of past and future rentals that should be deposited
with the court or in an acceptable bank. In other words, the complaint
seeks relief that are not limited to payment of the rent arrearages and the
eviction of defendant from the leased premises.
Although for reasons of their own the Gojoccos opted not to express in
the complaint their intention to terminate the lease, such intention could be
gleaned from their prayer that the court should sentence Huibonhoa to pay
the higher rent of P60,000.00 a month. That explains why the complaint is
captioned as one for cancellation of the lease aside from its being one for
ejectment and collection. In praying that the court directs the defendant to
pay the increased rental of P60,000.00 a month, plaintiffs, in effect, would
want the existing contract terminated in order that the court could
substitute it with another providing for an increased monthly rental.
However, forging contracts for parties in a case is beyond the
jurisdiction of courts. Otherwise, it would result in the courts substitution
of its own volition in a contract that should express only the parties
will. Necessarily, the Metropolitan Trial Court could not favorably act on the
prayer for cancellation of the contract with another containing terms
suggested by the plaintiffs as the allegations and prayer therefor are no
more than superfluities that do not affect the main cause of action averred
in the complaint. The court therefore granted only the main relief sought by
the plaintiffs-the eviction of the defendant.
The Regional Trial Court incorrectly held that the complaint was also
for rescission of contract, a case that is certainly not within the jurisdiction
of the Metropolitan Trial Court. By the allegations of the complaint, the
Gojoccos aim was to cancel or terminate the contract because they sought
its partial enforcement in praying for rental arrearages. There is a
distinction in law between cancellation of a contract and its rescission. To
rescind is to declare a contract void in its inception and to put an end to it
as though it never were. It is not merely to terminate it and release parties
from further obligations to each other but to abrogate it from the beginning
and restore the parties to relative positions which they would have occupied
had no contract ever been made.[68]
Termination of a contract is congruent with an action for unlawful
detainer. The termination or cancellation of a contract would necessarily
entail enforcement of its terms prior to the declaration of its cancellation in
the same way that before a lessee is ejected under a lease contract, he has
to fulfill his obligations thereunder that had accrued prior to his
ejectment. However, termination of a contract need not undergo judicial
intervention. The parties themselves may exercise such option. Only upon
disagreement between the parties as to how it should be undertaken may
the parties resort to courts. Hence, notwithstanding the allegations in the
complaint that are extraneous or not essential in an action for unlawful
detainer, the Metropolitan Trial Court correctly assumed jurisdiction over
Civil Case No. 90-54557.
a.) In G.R. No. 95897, the decision of the Court of Appeals in CA-G.R. CV
No. 16575, dismissing petitioners complaint for reformation of contract,
is AFFIRMED with the modifications that:
1] Private respondent Loreta Gojocco Chua is adjudged entitled to legal
interest of 6% per annum from March, 1984, the time the rents became
due;
2] Private respondent Severino Gojocco shall receive 6% legal interest only
from the time Florencia T. Huibonhoa defaulted in the payment of her
monthly rents; and
3] Legal interest of 12% per annum shall accrue from the finality of this
decision until the amount due is fully paid.

The Court finds sustainable basis for the observation of the Court of
Appeals that execution of the judgment ejecting Huibonhoa would cause b) In G.R. No. 102604, the decision of the Court of Appeals in CA-G.R. SP
complications that are anathema to a peaceful resolution of the controversy No. 24654, affirming the decision of the Regional Trial Court of origin which
between the parties. Thus, while Huibonhoa would be ejected from the lots dismissed the ejectment case instituted by the petitioners against the
owned by Severino Gojocco and Loreta Gojocco Chua, she would be bound private respondent is SET ASIDE; the order of ejectment issued by the
by her agreement with Rufina G. Lim to continue with the lease. The result Metropolitan Trial Court a quo on July 30, 1980 is UPHELD; and the
would be disadvantageous to both Huibonhoa and Severino Gojocco and private respondent and all persons claiming authority under her are
Loreta G. Chua. The said owners would be unable to exercise rights of ordered to vacate the land and portion of the building corresponding to Lot
ownership over their lots upon which the building was constructed unless No. 26-B covered by TCT No. 80728 of petitioner Severino Gojocco, and the
they remove or buy two-thirds of the building. portion corresponding to Lot No. 26-C covered by TCT No. 155450 of
petitioner Loreta Chua. No pronouncement as to costs.
However, an action for unlawful detainer does not preclude the lessee
or ejected party from availing of other remedies provided by law. The
prevailing doctrine is that suits or actions for the annulment of sale, title or
document do not abate any ejectment action respecting the same property.
[69]
In fact, in this case, the lessee, as it was, jumped the gun over the
lessors in filing the action for reformation of the lease contract. That it
proved unfavorable to her does not detract from the fact that the
controversy between her and the lessors has been resolved in accordance
with law albeit not in consonance with the wishes of all the parties.

Be that as it may, the problem of ejecting Huibonhoa has been

rendered moot and academic by the expiration of the lease contract litigated
upon in June 1998. The parties might have availed of the provision of
paragraph 1 of the lease contract whereby the parties agreed to renew it for
a similar or shorter period upon terms and conditions mutually agreeable
to them. If they opted to brush aside that provision, with more reason,
Huibonhoas eviction should ensue as a matter of enforcement of the lease
contract.

WHEREFORE, judgment is hereby rendered as follows:


NATIONAL IRRIGATION VS GAMIT
On 23 January 1985, the plaintiff Estanislao Gamit (private respondent
herein) filed with the RTC of Roxas, Isabela, Branch XXIII, a
complaint 1 against the defendant National Irrigation Administration
(petitioner herein) for reformation of contract, recovery of possession and
damages, docketed therein as Civil Case No. 4, alleging, among others, as
follows:
2. That defendant is in charge of the implementation of the
Irrigation Program of the national government to increase
food production nationwide, and in pursuance of the policy,
the Magat River Multi-Purpose Project was undertaken to
provide irrigation in the Cagayan Valley region, particularly
in the province of Isabela, funded by a multi-billion loan
from the world bank; that as an indispensable component
of the project, massive infrastructure improvements such
as buildings and the like, were constructed to house the
different offices monitoring the actual implementation of
the project;
3. That for the purpose above mentioned and sometime on
June 5, 1975, herein plaintiff and defendant, thru its
Officer-in-Charge, Magat River Multi-Purpose Project
(MRMP) then with business office at San Mateo, Isabela,
after some negotiations were made, entered into a
CONTRACT OF LEASE, over plaintiff's urban parcel of land,
more particularly described as follows:
An undivided portion of twenty five
thousand (25,000) square meters, more or
less, and forming part of that parcel of
land with a total area of thirty thousand
and five (30,005) square maters, more or
less, embraced in TCT No. T-85689 of the
land records of Isabela, under Tax
Declaration No. S3-5603, situated at the
poblacion (Centro), San Manuel, Isabela,
which portion leased is bounded as follows:
NORTH: Estanislao Gamit;
EAST National Road;
SOUTH: Dominador
Bullungan; WEST:
Dominador Bullagan
For a consideration or rental in the sum of ten centavos
(P0.10) per square meter, per year for ten (10) years, from
date of execution of the instrument, for the use by
defendant on which to construct the Administration
Building and other facilities for Division III, Magat River
Multi-Purpose Project at San Manuel, Isabela, and other
purposes that may be deemed necessary for the operation
and maintenance of the system when completed; certified
xerox copy of the title is hereto attached as Annex "A" to
form part hereof.
4. That in at least three paragraphs, (4, 8, 9) of the contract
of lease the defendant surreptitiously inserted, the
following stipulations, which are hereby quoted:
4. That should LESSEE decides (sic) to
continue utilizing the said portion of
twenty five thousand (25.000) square
meters, more or less, beyond the ten (10)
year period that this contract is in force,
then lessee may purchase the property
and all rentals paid to lessor shall be
considered part of the purchase price
(which) shall not exceed twenty five
thousand (P25,000.00) Pesos: (Emphasis
Supplied)
xxx xxx xxx
8. That six (6) months before the expiration of the ten (10)
year period, LESSOR shall request LESSEE in writing
about the latter's final intention on the herein (property)
leased; likewise, LESSEE shall inform LESSOR in writing
about LESSEE'S definite intention on the area; failure of
parties to make bilateral communication shall be deemed
that this contract is in force and effect even after the ten
(10) year period, as if LESSOR, his successors, or assigns
allowed continued use of the property by LESSEE without
any additional compensation whatsoever. (Emphasis
Supplied.)
9. That upon payment of the said amount
of Twenty Five Thousand (P25,000.00)
Pesos, the land owner, Estanislao Gamit
shall be deemed to have ceded and
conveyed all his rights and interest on the
subject property free from all liens and
encumbrances in favor of the National
Irrigation Administration. (Emphasis
Supplies). Certified xerox copy of the
contract is hereto attached as Annex "B", to
form part hereof.
5. That prior to the signing of the contract of lease as
stated in the immediately preceding paragraphs, serious
negotiations were made, the first was, when the Municipal
Mayor and Chief of Police of the Municipality of San
Manuel, Isabela, approached plaintiff in behalf of
defendant, to allow the later thru its Project Manager or his
duly authorized representatives and equipments to enter
into and occupy three (3) hectares or 30,000 square meters
of his land on which to establish the Office of Division III, of
the Project, and plaintiff and his wife signed a written
permit dated April 24, 1975, witnessed by Mayor Paulino A.
Domingo and Chief of Police Pedro R. Pascua, which permit
was granted "pending the perfection of documents pertinent
to a formal lease contract with the right to purchase" to be
executed by and between plaintiff and defendant. Certified
xerox copy of the permit is hereto attached as Annex "B-1",
to form part hereof;
That further negotiations followed, and a document
denominated as "'AGREEMENT" was prepared by herein
defendant for the signature of plaintiff and the latter and
his wife signed the same, with one Engr. Antonio A. Ramos,
then the Chief of Division III, MRMP, San Manuel, Isabela,
signing as an instrumental witness; for reasons known only
to the Asst. Project Manager, the document was not
however signed by him, for which reason, the contract of
lease was not perfected possibly because defendant's
Assistant Project Manager wanted to prolong plaintiff's
anxiety and the same was aggravated by the latter's deep
financial need, which fact is known by the Assistant Project
Manager during the negotiations, thereby exercising undue
influence or advantage over that of plaintiff, when the
contract of lease was finally signed on June 6, 1975.
Certified xerox copy of the unperfected agreement is hereto
attached as Annex "B-2", to form part hereof.
6. That contemporaneously or subsequently thereafter and
sometime on August 27, 1975 or thereabout, the whole
rental of the leased premises was offered to be paid by the
defendant and the plaintiff being then in need of cash, as
he was then in financial distress, accepted the offer, and
finally received the whole amount, as evidenced by a
certified xerox copy of the corresponding voucher, hereto
attached as Annex "C", to form part hereof.
7. That only recently, in a letter dated November 23, 1984,
sent by the Assistant Project Manager to the plaintiff,
herein defendant notified the former, of the election to
purchase the leased premises, allegedly in accordance with
stipulation No. 8 quoted above, and contained in the
contract of lease (Annex "B"). Certified xerox copy of the
same is hereto attached as Annex "D", to form part hereof.
8. That the contract of lease entered into, by and between
herein plaintiff and defendant does not express the real
agreement or intention of the parties, as there was error or
mistake of fact on the part of plaintiff, aggravated by his
state of financial distress at the time the contract was
signed, and herein defendant acted fraudulently or
inequitably, exercising undue influence over plaintiff on
account of the latter's financial distress, in such a way that
their real agreement was not reflected or expressed in the
contract of lease signed by the parties.
9. That the real agreement or intention of the parties was
only for the lease of the twenty five (25,000) thousand
square meters by defendant at the rate of P0.10 centavos
per square meter, for a period of ten (10) years from date of
execution with the right of defendant to purchase the area
upon the termination of the lease, on a price certain or
consideration to be negotiated and agreed upon, by and
between the parties after the lapse of the ten (10) year
period;
10. That it was not the real agreement or intention of the
parties, at least that of herein plaintiff, to have the rentals
paid as forming part of the purchase price later to be
negotiated or agreed upon, much less was it their intention
at least on the part of herein plaintiff, that the price shall,
not exceed P25,000.00 (see stipulation No. 4, Lease of
Contract), otherwise, there will be a gross inadequacy of
the purchase price, enough to shock the conscience of man
and that of the court; that it was not also the intention or
agreement of the parties, at least that of herein plaintiff,
that in case the lease contract is not renewed after the
lapse of the ten (10) year period, for failure of the parties to
make bilateral communication, the lessor or his successors
or assigns are deemed to have allowed continued use of the
land in suit without any additional compensation
whatsoever (see stipulation No. 8, contract of lease) and
neither was it the true agreement or real intention the
parties, at least on the part of herein plaintiff, that upon
payment of the rental amount of P25,000.00, herein
plaintiff shall be deemed to have conveyed and ceded all his
rights and interest on the subject property, in favor of
herein defendant. (see stipulation No. 9)
11. That herein defendant acted fraudulently and
inequitably, taking advantage of the financial distress of
herein plaintiff, when it caused the unlawful insertion of
the stipulation contained in paragraphs 4, 8 and 9 quoted
above, in the contract of lease, and the same are all
contrary to law and void ab-initio, because the fixing of the
price of the land to be purchased can never be left to the
discretion or will of one of the contracting parties; and in
this case, it was defendant alone who determined the price
and if this is so, then the validity or compliance of the
contract can not be demanded by herein defendant, for the
reason that a contract of sale, is essentially bilateral in
character;
12. That evidently, the contract as drafted and prepared by
herein defendant for the signature of herein plaintiff is a
contract commonly known as ADHESION CONTRACT,
which is one where one party (plaintiff herein) merely signs
carefully prepared contracts of big companies, such as
contracts of insurance, construction and the like; as in the
case of herein defendant where the project involves multi-
billion contracts funded from the World Bank, thus, the
same should be strictly interpreted against defendant, and
liberally in favor of herein plaintiff, because the latter was
virtually helpless to bargain for better terms on account of
his financial need at the time;
13. That the fair and reasonable price or market value of
the land in suit which is an urban land located at the
Poblacion or Centro of the town of San Manuel, this
province, is no less than Fifty Pesos (50.00) per square
meter, and plaintiff makes this offer, subject to the
acceptance of herein defendant;
14. That as agreed upon, the area to be leased is only
twenty five (25.000) thousand square meters, as evidenced
by the encumbrance registered at the back of TCT No. T-
85689, in the name of plaintiff leaving a portion of five
(5,000) thousand square meters, as free from the lien and
encumbrance;
15. That after the lease contract was executed and
registered, herein defendant fenced the area leased, but in
the process, the latter stealthily and surreptitiously
expanded its occupation and it included the remaining
portion of five (5,000) thousand square meters,
unencumbered, as evidenced by a relocation survey
conducted by one Geodetic Engineer Apolinar P. Alvarez in
the premises, a blue print copy of the sketch map is hereto
attached as Annex "E" to form part hereof, and there xerox
copy of the letter of plaintiff dated August 27, 1984,
addressed to the Manager of Division III, Magat River Multi-
Purpose Project, San Manuel, Isabela, requesting for a
relocation of the leased premises, is hereto attached as
Annex "E-1", to form part hereof;
16. That the encroached area of five (5,000) thousand
square meters which is irrigated, can be easily planted to
palay and would yield an average of no less than one (100)
hundred cavans of palay at 46 kilos per cavan, per crop, for
three (3) croppings a year, with a selling price of P3.50 per
kilo;
17. That herein plaintiff failed to realize the expected
income stated in the immediately preceding paragraph due
to the unlawful occupation of the area by defendant since
the year 1975 to the present, and despite repeated
demands, the defendant refuses to deliver the possession of
the encroached portion of 5,000 square meters to the
plaintiff, with accounting of its corresponding produce, up
to the present; however, should defendant desires to
purchase the remaining portion of 5,000 square meters,
plaintiff offers a price of no less than P50.00 per square
meter which is the fair and reasonable market value of the
land;
18. That due to the unlawful, inequitable and malicious
actuations of herein defendant, plaintiff was forced to
engage the services of counsel for a contingent fee of 30% of
whatever is due plaintiff, plus P300.00 as appearance fee,
for the protection, respect, and preservation of his rights
and interests in the premises;
19. That likewise, for fraudulent and inequitable acts
committed by defendant, plaintiff is entitled to actual or
compensatory damages representing unrealized income of
the 5,000 square meters encroached portion, which is
estimated to be no less that 25 cavans of palay (25% of 100
as rental per crop, for three (3) croppings a year), or a total
of 75 cavans per year and/or a grand total of 750 cavans of
palay at 46 kilos per cavan for the (10) years, at the current
price of P3.50 per kilo; and entitled to nominal or
temperate damages in the sum of P30,000.00 plus moral
and exemplary damages of no less that P60,000.00 for the
public good;
WHEREFORE, premises considered, it is most respectfully
prayed of this Honorable Court that judgment be rendered
in favor of your plaintiff and against herein defendant by:
1. Ordering, that the contract of lease with right to
purchase (Annex "B") be reformed, so that the real and true
agreement or intention of the parties be reflected and/or
expressed therein;
2. In the alternative, should the defendant pursue to BUY
the land in suit (30,000 square meters) at a price certain
agreed upon by the parties after serious negotiations at the
rate of P50.00 per square meter, then the necessary and
proper document be drawn and prepared, under the strict
supervision of the Court, and the corresponding purchase
price or compensation to be paid by defendant, be
deposited with the court under custodia legis;
3. Ordering the defendant to pay plaintiff, the unrealized
income or profit, plaintiff suffered, by virtue of the unlawful
occupation by defendant of the remaining portion of 5,000
square meters from 1975 to the present or until possession
is finally restored;
4. Ordering defendant to pay plaintiff, the sum of
P30,000.00, by way of nominal or temperate damages and
the sum of P60,000.00, by way of moral and exemplary
damages, for the public good, plus attorney's fees on a
contingent basis of 30% depending on the amount finally
adjudicated in favor of plaintiff, plus appearance fee of
P3000.00 when the case is called for hearing or for any
other purpose;
 5. Ordering the parties to strictly abide by, and comply with
their commitments in the documents that may be executed
in the premises;
6. If for any reason, the parties can not agree on reasonable
terms for the continuation of their relationship and the
lease contract ordered terminated, and/or, should the
defendant elects not to purchase the whole 30,000 square
meters, defendant be ordered to deliver the possession of
the land in suit to the plaintiff, and the defendant allowed
to remove the infrastructure improvement introduced on
the land, with right of retention to the former;
2
In due time, the defendant filed its answer alleging, inter alia, as follows:
2. That defendant admits the allegations in paragraph 2 of
the complaint;
3. That defendant admits the allegations in paragraph 3 of
the complaint that a Contract of Lease With Right to
Purchase was entered into between the parties on June 6,
1975, but it specifically denies the rest of the allegation
therein, more specifically that plaintiff's land is urban land,
the fact of the matter being that it is riceland at the time
NIA took possession of the same;
4. That defendant specifically denies the material
allegations in paragraph 4 of the complaint alleging that
stipulations No. 4, 8 and 9 of the Contract of Lease with
Right to Purchase was surreptitiously inserted it appearing
plaintiff is an intelligent person who knows English, and
that his wife, Estilita Santos, is likewise a signatory to the
document;
5. That defendant admits the allegations in paragraph 5 of
the compaint concerning plaintiff's issuance of a permit to
enter the property in question on April 24, 1975, but it
specifically denies the rest of the allegations therein, for
being without basis in fact and in law;
6. That defendant admits the allegations in paragraph 6 of
the complaint whereby plaintiff acknowledged receipt of the
amount of P25,000.00 as payment for the land in question,
but specifically denies the rest of the allegations therein for
being self-serving and baseless conclusions of fact, it
appearing the delay in the payment for such property was
due to plaintiff's fault, who was not paid until he was able
to register the property in his own name;
7. That defendant admits the material allegations in
paragraph 7 of the complaint;
8. That defendant specifically denies the allegations in
paragraphs 8 and 9 of the complaint for being self-serving,
without basis in fact, and for reasons to be stated in the
Special and Affirmative defenses;
9. That defendant specifically denies the allegations in
paragraphs 10, 11, 12 and 13, of the complaint for being
without basis in law and in fact;
10. That defendant admits the allegations in paragraph 14
of the complaint that 25,000 square meters was the subject
of the Contract of Lease with Right of Repurchase, with the
qualification that the remaining 5,000 square meters was
intended to be donated by the plaintiff to defendant upon
the execution of a Deed of Sale;
11. That defendant specifically denies the allegations in
paragraph 15 of the complaint for reasons stated in the
preceding paragraph;
12. That defendant specifically denies the allegations in
paragraphs 16 of the complaint for being unwarranted
conclusions of fact;
13. That defendant specifically denies the allegations in
paragraphs 17, 18 and 19 of the complaint for being self-
serving, speculative and without basis in fact; and by way
of
SPECIAL AND AFFIRMATIVE DEFENSES
defendant respectfully alleges:
14. That it repleads and incorporates the foregoing as
integral part hereof;
 15. That the contract entered into on June 6, 1975 is the
law between the parties and the same should be complied
with in good faith (Art. 1159, Civil Code);
16. That there could not have been any fraud or mistake in
the execution of said contract because plaintiff appears to
know English and his wife is a signatory to the instrument;
besides, public officials are entitled to the presumption of
regularity in the performance of their official duties;
17. That from the appearance of their signatures, plaintiff
and his wife are not ignorant or illiterate, otherwise they
would have merely used their thumbmarks;
18. That as public entity, defendant has not been motivated
by any other consideration other than to reflect the true
intentions of the parties in the instrument of June 6, 1975;
19. That money claims for damages against the State
should have been first had before the Commission on Audit
(Carabao Inc. vs. Agricultural Productivity Commission, 35
SCRA 224 [1970]; Commissioner of Public Highways vs.
San Diego, 31 SCRA 616 [1970];
20. That there was no exhaustion of administrative
remedies, and therefore, the instant suit does not state a
valid cause of action (Abe-Abe vs. Manta, 90 SCRA 524
[1979]).
The plaintiff seasonably filed a reply 3
to the defendant's answer, after
which the case was set for pre-trial.
After the pre-trial, the court a quo issued on 4 March 1986 an
order 4 incorporating therein the facts admitted by the parties during the
pre-trial, and stating therein that:
The parties agreed that the issue in this case is only a
question of law because it involved the interpretation of the
contract between the parties whether it is an absolute sale
or a contract of lease only. That there is no genuine issue of
material fact on the basis of which the court should try the
case on the merits and require presentation of evidence to
prove such issue of material fact.
As there is no genuine issue of material fact this case could
be decided by way of summary judgment pursuant to Sec.
3, Rule 20 of the Rules of Court which provides as follows:
Sec. 3. Judgment on the pleadings and
summary judgment at pre-trial. If at the
pre-trial the court finds that facts exist
upon which a judgment on the pleadings
or a summary judgment may be made, it
may render judgment on the pleadings or a
summary judgment as justice may require.
Hence, the court a quo, without conducting a trial on the merits of the case,
rendered on 20 March 1986 a decision 5interpreting the contract between
the parties as a contract of lease with the right to purchase. Thus, the trial
court held:
That the issue in this case, is a question of law not a
question of fact because it involved the interpretation of the
contract between the parties only. Therefore, there is no
genuine issue of material fact to be determined by the court
in a trial on the merits and the case may be decided by way
of summary judgment under Sec. 3, Rule 20 of the Rules of
Court
The pre-trial order was furnished to the parties giving them
reasonable period of time to file any objection if any as
mandated by Sec. 4 of Rule 20 of the Rules of Court to
which the parties did not submit or file any pleading for the
correction or amendment of the pre-trial order.
With respect to the interpretation of the contract between
the parties sought to be reformed in this case whether or
not the contract is a lease contract or a contract of sale,
there are terms and conditions of the agreement which
maybe very pertinent and determinative of the nature of the
contract entered into by the parties to wit:
1. That the contract is denominated as contract of lease
with the right to purchase and not a deed of sale;
2. That the contract stipulated a period of ten (10) years
from June 6, 1975 the date when it was executed to June
6, 1985;
3. That the defendant has an option to buy the property. xxx xxx xxx

The parties are not ordinary parties to a contract and the . . . Hence, there is no need to reform the agreement. First,
court is of the opinion, that they intended there contract to because it has already expired and second, the contract is
be a contract of lease not sale. If it were otherwise, the very clear that it is only a contract of lease with option or
party could have denominated their contract a deed of sale right to purchase. However, the agreement or stipulation
not a contract of lease with right of purchase. If the parties that should the defendant exercise its option to buy the
intended to execute a contract of sale over the two and one- amount of P25,000.00 paid as rental should be considered
half hectares they should have executed a deed of sale and null and void as if there is no such agreement between the
not a contract of lease. The plaintiff much less the parties for it being illegal.
defendant could not claim ignorance of the contract
executed by them because the latter is represented by a Dissatisfied, the defendant appealed to the Court of Appeals, where it was
battery of corporate counsel aside from the office of the docketed as CA-G.R. No. CV No. 11538. On 14 November 1988, the Court of
Solicitor General and a project Manager whose educational Appeals * promulgated a decision 6 affirming with modification the decision
qualification is above an ordinary citizen or individual. The of the trial court, the dispositive portion of which reads:
court cannot therefore sustain the contention of the
defendant that the contract entered into is that of sale and
WHEREFORE, the judgment appealed from is AFFIRMED
hereby holds that it is a lease contract with the right to
with the following modifications:
purchase not sale. The mere fact that there is a period
agreed upon by the parties which is ten (10) years from
1) That in case the defendant would exercise its option to
June 6, 1975 to June 6, 1985 clearly indicate that the
buy under the contract, the total purchase price of the two
contract between them is a lease contract not sale. A
and one-half hectares is P25,000.00; and
contract of sale does not have any period because it is final
and absolute. Likewise, the contract cannot be deemed to
be that of sale because the defendant is given the option to 2) The amount of attorney's fees is reduced to P30,000.00.
buy and if the latter chooses to buy the land in question
the price should be that which has already been paid the SO ORDERED.
plaintiff as the consideration of the lease which was paid in
advance in the amount of P25,000.00 The option to buy is Hence, the present petition for review on certiorari of the decision of the
not embodied in a contract of sale but it is a term which Court of Appeals, the petitioner NIA formulating for resolution the following
maybe agreed upon in a contract of lease. The agreement of ISSUES:
the parties to be the P25,000.00 paid in full to the plaintiff
to the purchase price of the two and one-half hectares I
however, cannot be considered as the consideration for
purposes of the option to buy of the defendant for the
WHETHER OR NOT THE COURT OF APPEALS HAS
reason that the said amount was paid to the plaintiff as
PROPERLY INTERPRETED THE CONTRACT.
rentals for the use of the property during the period of ten
(10) years when the option to buy of the defendant is not
II
yet being exercised by the latter otherwise it will be
considered as pactum commissorium which in the eyes of
the law is illegal per se. To hold otherwise, would deprived WHETHER OR NOT THE STIPULATION IN THE CONTRACT
the plaintiff the reasonable rentals of the two and one-half THAT RENTALS PAID SHALL BE CONSIDERED PART OF
hectares during the duration of the lease contract because THE PURCHASE PRICE IS NULL AND VOID, BEING
then the P25,000.00 would be considered as advance PACTUM COMMISSORIUM.
payment of the land. . . .
III
 WHETHER OR NOT THE COURT OF APPEALS ERRED IN
AWARDING DAMAGES AND ATTORNEY'S FEES.
" A contract", according to Article 1305 of the Civil Code, "is a meeting of
the minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service." Once the minds of
the contracting parties meet, a valid contract exists, whether it is reduced
to writing or not. And, when the terms of an agreement have been reduced
to writing, it is considered as containing all the terms agreed upon and
there can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written agreement,
except when it fails to express the true intent and agreement of the parties
thereto, 7 in which case, one of the parties may bring an action for the
reformation of the instrument to the end that such true intention may be
expressed. 8
Equity orders the reformation of an instrument in order that the true
intention of the contracting parties may be expressed. The courts do not
attempt to make another contract for the parties. The rationale of the
doctrine of reformation is that it would be unjust and inequitable to allow
the enforcement of a written instrument which does not reflect or disclose
the real meeting of the minds of the parties. The rigor of the legalistic rule
that a written instrument should be the final and inflexible criterion and
measure of the rights and obligations of the contracting parties is thus
tempered, to forestall the effect of mistake, fraud, inequitable conduct or
accident. 9
In order that an action for reformation of instrument as provided in Article
1359 of the Civil Code may prosper, the following requisites must concur:
(1) there must have been a meeting of the minds of the parties to the
contract; (2) the instrument does not express the true intention of the
parties; and (3) the failure of the instrument to express the true intention of
the parties is due to mistake, fraud, inequitable conduct or accident.
A perusal of the complaint at bar and the relief prayed for therein shows
that this is clearly a case for reformation of instrument under Articles 1359
and 1362 10 of the Civil Code of the Philippines. Thus, the complaint
alleges:
8. That the contract of lease entered into, by and between
herein plaintiff and defendant does not express the real
agreement or intention of the parties, as there was error or
mistake of fact on the part of plaintiff, aggravated by his
state of financial distress at the time the contract was
signed, and herein defendant acted fraudulently or
inequitably, exercising undue influence over plaintiff on
account of the latter's financial distress, in such a way that
their real agreement was not reflected or expressed in the
contract of lease signed by the parties.
9. That the real agreement or intention of the parties was
only for the lease of the twenty five (25,000) thousand
square meters, by defendant at the rate of P0.10 centavos
per square meter, for a period of ten (10) years from date of
execution with the right of defendant to purchase the are
upon the termination of the lease, on a price certain or
consideration to be negotiated and agreed upon, by and
between the parties after the lapse of the ten (10) year
period;
10. That it was not the real agreement or intention of the
parties, at least that of herein plaintiff, to have the rentals
paid as forming part of the purchase price later to be
negotiated or agreed upon, much less was it their intention
at last on the part of herein plaintiff, that the price shall
not exceed P25,000.00 (see stipulation No. 4, Lease of
Contract), otherwise, there will be a gross inadequacy of
the purchase price, enough to shock the conscience of man
and that of the court; that it was not also the intention or
agreement of the parties, at least that of herein plaintiff,
that in case the lease contract is not renewed after the
lapse of the ten (10) year period, for failure of the parties to
make bilateral communication, the lessor or his successors
or assigns are deemed to have allowed continued use of the
land in suit without any additional compensation
whatsoever (see stipulation No. 8, contract of lease) and
neither was it the true agreement or real intention of the
parties, at least on the part of herein plaintiff, that upon
payment of the rental amount of P25,000.00, herein
plaintiff shall be deemed to have conveyed and ceded all his
rights and interest on the subject property, in favor of
herein defendant. (see stipulation No. 9);
11. That herein defendant acted fraudulently and
inequitably, taking advantage of the financial distress of
herein plaintiff, when it caused the unlawful insertion of
the stipulation contained in paragraphs 4, 8 and 9 quoted
above, in the contract of lease, and the same are all
contrary to law and void ab initio, because the fixing of the
 price of the land to be purchased can never be left to the
discretion or will of one of the contracting parties; and in
this case, it was defendant alone who determined the price
and if this is so, then the validity or compliance of the
contract can not be demanded by herein defendant, for the
reason that contract of sale, is essentially bilateral in
character;"
and prays, among others, as follows:
means of which a written instrument is made or construed so as to express
or conform to the real intention of the parties. 14 In granting reformation,
therefore, equity is not really making a new contract for the parties, but is
confirming and perpetuating the real contract between the parties which,
under the technical rules of law, could not be enforced but for such
reformation. 15 As aptly observes by the Code Commission, the rational of
the doctrine is that it would be unjust and inequitable to allow the
enforcement of a written instrument which does not reflect or disclose the
real meeting of the minds of the parties. 16

1. Ordering, that the contract of lease with right to Since the compaint in the case at bar raises the issue that the contract of
purchase (Annex "B") be reformed, so that the real and true lease does not express the true intention or agreement of the parties due to
agreement or intention of the parties be reflected and/or mistake on the part of the plaintiff (private respondent) and fraud on the
expressed therein; part of the defendant (petitioner), the court a quo should have conducted a
trial and received the evidence of the parties for the purpose of ascertaining
Otherwise stated, the complaint at bar alleged that the contract of lease the true intention of the parties when they executed the instrument in
with right to purchase does not express the true intention and agreement of question.
thej parties thereto due to mistake on the part of the plaintiff (private
respondent) and fraud on the part of the defendant (petitioner), i.e., by Summary judgment can be resorted to only where there are no question of
unlawfully inserting the stipulations contained in paragraphs 4, 8 and 9 in fact in issue or where the material allegations of the pleadings are not
said contract of lease. disputed. 17 A cursory reading of the pleadings in this case shows that there
is a genuine issue or material controversy raised therein. Hence, summary
As a general rule, parol evidence is not admissible for the purpose of judgment is not proper.
varying the terms of a contract. However, when the issue that a contract
does not express the intention of the parties and the proper foundation is WHEREFORE, the decision of the trial court dated 20 March 1986 as well
laid therefor as in the present case the court should hear the evidence as the decision of the Court of Appeals dated 14 November 1988 are hereby
for the purpose of ascertaining the true intention of the parties. 11 SET ASIDE and the case should be, as it is hereby, REMANDED to the
court of origin for further proceedings in accordance with this decision.
From the foregoing premises, we hold that the trial court erred in holding
that the issue in this case is a question of law and not a question of fact
because it merely involves the interpretation of the contract between the
parties. The lower court erred in not conducting a trial for the purpose of
determining the true intention of the parties. It failed to appreciate the
distinction between interpretation and reformation of contracts. While the
aim in interpretation of contracts is to ascertain the true intention of the
parties, interpretation is not, however, equivalent to reformation of
contracts.

"Interpretation" is the act of making intelligible what was before not

understood, ambiguous, or not obvious. It is a method by which the
meaning of language is ascertained. 12 The "interpretation" of a contract is
the determination of the meaning attached to the words written or spoken
which make the
contract. 13 On the other hand, "reformation" is that remedy in equity by
 contract of agency to sell on commission basis, thus making the
position of petitioners signature thereto immaterial.

2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES REQUIRED.

- There are some provisions of the law which require certain formalities
for particular contracts. The first is when the form is required for the
validity of the contract; the second is when it is required to make the
contract effective as against the third parties such as those mentioned
in Articles 1357 and 1358; and the third is when the form is required
for the purppose of proving the existence of the contract, such as those
provided in the Statute of Frauds in Article 1403. A contract of agency
to sell on commission basis does not belong to any of these three
categories, hence, it is valid and enforceable in whatever form it may be
entered into.

This is a petition to review the Decision of the Court of Appeals in CA-

G.R. CR No. 10290, entitled People v. Rosa Lim, promulgated on August 30,
1991.

On January 26, 1989, an Information for Estafa was filed against

petitioner Rosa Lim before Branch 92 of the Regional Trial Court of Quezon
City.[1] The Information reads:

LIM VS CA That on or about the 8th day of October 1987, in Quezon City, Philippines
and within the jurisdiction of this Honorable Court, the said accused with
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS ARE intent to gain, with unfaithfulness and/or abuse of confidence, did, then
OBLIGATORY IN WHATEVER FORM ENTERED; PLACE OF and there, wilfully, unlawfully and feloniously defraud one VICTORIA
SIGNATURE IMMATERIAL; PARTY BOUND THEREON THE SUAREZ, in the following manner, to wit: on the date and place
aforementioned said accused got and received in trust from said
MOMENT SHE AFFIXED HER SIGNATURE. - Rosa Lims signature
complainant one (1) ring 3.35 solo worth P169,000.00, Philippine Currency,
indeed appears on the upper portion of the receipt immediately below
with the obligation to sell the same on commission basis and to turn over
the description of the items taken. We find that this fact does not have
the proceeds of the sale to said complainant or to return said jewelry if
the effect of altering the terms of the transaction from a contract of
unsold, but the said accused once in possession thereof and far from
agency to sell on commission basis to a contract of sale. Neither does it
complying with her obligation despite repeated demands therefor,
indicate absence or vitiation of consent thereto on the part of Rosa Lim
misapplied, misappropriated and converted the same to her own personal
which would make the contract void or voidable. The moment she
use and benefit, to the damage and prejudice of the said offended party in
affixed her signature thereon, petitioner became bound by all the
the amount aforementioned and in such other amount as may be awarded
terms stipulated in the receipt. She, thus, opened herself to all the
under the provisions of the Civil Code.
legal obligations that may arise from their breach. This is clear from
Article 1356 of the New Civil Code which provides: Contracts shall be
obligatory in whatever form they may have been entered into, provided CONTRARY TO LAW.[2]
all the essential requisites for their validity are present. In the case
before us, the parties did not execute a notarial will but a simple
 After arraignment and trial on the merits, the trial court rendered
judgment, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the
offense of estafa as defined and penalized under Article 315, paragraph 1(b)
of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS
and TWO (2) MONTHS of prision correccional as minimum, to TEN (10)
YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring
or its value in the amount of P169,000 without subsidiary imprisonment in
case of insolvency; and
4. To pay costs.[3]
On appeal, the Court of Appeals affirmed the Judgment of conviction
with the modification that the penalty imposed shall be six (6) years, eight
(8) months and twenty- one (21) days to twenty (20) years in accordance
with Article 315, paragraph 1 of the Revised Penal Code. [4]
Petitioner filed a motion for reconsideration before the appellate court
on September 20, 1991, but the motion was denied in a Resolution dated
November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition
for review alleging the following grounds:
I pieces of jewelry: one (1) 3.35 carat diamond ring worth P169,000.00 and
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES
OF COURT AND THE DECISION OF THIS HONORABLE COURT IN NOT
PASSING UPON THE FIRST AND THIRD ASSIGNED ERRORS IN
PETITIONERS BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE
PAROL EVIDENCE RULE WAS WAIVED WHEN THE PRIVATE
PROSECUTOR CROSS-EXAMINED THE PETITIONER AND AURELIA
NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED BY THE
COUNSEL FOR THE PETITIONER AS TO THE TRUE NATURE OF THE
AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS DISCLOSED
THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF
JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED
AS EXHIBIT A WHICH WAS RELIED UPON BY THE RESPONDENT COURT
IN AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN
PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE
PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT TO THE EFFECT
THAT ACCUSATION IS NOT, ACCORDING TO THE FUNDAMENTAL LAW,
SYNONYMOUS WITH GUILT: THE PROSECUTION MUST OVERTHROW THE
PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND
REASONABLE DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR
THE MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE,
BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER
DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW
AND THE APPELLATE TRIBUNAL COULD ARRIVE AT A CONCLUSION
THAT THE CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON
ON TRIAL UNDER SUCH AN EXACTING TEST SHOULD SENTENCE THUS
REQUIRED THAT EVERY INNOCENCE BE DULY TAKEN INTO
ACCOUNT. THE PROOF AGAINST HIM MUST SURVIVE THE TEST OF
REASON, THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO
SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)[5]
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from
Cebu received from private respondent Victoria Suarez the following two
one (1) bracelet worth P170,000.00, to be sold on commission basis. The
agreement was reflected in a receipt marked as Exhibit A [6]for the
prosecution. The transaction took place at the Sir Williams Apartelle in
Timog Avenue, Quezon City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky
Suarez, but failed to return the diamond ring or to turn over the proceeds
thereof if sold. As a result, private complainant, aside from making verbal
demands, wrote a demand letter [7] to petitioner asking for the return of said
ring or the proceeds of the sale thereof. In response, petitioner, thru
counsel, wrote a letter[8] to private respondents counsel alleging that Rosa
Lim had returned both ring and bracelet to Vicky Suarez sometime in
September, 1987, for which reason, petitioner had no longer any liability to
Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked, Vicky
Suarez filed a complaint for estafa under Article 315, par. 1(b) of the
Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu
sometime in October 1987, together with one Aurelia Nadera, who
introduced petitioner to private respondent, and that they were lodged at
the Williams Apartelle in Timog, Quezon City. Petitioner denied that the
transaction was for her to sell the two pieces of jewelry on commission
basis.She told Mrs. Suarez that she would consider buying the pieces of
jewelry for her own use and that she would inform the private complainant
of such decision before she goes back to Cebu. Thereafter, the petitioner
took the pieces of jewelry and told Mrs. Suarez to prepare the necessary
paper for me to sign because I was not yet prepare(d) to buy it. [9]After the
document was prepared, petitioner signed it. To prove that she did not agree
to the terms of the receipt regarding the sale on commission basis,
petitioner insists that she signed the aforesaid document on the upper
portion thereof and not at the bottom where a space is provided for the
signature of the person(s) receiving the jewelry. [10]
On October 12, 1987 before departing for Cebu, petitioner called up
Mrs. Suarez by telephone in order to inform her that she was no longer
interested in the ring and bracelet.Mrs. Suarez replied that she was busy at
the time and so, she instructed the petitioner to give the pieces of jewelry to
Aurelia Nadera who would in turn give them back to the private
complainant. The petitioner did as she was told and gave the two pieces of
jewelry to Nadera as evidenced by a handwritten receipt, dated October 12,
1987.[11]
Two issues need to be resolved: First, what was the real transaction
between Rosa Lim and Vicky Suarez - a contract of agency to sell on
commission basis as set out in the receipt or a sale on credit; and, second,
was the subject diamond ring returned to Mrs. Suarez through Aurelia
Nadera?
Petitioner maintains that she cannot be liable for estafa since she
never received the jewelries in trust or on commission basis from Vicky
Suarez. The real agreement between her and the private respondent was a
sale on credit with Mrs. Suarez as the owner-seller and petitioner as the
buyer, as indicated by the fact that petitioner did not sign on the blank
space provided for the signature of the person receiving the jewelry but at
the upper portion thereof immediately below the description of the items
taken.[12]
The contention is far from meritorious.
The receipt marked as Exhibit A which establishes a contract of agency
to sell on commission basis between Vicky Suarez and Rosa Lim is herein
reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN
KO na aking tinanggap kay _______________ the following jewelries:
ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
1 ring 3.35 dolo P 169,000.00
1 bracelet 170.000.00
total Kabuuan P 339.000.00
in good condition, to be sold in CASH ONLY within . . .days from date of
signing this receipt na nasa mabuting kalagayan upang ipagbili ng
KALIWAAN (ALCONTADO) lamang sa loob ng. . . araw mula ng ating
pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned
above; if I would be able to sell, I shall immediately deliver and account the
whole proceeds of sale thereof to the owner of the jewelries at his/her
residence; my compensation or commission shall be the over-price on the
value of each jewelry quoted above. I am prohibited to sell any jewelry on
credit or by installment; deposit, give for safekeeping; lend, pledge or give as
security or guaranty under any circumstance or manner, any jewelry to
other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng
taning na panahong nakatala sa itaas; kung maipagbili ko naman ay dagli
kong isusulit at ibibigay ang buong pinagbilhan sa may-ari ng mga alahas
sa kanyang bahay tahanan; ang aking gantimpala ay ang mapapahigit na
halaga sa nakatakdang halaga sa itaas ng bawat alahas HIND I ko
ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang alin mang
alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit
sa anong paraan ang alin mang alahas sa ibang mga tao o tao.
I sign my name this . . . day of. . . 19 . . . at Manila, NILALAGDAAN ko ang
kasunduang ito ngayong ika____ ng dito sa Maynila.
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . .
Rosa Lims signature indeed appears on the upper portion of the
receipt immediately below the description of the items taken. We find that
this fact does not have the effect of altering the terms of the transaction
from a contract of agency to sell on commission basis to a contract of
sale. Neither does it indicate absence or vitiation of consent thereto on the
part of Rosa Lim which would make the contract void or voidable. The
moment she affixed her signature thereon, petitioner became bound by all
the terms stipulated in the receipt. She, thus, opened herself to all the legal
obligations that may arise from their breach. This is clear from Article 1356
of the New Civil Code which provides:
Contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. x x x.
However, there are some provisions of the law which require certain
formalities for particular contracts. The first is when the form is required for
the validity of the contract; the second is when it is required to make the
contract effective as against third parties such as those mentioned in
Articles 1357 and 1358; and the third is when the form is required for the
purpose of proving the existence of the contract, such as those provided in
the Statute of Frauds in Article 1403.[13] A contract of agency to sell on
commission basis does not belong to any of these three categories, hence it
is valid and enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the law
strictly prescribes the location of the signature of the parties thereto. This
is in the case of notarial wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at
the end thereof by the testator himself x x x.
The testator or the person requested by him to write his name and the
instrumental witnesses of the will, shall also sign, as aforesaid, each and
every page thereof, except the last, on the left margin x x x.
In the case before us, the parties did not execute a notarial will but a
simple contract of agency to sell on commission basis, thus making the
position of petitioners signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to
Vicky Suarez through Aurelia Nadera, thus relieving her of any
liability. Rosa Lim testified to this effect on direct examination by her
counsel:
Q: And when she left the jewelries with you, what did you do
thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky
through telephone and informed her that I am no longer
interested in the bracelet and ring and that 1 will just return
it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she
was very busy. So, she asked me if Aurelia was there and
when I informed her that Aurelia was there, she instructed
me to give the pieces of jewelry to Aurelia who in turn will
give it back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
A: Yes, Your Honor.[14]
This was supported by Aurelia Nadera in her direct examination by
petitioners counsel:
Q: Do you know if Rosa Lim in fact returned the jewelries ?
A: She gave the jewelries to me.
 Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and
told Vicky Suarez that she was going home to Cebu and
asked if she could give the jewelries to me.
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu. [15]
On rebuttal, these testimonies were belied by Vicky Suarez herself:
Q: It has been testified to here also by both Aurelia Nadera and
Rosa Lim that you gave authorization to Rosa Lim to turn
over the two (2) pieces of jewelries mentioned in Exhibit A to
Aurelia Nadera, what can you say about that?
A:. That is not true sir, because at that time Aurelia Nadera is
highly indebted to me in the amount of P 140,000.00, so if I
gave it to Nadera, I will be exposing myself to a high risk. [16]
The issue as to the return of the ring boils down to one of credibility.
Weight of evidence is not determined mathematically by the numerical
superiority of the witnesses testifying to a given fact. It depends upon its
practical effect in inducing belief on the part of the judge trying the case.
[17]
In the case at bench, both the trial court and the Court of Appeals gave
weight to the testimony of Vicky Suarez that she did not authorize Rosa Lim
to return the pieces of jewelry to Nadera. The respondent court, in affirming
the trial court, said:
x x x This claim (that the ring had been returned to Suarez thru Nadera) is
disconcerting. It contravenes the very terms of Exhibit A. The instruction by
the complaining witness to appellant to deliver the ring to Aurelia Nadera is
vehemently denied by the complaining witness, who declared that she did
not authorize and/or instruct appellant to do so. And thus, by delivering
the ring to Aurelia without the express authority and consent of the
complaining witness, appellant assumed the right to dispose of the jewelry
as if it were hers, thereby committing conversion, a clear breach of trust,
punishable under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well
settled that we should not interfere with the judgment of the trial court in
determining the credibility of witnesses, unless there appears in the record
some fact or circumstance of weight and influence which has been
overlooked or the significance of which has been misinterpreted.The reason
is that the trial court is in a better position to determine questions involving
credibility having heard the witnesses and having observed their
deportment and manner of testifying during the trial. [18]
Article 315, par. 1(b) of the Revised Penal Code provides:
ART. 315. Swindling (estafa). - Any person who shall defraud another by
any of the means mentioned hereinbelow shall be punished by:
xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another, money,
goods, or any other personal property received by the offender in trust or on
commission, or for administration, or under any other obligation involving
the duty to make delivery of or to return the same, even though such
obligation be totally or partially guaranteed by a bond; or by denying having
received such money, goods, or other property.
xxx xxx xxx
The elements of estafa with abuse of confidence under this subdivision
are as follows: (1) That money, goods, or other personal property be received
by the offender in trust, or on commission, or for administration, or under
any other obligation involving the duty to make delivery of, or to return, the
same; (2) That there be misappropriation or conversion of such money or
property by the offender or denial on his part of such receipt; (3) That such
misappropriation or conversion or denial is to the prejudice of another; and
(4) That there is a demand made by the offended party to the offender (Note:
The 4th element is not necessary when there is evidence of
misappropriation of the goods by the defendant).[19]
All the elements of estafa under Article 315, Paragraph 1(b) of the
Revised Penal Code, are present in the case at bench. First, the receipt
marked as Exhibit A proves that petitioner Rosa Lim received the pieces of
jewelry in trust from Vicky Suarez to be sold on commission basis. Second,
petitioner misappropriated or converted the jewelry to her own use; and,
third, such misappropriation obviously caused damage and prejudice to the
private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of
Appeals is hereby AFFIRMED.

REPUBLIC VS CASTELLVI
Appeal from the decision of the Court of First Instance of Pampanga in its Civil Case
No. 1623, an expropriation proceeding.
Plaintiff-appellant, the Republic of the Philippines, (hereinafter referred to as the
Republic) filed, on June 26, 1959, a complaint for eminent domain against
defendant-appellee, Carmen M. Vda. de Castellvi, judicial administratrix of the
estate of the late Alfonso de Castellvi (hereinafter referred to as Castellvi), over a
parcel of land situated in the barrio of San Jose, Floridablanca, Pampanga,
described as follows:
A parcel of land, Lot No. 199-B Bureau of Lands Plan Swo 23666.
Bounded on the NE by Maria Nieves Toledo-Gozun; on the SE by
national road; on the SW by AFP reservation, and on the NW by
AFP reservation. Containing an area of 759,299 square meters,
more or less, and registered in the name of Alfonso Castellvi
under TCT No. 13631 of the Register of Pampanga ...;
and against defendant-appellee Maria Nieves Toledo Gozun (hereinafter referred to
as Toledo-Gozun over two parcels of land described as follows:
A parcel of land (Portion Lot Blk-1, Bureau of Lands Plan Psd,
26254. Bounded on the NE by Lot 3, on the SE by Lot 3; on the
SW by Lot 1-B, Blk. 2 (equivalent to Lot 199-B Swo 23666; on the
NW by AFP military reservation. Containing an area of 450,273
square meters, more or less and registered in the name of Maria
Nieves Toledo-Gozun under TCT No. 8708 of the Register of
Deeds of Pampanga. ..., and
A parcel of land (Portion of lot 3, Blk-1, Bureau of Lands Plan Psd
26254. Bounded on the NE by Lot No. 3, on the SE by school lot
and national road, on the SW by Lot 1-B Blk 2 (equivalent to Lot
199-B Swo 23666), on the NW by Lot 1-B, Blk-1. Containing an
area of 88,772 square meters, more or less, and registered in the
name of Maria Nieves Toledo Gozun under TCT No. 8708 of the
Register of Deeds of Pampanga, ....
In its complaint, the Republic alleged, among other things, that the fair market value
of the above-mentioned lands, according to the Committee on Appraisal for the
Province of Pampanga, was not more than P2,000 per hectare, or a total market
value of P259,669.10; and prayed, that the provisional value of the lands be fixed at
P259.669.10, that the court authorizes plaintiff to take immediate possession of the
lands upon deposit of that amount with the Provincial Treasurer of Pampanga; that
the court appoints three commissioners to ascertain and report to the court the just
compensation for the property sought to be expropriated, and that the court issues
thereafter a final order of condemnation.
On June 29, 1959 the trial court issued an order fixing the provisional value of the
lands at P259,669.10.
In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged, among other
things, that the land under her administration, being a residential land, had a fair
market value of P15.00 per square meter, so it had a total market value of
P11,389,485.00; that the Republic, through the Armed Forces of the Philippines,
particularly the Philippine Air Force, had been, despite repeated demands, illegally
occupying her property since July 1, 1956, thereby preventing her from using and
disposing of it, thus causing her damages by way of unrealized profits. This
defendant prayed that the complaint be dismissed, or that the Republic be ordered
to pay her P15.00 per square meter, or a total of P11,389,485.00, plus interest
thereon at 6% per annum from July 1, 1956; that the Republic be ordered to pay her
P5,000,000.00 as unrealized profits, and the costs of the suit.
By order of the trial court, dated August, 1959, Amparo C. Diaz, Dolores G. viuda de
Gil, Paloma Castellvi, Carmen Castellvi, Rafael Castellvi, Luis Castellvi, Natividad
Castellvi de Raquiza, Jose Castellvi and Consuelo Castellvi were allowed to
intervene as parties defendants. Subsequently, Joaquin V. Gozun, Jr., husband of
defendant Nieves Toledo Gozun, was also allowed by the court to intervene as a
party defendant.
After the Republic had deposited with the Provincial Treasurer of Pampanga the
amount of P259,669.10, the trial court ordered that the Republic be placed in
possession of the lands. The Republic was actually placed in possession of the
lands on August 10,
1959. 1
In her "motion to dismiss", dated October 22, 1959, Toledo-Gozun alleged, among
other things, that her two parcels of land were residential lands, in fact a portion with
an area of 343,303 square meters had already been subdivided into different lots for
sale to the general public, and the remaining portion had already been set aside for
expansion sites of the already completed subdivisions; that the fair market value of
said lands was P15.00 per square meter, so they had a total market value of
P8,085,675.00; and she prayed that the complaint be dismissed, or that she be paid
the amount of P8,085,675.00, plus interest thereon at the rate of 6% per annum
from October 13, 1959, and attorney's fees in the amount of P50,000.00.
Intervenors Jose Castellvi and Consuelo Castellvi in their answer, filed on February
11, 1960, and also intervenor Joaquin Gozun, Jr., husband of defendant Maria
Nieves Toledo-Gozun, in his motion to dismiss, dated May 27, 1960, all alleged that
the value of the lands sought to be expropriated was at the rate of P15.00 per
square meter.
On November 4, 1959, the trial court authorized the Provincial Treasurer of
Pampanga to pay defendant Toledo-Gozun the sum of P107,609.00 as provisional
value of her lands. 2 On May 16, 1960 the trial Court authorized the Provincial
Treasurer of Pampanga to pay defendant Castellvi the amount of P151,859.80 as
provisional value of the land under her administration, and ordered said defendant
to deposit the amount with the Philippine National Bank under the supervision of the
Deputy Clerk of Court. In another order of May 16, 1960 the trial Court entered an
order of condemnation.3
The trial Court appointed three commissioners: Atty. Amadeo Yuzon, Clerk of Court,
as commissioner for the court; Atty. Felicisimo G. Pamandanan, counsel of the
Philippine National Bank Branch at Floridablanca, for the plaintiff; and Atty.
Leonardo F. Lansangan, Filipino legal counsel at Clark Air Base, for the defendants.
The Commissioners, after having qualified themselves, proceeded to the
performance of their duties.
On March 15,1961 the Commissioners submitted their report and recommendation,
wherein, after having determined that the lands sought to be expropriated were
residential lands, they recommended unanimously that the lowest price that should
be paid was P10.00 per square meter, for both the lands of Castellvi and Toledo-
Gozun; that an additional P5,000.00 be paid to Toledo-Gozun for improvements
found on her land; that legal interest on the compensation, computed from August
10, 1959, be paid after deducting the amounts already paid to the owners, and that
no consequential damages be awarded. 4 The Commissioners' report was objected
to by all the parties in the case by defendants Castellvi and Toledo-Gozun, who
insisted that the fair market value of their lands should be fixed at P15.00 per
square meter; and by the Republic, which insisted that the price to be paid for the
lands should be fixed at P0.20 per square meter. 5
After the parties-defendants and intervenors had filed their respective memoranda,
and the Republic, after several extensions of time, had adopted as its memorandum
its objections to the report of the Commissioners, the trial court, on May 26, 1961,
rendered its decision 6 the dispositive portion of which reads as follows:
WHEREFORE, taking into account all the foregoing
circumstances, and that the lands are titled, ... the rising trend of
land values ..., and the lowered purchasing power of the
Philippine peso, the court finds that the unanimous
recommendation of the commissioners of ten (P10.00) pesos per
square meter for the three lots of the defendants subject of this
action is fair and just.
xxx xxx xxx
The plaintiff will pay 6% interest per annum on the total value of
the lands of defendant Toledo-Gozun since (sic) the amount
deposited as provisional value from August 10, 1959 until full
payment is made to said defendant or deposit therefor is made in
court.
In respect to the defendant Castellvi, interest at 6% per annum
will also be paid by the plaintiff to defendant Castellvi from July 1,
1956 when plaintiff commenced its illegal possession of the
Castellvi land when the instant action had not yet been
commenced to July 10, 1959 when the provisional value thereof
was actually deposited in court, on the total value of the said
(Castellvi) land as herein adjudged. The same rate of interest
shall be paid from July 11, 1959 on the total value of the land
herein adjudged minus the amount deposited as provisional
value, or P151,859.80, such interest to run until full payment is
made to said defendant or deposit therefor is made in court. All
the intervenors having failed to produce evidence in support of
their respective interventions, said interventions are ordered
dismissed.
The costs shall be charged to the plaintiff.
On June 21, 1961 the Republic filed a motion for a new trial and/or reconsideration,
upon the grounds of newly-discovered evidence, that the decision was not
supported by the evidence, and that the decision was against the law, against which
motion defendants Castellvi and Toledo-Gozun filed their respective oppositions. On
July 8, 1961 when the motion of the Republic for new trial and/or reconsideration
was called for hearing, the Republic filed a supplemental motion for new trial upon
the ground of additional newly-discovered evidence. This motion for new trial and/or
reconsideration was denied by the court on July 12, 1961.
On July 17, 1961 the Republic gave notice of its intention to appeal from the
decision of May 26, 1961 and the order of July 12, 1961. Defendant Castellvi also
filed, on July 17, 1961, her notice of appeal from the decision of the trial court.
The Republic filed various ex-parte motions for extension of time within which to file
its record on appeal. The Republic's record on appeal was finally submitted on
December 6, 1961.
Defendants Castellvi and Toledo-Gozun filed not only a joint opposition to the
approval of the Republic's record on appeal, but also a joint memorandum in
support of their opposition. The Republic also filed a memorandum in support of its
prayer for the approval of its record on appeal. On December 27, 1961 the trial court
issued an order declaring both the record on appeal filed by the Republic, and the
record on appeal filed by defendant Castellvi as having been filed out of time,
thereby dismissing both appeals.
On January 11, 1962 the Republic filed a "motion to strike out the order of
December 27, 1961 and for reconsideration", and subsequently an amended record
on appeal, against which motion the defendants Castellvi and Toledo-Gozun filed
their opposition. On July 26, 1962 the trial court issued an order, stating that "in the
interest of expediency, the questions raised may be properly and finally determined
by the Supreme Court," and at the same time it ordered the Solicitor General to
submit a record on appeal containing copies of orders and pleadings specified
therein. In an order dated November 19, 1962, the trial court approved the
Republic's record on appeal as amended.
Defendant Castellvi did not insist on her appeal. Defendant Toledo-Gozun did not
appeal.
The motion to dismiss the Republic's appeal was reiterated by appellees Castellvi
and Toledo-Gozun before this Court, but this Court denied the motion.
In her motion of August 11, 1964, appellee Castellvi sought to increase the
provisional value of her land. The Republic, in its comment on Castellvi's motion,
opposed the same. This Court denied Castellvi's motion in a resolution dated
October 2,1964.
The motion of appellees, Castellvi and Toledo-Gozun, dated October 6, 1969,
praying that they be authorized to mortgage the lands subject of expropriation, was
denied by this Court or October 14, 1969.
On February 14, 1972, Attys. Alberto Cacnio, and Associates, counsel for the estate
of the late Don Alfonso de Castellvi in the expropriation proceedings, filed a notice
of attorney's lien, stating that as per agreement with the administrator of the estate
of Don Alfonso de Castellvi they shall receive by way of attorney's fees, "the sum
equivalent to ten per centum of whatever the court may finally decide as the
expropriated price of the property subject matter of the case."
---------
Before this Court, the Republic contends that the lower court erred:
1. In finding the price of P10 per square meter of the lands subject
of the instant proceedings as just compensation;
2. In holding that the "taking" of the properties under expropriation
commenced with the filing of this action;
3. In ordering plaintiff-appellant to pay 6% interest on the
adjudged value of the Castellvi property to start from July of 1956;
4. In denying plaintiff-appellant's motion for new trial based on
newly discovered evidence.
In its brief, the Republic discusses the second error assigned as the first issue to be
considered. We shall follow the sequence of the Republic's discussion.
1. In support of the assigned error that the lower court erred in holding that the
"taking" of the properties under expropriation commenced with the filing of the
complaint in this case, the Republic argues that the "taking" should be reckoned
from the year 1947 when by virtue of a special lease agreement between the
Republic and appellee Castellvi, the former was granted the "right and privilege" to
buy the property should the lessor wish to terminate the lease, and that in the event
of such sale, it was stipulated that the fair market value should be as of the time of
occupancy; and that the permanent improvements amounting to more that half a
million pesos constructed during a period of twelve years on the land, subject of
expropriation, were indicative of an agreed pattern of permanency and stability of
occupancy by the Philippine Air Force in the interest of national Security. 7
Appellee Castellvi, on the other hand, maintains that the "taking" of property under
the power of eminent domain requires two essential elements, to wit: (1) entrance
and occupation by condemn or upon the private property for more than a
momentary or limited period, and (2) devoting it to a public use in such a way as to
oust the owner and deprive him of all beneficial enjoyment of the property. This
appellee argues that in the instant case the first element is wanting, for the contract
of lease relied upon provides for a lease from year to year; that the second element
is also wanting, because the Republic was paying the lessor Castellvi a monthly
rental of P445.58; and that the contract of lease does not grant the Republic the
"right and privilege" to buy the premises "at the value at the time of occupancy." 8
Appellee Toledo-Gozun did not comment on the Republic's argument in support of
the second error assigned, because as far as she was concerned the Republic had
not taken possession of her lands prior to August 10, 1959.9
In order to better comprehend the issues raised in the appeal, in so far as the
Castellvi property is concerned, it should be noted that the Castellvi property had
been occupied by the Philippine Air Force since 1947 under a contract of lease,
typified by the contract marked Exh. 4-Castellvi, the pertinent portions of which
read:
CONTRACT OF LEASE
This AGREEMENT OF LEASE MADE AND ENTERED into by
and between INTESTATE ESTATE OF ALFONSO DE
CASTELLVI, represented by CARMEN M. DE CASTELLVI,
Judicial Administratrix ... hereinafter called the LESSOR and THE
REPUBLIC OF THE PHILIPPINES represented by MAJ. GEN.
CALIXTO DUQUE, Chief of Staff of the ARMED FORCES OF
THE PHILIPPINES, hereinafter called the LESSEE,
WITNESSETH:
1. For and in consideration of the rentals hereinafter reserved and
the mutual terms, covenants and conditions of the parties, the
LESSOR has, and by these presents does, lease and let unto the
LESSEE the following described land together with the
improvements thereon and appurtenances thereof, viz:
 Un Terreno, Lote No. 27 del Plano de subdivision Psu 34752,
parte de la hacienda de Campauit, situado en el Barrio de San
Jose, Municipio de Floridablanca Pampanga. ... midiendo una
extension superficial de cuatro milliones once mil cuatro cientos
trienta y cinco (4,001,435) [sic] metros cuadrados, mas o menos.
Out of the above described property, 75.93 hectares thereof are
actually occupied and covered by this contract. .
Above lot is more particularly described in TCT No. 1016,
province of
Pampanga ...
of which premises, the LESSOR warrants that he/she/they/is/are the registered
owner(s) and with full authority to execute a contract of this nature.
2. The term of this lease shall be for the period beginning July 1,
1952 the date the premises were occupied by the PHILIPPINE
AIR FORCE, AFP until June 30, 1953, subject to renewal for
another year at the option of the LESSEE or unless sooner
terminated by the LESSEE as hereinafter provided.
3. The LESSOR hereby warrants that the LESSEE shall have
quiet, peaceful and undisturbed possession of the demised
premises throughout the full term or period of this lease and the
LESSOR undertakes without cost to the LESSEE to eject all
trespassers, but should the LESSOR fail to do so, the LESSEE at
its option may proceed to do so at the expense of the LESSOR.
The LESSOR further agrees that should he/she/they sell or
encumber all or any part of the herein described premises during
the period of this lease, any conveyance will be conditioned on
the right of the LESSEE hereunder.
4. The LESSEE shall pay to the LESSOR as monthly rentals
under this lease the sum of FOUR HUNDRED FIFTY-FIVE
PESOS & 58/100 (P455.58) ...
5. The LESSEE may, at any time prior to the termination of this
lease, use the property for any purpose or purposes and, at its
own costs and expense make alteration, install facilities and
fixtures and errect additions ... which facilities or fixtures ... so
placed in, upon or attached to the said premises shall be and
remain property of the LESSEE and may be removed therefrom
by the LESSEE prior to the termination of this lease. The LESSEE
shall surrender possession of the premises upon the expiration or
termination of this lease and if so required by the LESSOR, shall
return the premises in substantially the same condition as that
existing at the time same were first occupied by the AFP,
reasonable and ordinary wear and tear and damages by the
elements or by circumstances over which the LESSEE has no
control excepted: PROVIDED, that if the LESSOR so requires the
return of the premises in such condition, the LESSOR shall give
written notice thereof to the LESSEE at least twenty (20) days
before the termination of the lease and provided, further, that
should the LESSOR give notice within the time specified above,
the LESSEE shall have the right and privilege to compensate the
LESSOR at the fair value or the equivalent, in lieu of performance
of its obligation, if any, to restore the premises. Fair value is to be
determined as the value at the time of occupancy less fair wear
and tear and depreciation during the period of this lease.
6. The LESSEE may terminate this lease at any time during the
term hereof by giving written notice to the LESSOR at least thirty
(30) days in advance ...
7. The LESSEE should not be responsible, except under special
legislation for any damages to the premises by reason of combat
operations, acts of GOD, the elements or other acts and deeds
not due to the negligence on the part of the LESSEE.
8. This LEASE AGREEMENT supersedes and voids any and all
agreements and undertakings, oral or written, previously entered
into between the parties covering the property herein leased, the
same having been merged herein. This AGREEMENT may not be
modified or altered except by instrument in writing only duly
signed by the parties. 10
It was stipulated by the parties, that "the foregoing contract of lease (Exh. 4,
Castellvi) is 'similar in terms and conditions, including the date', with the annual
contracts entered into from year to year between defendant Castellvi and the
Republic of the Philippines (p. 17, t.s.n., Vol. III)". 11 It is undisputed, therefore, that
the Republic occupied Castellvi's land from July 1, 1947, by virtue of the above-
mentioned contract, on a year to year basis (from July 1 of each year to June 30 of
the succeeding year) under the terms and conditions therein stated.
Before the expiration of the contract of lease on June 30, 1956 the Republic sought
to renew the same but Castellvi refused. When the AFP refused to vacate the
leased premises after the termination of the contract, on July 11, 1956, Castellvi
wrote to the Chief of Staff, AFP, informing the latter that the heirs of the property had
decided not to continue leasing the property in question because they had decided
to subdivide the land for sale to the general public, demanding that the property be
vacated within 30 days from receipt of the letter, and that the premises be returned
in substantially the same condition as before occupancy (Exh. 5 Castellvi). A
follow-up letter was sent on January 12, 1957, demanding the delivery and return of
the property within one month from said date (Exh. 6 Castellvi). On January 30,
1957, Lieutenant General Alfonso Arellano, Chief of Staff, answered the letter of
Castellvi, saying that it was difficult for the army to vacate the premises in view of
the permanent installations and other facilities worth almost P500,000.00 that were
erected and already established on the property, and that, there being no other
recourse, the acquisition of the property by means of expropriation proceedings
would be recommended to the President (Exhibit "7" Castellvi).
Defendant Castellvi then brought suit in the Court of First Instance of Pampanga, in
Civil Case No. 1458, to eject the Philippine Air Force from the land. While this
ejectment case was pending, the Republic instituted these expropriation
proceedings, and, as stated earlier in this opinion, the Republic was placed in
possession of the lands on August 10, 1959, On November 21, 1959, the Court of
First Instance of Pampanga, dismissed Civil Case No. 1458, upon petition of the
parties, in an order which, in part, reads as follows:
1. Plaintiff has agreed, as a matter of fact has already signed an
agreement with defendants, whereby she has agreed to receive
the rent of the lands, subject matter of the instant case from June
30, 1966 up to 1959 when the Philippine Air Force was placed in
possession by virtue of an order of the Court upon depositing the
provisional amount as fixed by the Provincial Appraisal Committee
with the Provincial Treasurer of Pampanga;
2. That because of the above-cited agreement wherein the
administratrix decided to get the rent corresponding to the rent
from 1956 up to 1959 and considering that this action is one of
illegal detainer and/or to recover the possession of said land by
virtue of non-payment of rents, the instant case now has become
moot and academic and/or by virtue of the agreement signed by
plaintiff, she has waived her cause of action in the above-entitled
case. 12
The Republic urges that the "taking " of Castellvi's property should be deemed as of
the year 1947 by virtue of afore-quoted lease agreement. In American
Jurisprudence, Vol. 26, 2nd edition, Section 157, on the subject of "Eminent
Domain, we read the definition of "taking" (in eminent domain) as follows:
Taking' under the power of eminent domain may be defined
generally as entering upon private property for more than a
momentary period, and, under the warrant or color of legal
authority, devoting it to a public use, or otherwise informally
appropriating or injuriously affecting it in such a way as
substantially to oust the owner and deprive him of all beneficial
enjoyment thereof. 13
Pursuant to the aforecited authority, a number of circumstances must be present in
the "taking" of property for purposes of eminent domain.
First, the expropriator must enter a private property. This circumstance is present in
the instant case, when by virtue of the lease agreement the Republic, through the
AFP, took possession of the property of Castellvi.
Second, the entrance into private property must be for more than a momentary
period. "Momentary" means, "lasting but a moment; of but a moment's duration"
(The Oxford English Dictionary, Volume VI, page 596); "lasting a very short time;
transitory; having a very brief life; operative or recurring at every moment"
(Webster's Third International Dictionary, 1963 edition.) The word "momentary"
when applied to possession or occupancy of (real) property should be construed to
mean "a limited period" not indefinite or permanent. The aforecited lease contract
was for a period of one year, renewable from year to year. The entry on the property,
under the lease, is temporary, and considered transitory. The fact that the Republic,
through the AFP, constructed some installations of a permanent nature does not
alter the fact that the entry into the land was transitory, or intended to last a year,
although renewable from year to year by consent of 'The owner of the land. By
express provision of the lease agreement the Republic, as lessee, undertook to
return the premises in substantially the same condition as at the time the property
was first occupied by the AFP. It is claimed that the intention of the lessee was to
occupy the land permanently, as may be inferred from the construction of
permanent improvements. But this "intention" cannot prevail over the clear and
express terms of the lease contract. Intent is to be deduced from the language
employed by the parties, and the terms 'of the contract, when unambiguous, as in
the instant case, are conclusive in the absence of averment and proof of mistake or
fraud the question being not what the intention was, but what is expressed in the
language used. (City of Manila v. Rizal Park Co., Inc., 53 Phil. 515, 525); Magdalena
Estate, Inc. v. Myrick, 71 Phil. 344, 348). Moreover, in order to judge the intention of
the contracting parties, their contemporaneous and subsequent acts shall be
principally considered (Art. 1371, Civil Code). If the intention of the lessee
(Republic) in 1947 was really to occupy permanently Castellvi's property, why was
the contract of lease entered into on year to year basis? Why was the lease
agreement renewed from year to year? Why did not the Republic expropriate this
land of Castellvi in 1949 when, according to the Republic itself, it expropriated the
other parcels of land that it occupied at the same time as the Castellvi land, for the
purpose of converting them into a jet air base? 14 It might really have been the
intention of the Republic to expropriate the lands in question at some future time,
but certainly mere notice - much less an implied notice of such intention on the
part of the Republic to expropriate the lands in the future did not, and could not, bind
the landowner, nor bind the land itself. The expropriation must be actually
commenced in court (Republic vs. Baylosis, et al., 96 Phil. 461, 484).
Third, the entry into the property should be under warrant or color of legal authority.
This circumstance in the "taking" may be considered as present in the instant case,
because the Republic entered the Castellvi property as lessee.
Fourth, the property must be devoted to a public use or otherwise informally
appropriated or injuriously affected. It may be conceded that the circumstance of the
property being devoted to public use is present because the property was used by
the air force of the AFP.
Fifth, the utilization of the property for public use must be in such a way as to oust
the owner and deprive him of all beneficial enjoyment of the property. In the instant
case, the entry of the Republic into the property and its utilization of the same for
public use did not oust Castellvi and deprive her of all beneficial enjoyment of the
property. Castellvi remained as owner, and was continuously recognized as owner
by the Republic, as shown by the renewal of the lease contract from year to year,
and by the provision in the lease contract whereby the Republic undertook to return
the property to Castellvi when the lease was terminated. Neither was Castellvi
deprived of all the beneficial enjoyment of the property, because the Republic was
bound to pay, and had been paying, Castellvi the agreed monthly rentals until the
time when it filed the complaint for eminent domain on June 26, 1959.
It is clear, therefore, that the "taking" of Catellvi's property for purposes of eminent
domain cannot be considered to have taken place in 1947 when the Republic
commenced to occupy the property as lessee thereof. We find merit in the
contention of Castellvi that two essential elements in the "taking" of property under
the power of eminent domain, namely: (1) that the entrance and occupation by the
condemnor must be for a permanent, or indefinite period, and (2) that in devoting
the property to public use the owner was ousted from the property and deprived of
its beneficial use, were not present when the Republic entered and occupied the
Castellvi property in 1947.
Untenable also is the Republic's contention that although the contract between the
parties was one of lease on a year to year basis, it was "in reality a more or less
permanent right to occupy the premises under the guise of lease with the 'right and
privilege' to buy the property should the lessor wish to terminate the lease," and "the
right to buy the property is merged as an integral part of the lease relationship ... so
much so that the fair market value has been agreed upon, not, as of the time of
purchase, but as of the time of occupancy" 15 We cannot accept the Republic's
contention that a lease on a year to year basis can give rise to a permanent right to
occupy, since by express legal provision a lease made for a determinate time, as
was the lease of Castellvi's land in the instant case, ceases upon the day fixed,
without need of a demand (Article 1669, Civil Code). Neither can it be said that the
right of eminent domain may be exercised by simply leasing the premises to be
expropriated (Rule 67, Section 1, Rules of Court). Nor can it be accepted that the
Republic would enter into a contract of lease where its real intention was to buy, or
why the Republic should enter into a simulated contract of lease ("under the guise of
lease", as expressed by counsel for the Republic) when all the time the Republic
had the right of eminent domain, and could expropriate Castellvi's land if it wanted
to without resorting to any guise whatsoever. Neither can we see how a right to buy
could be merged in a contract of lease in the absence of any agreement between
the parties to that effect. To sustain the contention of the Republic is to sanction a
practice whereby in order to secure a low price for a land which the government
intends to expropriate (or would eventually expropriate) it would first negotiate with
the owner of the land to lease the land (for say ten or twenty years) then expropriate
the same when the lease is about to terminate, then claim that the "taking" of the
property for the purposes of the expropriation be reckoned as of the date when the
Government started to occupy the property under the lease, and then assert that the
value of the property being expropriated be reckoned as of the start of the lease, in
spite of the fact that the value of the property, for many good reasons, had in the
meantime increased during the period of the lease. This would be sanctioning what
obviously is a deceptive scheme, which would have the effect of depriving the owner
of the property of its true and fair market value at the time when the expropriation
proceedings were actually instituted in court. The Republic's claim that it had the
"right and privilege" to buy the property at the value that it had at the time when it
first occupied the property as lessee nowhere appears in the lease contract. What
was agreed expressly in paragraph No. 5 of the lease agreement was that, should
the lessor require the lessee to return the premises in the same condition as at the
time the same was first occupied by the AFP, the lessee would have the "right and
privilege" (or option) of paying the lessor what it would fairly cost to put the premises
in the same condition as it was at the commencement of the lease, in lieu of the
lessee's performance of the undertaking to put the land in said condition. The "fair
value" at the time of occupancy, mentioned in the lease agreement, does not refer
to the value of the property if bought by the lessee, but refers to the cost of restoring
the property in the same condition as of the time when the lessee took possession
of the property. Such fair value cannot refer to the purchase price, for purchase was
never intended by the parties to the lease contract. It is a rule in the interpretation of
contracts that "However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different from
those upon which the parties intended to agree" (Art. 1372, Civil Code).
We hold, therefore, that the "taking" of the Castellvi property should not be reckoned
as of the year 1947 when the Republic first occupied the same pursuant to the
contract of lease, and that the just compensation to be paid for the Castellvi
property should not be determined on the basis of the value of the property as of
that year. The lower court did not commit an error when it held that the "taking" of
the property under expropriation commenced with the filing of the complaint in this
case.
Under Section 4 of Rule 67 of the Rules of Court, 16 the "just compensation" is to be
determined as of the date of the filing of the complaint. This Court has ruled that
when the taking of the property sought to be expropriated coincides with the
commencement of the expropriation proceedings, or takes place subsequent to the
filing of the complaint for eminent domain, the just compensation should be
determined as of the date of the filing of the complaint. (Republic vs. Philippine
National Bank, L-14158, April 12, 1961, 1 SCRA 957, 961-962). In the instant case,
it is undisputed that the Republic was placed in possession of the Castellvi property,
by authority of the court, on August 10, 1959. The "taking" of the Castellvi property
for the purposes of determining the just compensation to be paid must, therefore, be
reckoned as of June 26, 1959 when the complaint for eminent domain was filed.
Regarding the two parcels of land of Toledo-Gozun, also sought to be expropriated,
which had never been under lease to the Republic, the Republic was placed in
possession of said lands, also by authority of the court, on August 10, 1959, The
taking of those lands, therefore, must also be reckoned as of June 26, 1959, the
date of the filing of the complaint for eminent domain.
2. Regarding the first assigned error discussed as the second issue the
Republic maintains that, even assuming that the value of the expropriated lands is
to be determined as of June 26, 1959, the price of P10.00 per square meter fixed by
the lower court "is not only exhorbitant but also unconscionable, and almost
fantastic". On the other hand, both Castellvi and Toledo-Gozun maintain that their
lands are residential lands with a fair market value of not less than P15.00 per
square meter.
The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun
are residential lands. The finding of the lower court is in consonance with the
unanimous opinion of the three commissioners who, in their report to the court,
declared that the lands are residential lands.
The Republic assails the finding that the lands are residential, contending that the
plans of the appellees to convert the lands into subdivision for residential purposes
were only on paper, there being no overt acts on the part of the appellees which
indicated that the subdivision project had been commenced, so that any
compensation to be awarded on the basis of the plans would be speculative. The
Republic's contention is not well taken. We find evidence showing that the lands in
question had ceased to be devoted to the production of agricultural crops, that they
had become adaptable for residential purposes, and that the appellees had actually
taken steps to convert their lands into residential subdivisions even before the
Republic filed the complaint for eminent domain. In the case of City of Manila vs.
Corrales (32 Phil. 82, 98) this Court laid down basic guidelines in determining the
value of the property expropriated for public purposes. This Court said:
In determining the value of land appropriated for public
purposes, the same consideration are to be regarded as in a sale
of property between private parties. The inquiry, in such cases,
must be what is the property worth in the market, viewed not
merely with reference to the uses to which it is at the time applied,
but with reference to the uses to which it is plainly adapted, that is
to say, What is it worth from its availability for valuable uses?
So many and varied are the circumstances to be taken into
account in determining the value of property condemned for
public purposes, that it is practically impossible to formulate a rule
to govern its appraisement in all cases. Exceptional
circumstances will modify the most carefully guarded rule, but, as
a general thing, we should say that the compensation of the
owner is to be estimated by reference to the use for which the
property is suitable, having regard to the existing business or
wants of the community, or such as may be reasonably expected
in the immediate future. (Miss. and Rum River Boom Co. vs.
Patterson, 98 U.S., 403).
In expropriation proceedings, therefore, the owner of the land has the right to its
value for the use for which it would bring the most in the market. 17 The owner may
thus show every advantage that his property possesses, present and prospective, in
order that the price it could be sold for in the market may be satisfactorily
determined. 18 The owner may also show that the property is suitable for division
into village or town lots. 19
The trial court, therefore, correctly considered, among other circumstances, the
proposed subdivision plans of the lands sought to be expropriated in finding that
those lands are residential lots. This finding of the lower court is supported not only
by the unanimous opinion of the commissioners, as embodied in their report, but
also by the Provincial Appraisal Committee of the province of Pampanga composed
of the Provincial Treasurer, the Provincial Auditor and the District Engineer. In the
minutes of the meeting of the Provincial Appraisal Committee, held on May 14, 1959
(Exh. 13-Castellvi) We read in its Resolution No. 10 the following:
3. Since 1957 the land has been classified as residential in view
of its proximity to the air base and due to the fact that it was not
being devoted to agriculture. In fact, there is a plan to convert it
into a subdivision for residential purposes. The taxes due on the
property have been paid based on its classification as residential
land;
The evidence shows that Castellvi broached the idea of subdividing her land into
residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the
Armed Forces of the Philippines. (Exh. 5-Castellvi) As a matter of fact, the layout of
the subdivision plan was tentatively approved by the National Planning Commission
on September 7, 1956. (Exh. 8-Castellvi). The land of Castellvi had not been
devoted to agriculture since 1947 when it was leased to the Philippine Army. In 1957
said land was classified as residential, and taxes based on its classification as
residential had been paid since then (Exh. 13-Castellvi). The location of the Castellvi
land justifies its suitability for a residential subdivision. As found by the trial court, "It
is at the left side of the entrance of the Basa Air Base and bounded on two sides by
roads (Exh. 13-Castellvi), paragraphs 1 and 2, Exh. 12-Castellvi), the poblacion, (of
Floridablanca) the municipal building, and the Pampanga Sugar Mills are closed by.
The barrio schoolhouse and chapel are also near (T.S.N. November 23,1960, p.
68)." 20
The lands of Toledo-Gozun (Lot 1-B and Lot 3) are practically of the same condition
as the land of Castellvi. The lands of Toledo-Gozun adjoin the land of Castellvi.
They are also contiguous to the Basa Air Base, and are along the road. These lands
are near the barrio schoolhouse, the barrio chapel, the Pampanga Sugar Mills, and
the poblacion of Floridablanca (Exhs. 1, 3 and 4-Toledo-Gozun). As a matter of fact,
regarding lot 1-B it had already been surveyed and subdivided, and its conversion
into a residential subdivision was tentatively approved by the National Planning
Commission on July 8, 1959 (Exhs. 5 and 6 Toledo-Gozun). As early as June, 1958,
no less than 32 man connected with the Philippine Air Force among them
commissioned officers, non-commission officers, and enlisted men had requested
Mr. and Mrs. Joaquin D. Gozun to open a subdivision on their lands in question
(Exhs. 8, 8-A to 8-ZZ-Toledo-Gozun). 21
We agree with the findings, and the conclusions, of the lower court that the lands
that are the subject of expropriation in the present case, as of August 10, 1959
when the same were taken possession of by the Republic, were residential lands
and were adaptable for use as residential subdivisions. Indeed, the owners of these
lands have the right to their value for the use for which they would bring the most in
the market at the time the same were taken from them. The most important issue to
be resolved in the present case relates to the question of what is the just
compensation that should be paid to the appellees.
The Republic asserts that the fair market value of the lands of the appellees is P.20
per square meter. The Republic cites the case of Republic vs. Narciso, et al., L-
6594, which this Court decided on May 18, 1956. The Narciso case involved lands
that belonged to Castellvi and Toledo-Gozun, and to one Donata Montemayor,
which were expropriated by the Republic in 1949 and which are now the site of the
Basa Air Base. In the Narciso case this Court fixed the fair market value at P.20 per
square meter. The lands that are sought to be expropriated in the present case
being contiguous to the lands involved in the Narciso case, it is the stand of the
Republic that the price that should be fixed for the lands now in question should also
be at P.20 per square meter.
We can not sustain the stand of the Republic. We find that the price of P.20 per
square meter, as fixed by this Court in the Narciso case, was based on the
allegation of the defendants (owners) in their answer to the complaint for eminent
domain in that case that the price of their lands was P2,000.00 per hectare and that
was the price that they asked the court to pay them. This Court said, then, that the
owners of the land could not be given more than what they had asked,
notwithstanding the recommendation of the majority of the Commission on Appraisal
which was adopted by the trial court that the fair market value of the lands was
P3,000.00 per hectare. We also find that the price of P.20 per square meter in the
Narciso case was considered the fair market value of the lands as of the year 1949
when the expropriation proceedings were instituted, and at that time the lands were
classified as sugar lands, and assessed for taxation purposes at around P400.00
per hectare, or P.04 per square meter. 22 While the lands involved in the present
case, like the lands involved in the Narciso case, might have a fair market value of
P.20 per square meter in 1949, it can not be denied that ten years later, in 1959,
when the present proceedings were instituted, the value of those lands had
increased considerably. The evidence shows that since 1949 those lands were no
longer cultivated as sugar lands, and in 1959 those lands were already classified,
and assessed for taxation purposes, as residential lands. In 1959 the land of
Castellvi was assessed at P1.00 per square meter. 23
The Republic also points out that the Provincial Appraisal Committee of Pampanga,
in its resolution No. 5 of February 15, 1957 (Exhibit D), recommended the sum of
P.20 per square meter as the fair valuation of the Castellvi property. We find that this
resolution was made by the Republic the basis in asking the court to fix the
provisional value of the lands sought to be expropriated at P259,669.10, which was
approved by the court. 24 It must be considered, however, that the amount fixed as
the provisional value of the lands that are being expropriated does not necessarily
represent the true and correct value of the land. The value is only "provisional" or
"tentative", to serve as the basis for the immediate occupancy of the property being
expropriated by the condemnor. The records show that this resolution No. 5 was
repealed by the same Provincial Committee on Appraisal in its resolution No. 10 of
May 14, 1959 (Exhibit 13-Castellvi). In that resolution No. 10, the appraisal
committee stated that "The Committee has observed that the value of the land in
this locality has increased since 1957 ...", and recommended the price of P1.50 per
square meter. It follows, therefore, that, contrary to the stand of the Republic, that
resolution No. 5 of the Provincial Appraisal Committee can not be made the basis
for fixing the fair market value of the lands of Castellvi and Toledo-Gozun.
The Republic further relied on the certification of the Acting Assistant Provincial
Assessor of Pampanga, dated February 8, 1961 (Exhibit K), to the effect that in
1950 the lands of Toledo-Gozun were classified partly as sugar land and partly as
urban land, and that the sugar land was assessed at P.40 per square meter, while
part of the urban land was assessed at P.40 per square meter and part at P.20 per
square meter; and that in 1956 the Castellvi land was classified as sugar land and
was assessed at P450.00 per hectare, or P.045 per square meter. We can not also
consider this certification of the Acting Assistant Provincial Assessor as a basis for
fixing the fair market value of the lands of Castellvi and Toledo-Gozun because, as
the evidence shows, the lands in question, in 1957, were already classified and
assessed for taxation purposes as residential lands. The certification of the
assessor refers to the year 1950 as far as the lands of Toledo-Gozun are
concerned, and to the year 1956 as far as the land of Castellvi is concerned.
Moreover, this Court has held that the valuation fixed for the purposes of the
assessment of the land for taxation purposes can not bind the landowner where the
latter did not intervene in fixing it. 25
On the other hand, the Commissioners, appointed by the court to appraise the lands
that were being expropriated, recommended to the court that the price of P10.00 per
square meter would be the fair market value of the lands. The commissioners made
their recommendation on the basis of their observation after several ocular
inspections of the lands, of their own personal knowledge of land values in the
province of Pampanga, of the testimonies of the owners of the land, and other
witnesses, and of documentary evidence presented by the appellees. Both Castellvi
and Toledo-Gozun testified that the fair market value of their respective land was at
P15.00 per square meter. The documentary evidence considered by the
commissioners consisted of deeds of sale of residential lands in the town of San
Fernando and in Angeles City, in the province of Pampanga, which were sold at
prices ranging from P8.00 to P20.00 per square meter (Exhibits 15, 16, 17, 18, 19,
20, 21, 22, 23-Castellvi). The commissioners also considered the decision in Civil
Case No. 1531 of the Court of First Instance of Pampanga, entitled Republic vs.
Sabina Tablante, which was expropriation case filed on January 13, 1959, involving
a parcel of land adjacent to the Clark Air Base in Angeles City, where the court fixed
the price at P18.00 per square meter (Exhibit 14-Castellvi). In their report, the
commissioners, among other things, said:
... This expropriation case is specially pointed out, because the
circumstances and factors involved therein are similar in many
respects to the defendants' lands in this case. The land in Civil
Case No. 1531 of this Court and the lands in the present case
(Civil Case No. 1623) are both near the air bases, the Clark Air
Base and the Basa Air Base respectively. There is a national road
fronting them and are situated in a first-class municipality. As
added advantage it may be said that the Basa Air Base land is
very near the sugar mill at Del Carmen, Floridablanca,
Pampanga, owned by the Pampanga Sugar Mills. Also just
stone's throw away from the same lands is a beautiful vacation
spot at Palacol, a sitio of the town of Floridablanca, which counts
with a natural swimming pool for vacationists on weekends. These
advantages are not found in the case of the Clark Air Base. The
defendants' lands are nearer to the poblacion of Floridablanca
then Clark Air Base is nearer (sic) to the poblacion of Angeles,
Pampanga.
The deeds of absolute sale, according to the undersigned
commissioners, as well as the land in Civil Case No. 1531 are
competent evidence, because they were executed during the year
1959 and before August 10 of the same year. More specifically so
the land at Clark Air Base which coincidentally is the subject
matter in the complaint in said Civil Case No. 1531, it having been
filed on January 13, 1959 and the taking of the land involved
therein was ordered by the Court of First Instance of Pampanga
on January 15, 1959, several months before the lands in this case
were taken by the plaintiffs ....
From the above and considering further that the lowest as well as
the highest price per square meter obtainable in the market of
Pampanga relative to subdivision lots within its jurisdiction in the
year 1959 is very well known by the Commissioners, the
 Commission finds that the lowest price that can be awarded to the
lands in question is P10.00 per square meter. 26
The lower court did not altogether accept the findings of the Commissioners based
on the documentary evidence, but it considered the documentary evidence as basis
for comparison in determining land values. The lower court arrived at the conclusion
that "the unanimous recommendation of the commissioners of ten (P10.00) pesos
per square meter for the three lots of the defendants subject of this action is fair and
just". 27 In arriving at its conclusion, the lower court took into consideration, among
other circumstances, that the lands are titled, that there is a rising trend of land
values, and the lowered purchasing power of the Philippine peso.
In the case of Manila Railroad Co. vs. Caligsihan, 40 Phil. 326, 328, this Court said:
A court of first instance or, on appeal, the Supreme Court, may
change or modify the report of the commissioners by increasing
or reducing the amount of the award if the facts of the case so
justify. While great weight is attached to the report of the
commissioners, yet a court may substitute therefor its estimate of
the value of the property as gathered from the record in certain
cases, as, where the commissioners have applied illegal
principles to the evidence submitted to them, or where they have
disregarded a clear preponderance of evidence, or where the
amount allowed is either palpably inadequate or excessive. 28
The report of the commissioners of appraisal in condemnation proceedings are not
binding, but merely advisory in character, as far as the court is concerned. 29 In our
analysis of the report of the commissioners, We find points that merit serious
consideration in the determination of the just compensation that should be paid to
Castellvi and Toledo-Gozun for their lands. It should be noted that the
commissioners had made ocular inspections of the lands and had considered the
nature and similarities of said lands in relation to the lands in other places in the
province of Pampanga, like San Fernando and Angeles City. We cannot disregard
the observations of the commissioners regarding the circumstances that make the
lands in question suited for residential purposes their location near the Basa Air
Base, just like the lands in Angeles City that are near the Clark Air Base, and the
facilities that obtain because of their nearness to the big sugar central of the
Pampanga Sugar mills, and to the flourishing first class town of Floridablanca. It is
true that the lands in question are not in the territory of San Fernando and Angeles
City, but, considering the facilities of modern communications, the town of
Floridablanca may be considered practically adjacent to San Fernando and Angeles
City. It is not out of place, therefore, to compare the land values in Floridablanca to
the land values in San Fernando and Angeles City, and form an idea of the value of
the lands in Floridablanca with reference to the land values in those two other
communities.
The important factor in expropriation proceeding is that the owner is awarded the
just compensation for his property. We have carefully studied the record, and the
evidence, in this case, and after considering the circumstances attending the lands
in question We have arrived at the conclusion that the price of P10.00 per square
meter, as recommended by the commissioners and adopted by the lower court, is
quite high. It is Our considered view that the price of P5.00 per square meter would
be a fair valuation of the lands in question and would constitute a just compensation
to the owners thereof. In arriving at this conclusion We have particularly taken into
consideration the resolution of the Provincial Committee on Appraisal of the
province of Pampanga informing, among others, that in the year 1959 the land of
Castellvi could be sold for from P3.00 to P4.00 per square meter, while the land of
Toledo-Gozun could be sold for from P2.50 to P3.00 per square meter. The Court
has weighed all the circumstances relating to this expropriations proceedings, and
in fixing the price of the lands that are being expropriated the Court arrived at a
happy medium between the price as recommended by the commissioners and
approved by the court, and the price advocated by the Republic. This Court has also
taken judicial notice of the fact that the value of the Philippine peso has
considerably gone down since the year 1959. 30 Considering that the lands of
Castellvi and Toledo-Gozun are adjoining each other, and are of the same nature,
the Court has deemed it proper to fix the same price for all these lands.
3. The third issue raised by the Republic relates to the payment of
interest. The Republic maintains that the lower court erred when it
ordered the Republic to pay Castellvi interest at the rate of 6% per
annum on the total amount adjudged as the value of the land of
Castellvi, from July 1, 1956 to July 10, 1959. We find merit in this
assignment of error.
In ordering the Republic to pay 6% interest on the total value of the land of Castellvi
from July 1, 1956 to July 10, 1959, the lower court held that the Republic had
illegally possessed the land of Castellvi from July 1, 1956, after its lease of the land
had expired on June 30, 1956, until August 10, 1959 when the Republic was placed
in possession of the land pursuant to the writ of possession issued by the court.
What really happened was that the Republic continued to occupy the land of
Castellvi after the expiration of its lease on June 30, 1956, so much so that Castellvi
filed an ejectment case against the Republic in the Court of First Instance of
Pampanga. 31 However, while that ejectment case was pending, the Republic filed
the complaint for eminent domain in the present case and was placed in possession
of the land on August 10, 1959, and because of the institution of the expropriation
proceedings the ejectment case was later dismissed. In the order dismissing the
ejectment case, the Court of First Instance of Pampanga said:
Plaintiff has agreed, as a matter of fact has already signed an
agreement with defendants, whereby she had agreed to receive
the rent of the lands, subject matter of the instant case from June
30, 1956 up to 1959 when the Philippine Air Force was placed in
possession by virtue of an order of the Court upon depositing the
provisional amount as fixed by the Provincial Appraisal Committee
with the Provincial Treasurer of
Pampanga; ...
If Castellvi had agreed to receive the rentals from June 30, 1956 to August 10,
1959, she should be considered as having allowed her land to be leased to the
Republic until August 10, 1959, and she could not at the same time be entitled to
the payment of interest during the same period on the amount awarded her as the
just compensation of her land. The Republic, therefore, should pay Castellvi interest
at the rate of 6% per annum on the value of her land, minus the provisional value
that was deposited, only from July 10, 1959 when it deposited in court the
provisional value of the land.
4. The fourth error assigned by the Republic relates to the denial by the lower court
of its motion for a new trial based on nearly discovered evidence. We do not find
merit in this assignment of error.
After the lower court had decided this case on May 26, 1961, the Republic filed a
motion for a new trial, supplemented by another motion, both based upon the
ground of newly discovered evidence. The alleged newly discovered evidence in the
motion filed on June 21, 1961 was a deed of absolute sale-executed on January 25,
1961, showing that a certain Serafin Francisco had sold to Pablo L. Narciso a parcel
of sugar land having an area of 100,000 square meters with a sugar quota of 100
piculs, covered by P.A. No. 1701, situated in Barrio Fortuna, Floridablanca, for
P14,000, or P.14 per square meter.
In the supplemental motion, the alleged newly discovered evidence were: (1) a deed
of sale of some 35,000 square meters of land situated at Floridablanca for
P7,500.00 (or about P.21 per square meter) executed in July, 1959, by the spouses
Evelyn D. Laird and Cornelio G. Laird in favor of spouses Bienvenido S. Aguas and
Josefina Q. Aguas; and (2) a deed of absolute sale of a parcel of land having an
area of 4,120,101 square meters, including the sugar quota covered by Plantation
Audit No. 161 1345, situated at Floridablanca, Pampanga, for P860.00 per hectare
(a little less than P.09 per square meter) executed on October 22, 1957 by Jesus
Toledo y Mendoza in favor of the Land Tenure Administration.
We find that the lower court acted correctly when it denied the motions for a new
trial.
To warrant the granting of a new trial based on the ground of newly discovered
evidence, it must appear that the evidence was discovered after the trial; that even
with the exercise of due diligence, the evidence could not have been discovered
and produced at the trial; and that the evidence is of such a nature as to alter the
result of the case if admitted. 32 The lower court correctly ruled that these requisites
were not complied with.
The lower court, in a well-reasoned order, found that the sales made by Serafin
Francisco to Pablo Narciso and that made by Jesus Toledo to the Land Tenure
Administration were immaterial and irrelevant, because those sales covered
sugarlands with sugar quotas, while the lands sought to be expropriated in the
instant case are residential lands. The lower court also concluded that the land sold
by the spouses Laird to the spouses Aguas was a sugar land.
We agree with the trial court. In eminent domain proceedings, in order that evidence
as to the sale price of other lands may be admitted in evidence to prove the fair
market value of the land sought to be expropriated, the lands must, among other
things, be shown to be similar.
But even assuming, gratia argumenti, that the lands mentioned in those deeds of
sale were residential, the evidence would still not warrant the grant of a new trial, for
said evidence could have been discovered and produced at the trial, and they
cannot be considered newly discovered evidence as contemplated in Section 1(b) of
Rule 37 of the Rules of Court. Regarding this point, the trial court said:
The Court will now show that there was no reasonable diligence
employed.
The land described in the deed of sale executed by Serafin
Francisco, copy of which is attached to the original motion, is
covered by a Certificate of Title issued by the Office of the
Register of Deeds of Pampanga. There is no question in the mind
of the court but this document passed through the Office of the
Register of Deeds for the purpose of transferring the title or
annotating the sale on the certificate of title. It is true that Fiscal
Lagman went to the Office of the Register of Deeds to check
conveyances which may be presented in the evidence in this case
as it is now sought to be done by virtue of the motions at bar,
Fiscal Lagman, one of the lawyers of the plaintiff, did not exercise
reasonable diligence as required by the rules. The assertion that
he only went to the office of the Register of Deeds 'now and then'
to check the records in that office only shows the half-hazard [sic]
manner by which the plaintiff looked for evidence to be presented
during the hearing before the Commissioners, if it is at all true that
Fiscal Lagman did what he is supposed to have done according
to Solicitor Padua. It would have been the easiest matter for
plaintiff to move for the issuance of a subpoena duces
tecum directing the Register of Deeds of Pampanga to come to
testify and to bring with him all documents found in his office
pertaining to sales of land in Floridablanca adjacent to or near the
lands in question executed or recorded from 1958 to the present.
Even this elementary precaution was not done by plaintiff's
numerous attorneys.
The same can be said of the deeds of sale attached to the
supplementary motion. They refer to lands covered by certificate
of title issued by the Register of Deeds of Pampanga. For the
same reason they could have been easily discovered if
reasonable diligence has been exerted by the numerous lawyers
of the plaintiff in this case. It is noteworthy that all these deeds of
sale could be found in several government offices, namely, in the
Office of the Register of Deeds of Pampanga, the Office of the
Provincial Assessor of Pampanga, the Office of the Clerk of Court
as a part of notarial reports of notaries public that acknowledged
these documents, or in the archives of the National Library. In
respect to Annex 'B' of the supplementary motion copy of the
document could also be found in the Office of the Land Tenure
Administration, another government entity. Any lawyer with a
modicum of ability handling this expropriation case would have
right away though [sic] of digging up documents diligently showing
conveyances of lands near or around the parcels of land sought
to be expropriated in this case in the offices that would have
naturally come to his mind such as the offices mentioned above,
 and had counsel for the movant really exercised the reasonable
diligence required by the Rule' undoubtedly they would have been
able to find these documents and/or caused the issuance of
subpoena duces tecum. ...
It is also recalled that during the hearing before the Court of the
Report and Recommendation of the Commissioners and objection
thereto, Solicitor Padua made the observation:
(d) the Republic must pay appellee Toledo-Gozun the sum of
P2,695,225.00 as the just compensation for her two parcels of
land that have a total area of 539,045 square meters, minus the
sum of P107,809.00 that she withdrew out of the amount that was
deposited in court as the provisional value of her lands, with
interest at the rate of 6%, per annum from July 10, 1959 until the
day full payment is made or deposited in court; (e) the attorney's
lien of Atty. Alberto Cacnio is enforced; and

I understand, Your Honor, that there was a sale that took place in (f) the costs should be paid by appellant Republic of the
this place of land recently where the land was sold for P0.20 Philippines, as provided in Section 12, Rule 67, and in Section 13,
which is contiguous to this land. Rule 141, of the Rules of Court.

The Court gave him permission to submit said document subject IT IS SO ORDERED.
to the approval of the Court. ... This was before the decision was
rendered, and later promulgated on May 26, 1961 or more than
one month after Solicitor Padua made the above observation. He
could have, therefore, checked up the alleged sale and moved for
a reopening to adduce further evidence. He did not do so. He
forgot to present the evidence at a more propitious time. Now, he
seeks to introduce said evidence under the guise of newly-
discovered evidence. Unfortunately the Court cannot classify it as
newly-discovered evidence, because tinder the circumstances,
the correct qualification that can be given is 'forgotten evidence'.
Forgotten however, is not newly-discovered
evidence. 33

The granting or denial of a motion for new trial is, as a general rule, discretionary
with the trial court, whose judgment should not be disturbed unless there is a clear
showing of abuse of discretion. 34 We do not see any abuse of discretion on the part
of the lower court when it denied the motions for a new trial.

WHEREFORE, the decision appealed from is modified, as follows:

(a) the lands of appellees Carmen Vda. de Castellvi and Maria

Nieves Toledo-Gozun, as described in the complaint, are declared
expropriated for public use;

(b) the fair market value of the lands of the appellees is fixed at
P5.00 per square meter;

(c) the Republic must pay appellee Castellvi the sum of

P3,796,495.00 as just compensation for her one parcel of land
that has an area of 759,299 square meters, minus the sum of
P151,859.80 that she withdrew out of the amount that was
deposited in court as the provisional value of the land, with
interest at the rate of 6% per annum from July 10, 1959 until the
day full payment is made or deposited in court;

EASTERN SHIPPING VS MARGARINE
The Court affirms the appealed judgment holding petitioner liable under the terms of
its own bill of lading for the damage suffered by respondent's copra cargo on board
petitioner's vessel, but sets aside the award of attorney's fees to respondent-plaintiff
for lack of any statement or reason in the lower court's judgment that would justify
the award.
Respondent corporation, a West German corporation not engaged in business in
the Philippines, was the consignee of 500 long tons of Philippine copra in bulk with
a total value of US$ 108,750.00 shipped from Cebu City on board petitioner's (a
Philippine corporation) vessel, the SS "EASTERN PLANET" for discharge at
Hamburg, Germany. Petitioner's bill of lading for the cargo provided as follows:
... Except as otherwise stated herein and in - the Charter Party,
this contract shag be governed by the laws of the Flag of the Ship
carrying the goods. In case of average, same shall be adjusted
according to York-Antwerp Rules of 1950.
While the vessel was off Gibraltar, a fire broke out aboard the and caused water
damage to the copra shipment in the amount of US$ 591.38. Petitioner corporation
rejected respondent's claim for payment of the and respondent filed on June 18,
1966 in the Manila court of first instance its complaint against petitioner as
defendant for recovery of the same and US$ 250.00 - attorney's fees and expenses
of litigation.
After trial, the lower court rejected petitioner's defense that did not exceed 5% of
respondent's interest in the cargo it was not liable under Philippine Law for the
damage which I rendered judgment on April 25, 1969 "ordering the defendant,
Eastern Shipping Lines, Inc. to pay to the plaintiff, Margarine-Verkaufs-Union
GMBH, the sum of US$ 591.38, with interest at the legal rate from the date of the
filing of the complaint until fully paid, plus US$ 250.00 as attorney's fees and the
costs of the suit."
In this review on questions of law, petitioner reiterates as its first assignment t of
error its submittal that Article 848 of the Code of Commerce 1 which would bar
claims for averages not exceeding 5% of the claimant's interest should be applied
rather than the lower court's ruling that petitioner's bill of lading expressly contained
"an agreement to the contrary," i.e. for the application of the York-Antwerp Rules
which provide for respondent's fun recovery of the damage loss.
The Court finds no error and upholds the lower court's ruling sustaining
respondent's damage claim although the amount thereof did not exceed 5% of
respondent's interest in the cargo and would have been barred by the cited article of
the Commerce Code. We hold that the lower court correctly ruled the cited codal
article to be "not applicable in this particular case for the reason that the bill of lading
(Exhibit "F") contains "an agreement to the contrary" for it is expressly provided in
the last sentence of the first paragraph (Exhibit "1-A") that "In case of average,
same shall be adjusted according to York-Antwerp Rules of 1950." The insertion of
said condition is expressly authorized by Commonwealth Act No. 65 which has
adopted in toto the U.S. Carriage of Goods by Sea Act. Now, it has not been shown
that said rules limit the recovery of damage to cases within a certain percentage or
proportion that said damage may bear to claimant's interest either in the vessel or
cargo as provided in Article 848 of the Code of Commerce On the contrary, Rule 3
of said York-Antwerp Rules expressly states that "Damage done to a ship and
cargo, or either of them, by water or otherwise, including damage by breaching or
scuttling a burning ship, in extinguishing a fire on board the ship, shall be made
good as general average. ... "
There is a clear and irreconcilable inconsistency between the York-Antwerp Rules
expressly adopted by the parties as their contract under the bill of lading which
sustains respondent's claim and the codal article cited by petitioner which would bar
the same. Furthermore, as correctly contended by respondent, what is here
involved is a contract of adhesion as embodied in the printed bill of lading issued by
petitioner for the shipment to which respondent as the consignee merely adhered,
having no choice in the matter, and consequently, any ambiguity therein must be
construed against petitioner as the author.
We find, however, petitioner's second and only other assignment of error against the
award of attorney's fees of US$ 250.00 to be well taken. The text of the lower court's
decision stated no justification nor reason for the award of attorney's fees and
should therefore be disallowed. As restated in Buan vs. Camaganacan 2 , the
general rule is that it is contrary to sound public policy to place a penalty on the right
to litigate nor should attorney's fees be awarded everytime a party wins a lawsuit.
Hence, Article 2208 of the Civil Code provides that "in the absence of stipulation,
attorney's fees and expenses of litigation, other than judicial costs, cannot be
recovered," save for the eleven exceptions therein expressly provided.
Insofar as the present case is concerned, the lower court made no finding that it Bocaling & Co. null and void. The Court of Appeals affirmed the lower
falls within any of the exceptions that would justify the award for attorney's fees, courts decision but held that the Contract of Sale was not voidable but was
such as gross and evident bad faith in refusing to satisfy a plainly valid, just and
instead rescissible.
demandable claim. Even under the broad eleventh exception of the cited article
which allows the imposition of attorney's fees "in any other case where the court
deems it just and equitable that attorney's fees and expenses of litigation should be ISSUE:
recovered," the Court stressed in Buan, supra, that "the conclusion must be borne
out by findings of facts and law. What is just and equitable in a given case is not a
mere matter of feeling but of demonstration .... Hence, the exercise of judicial 1.) Did the Court of Appeals err in holding that the Contract of Sale was not
discretion in the award of attorney's fees under Article 2208 (11) of the Civil Code
voidable but was instead rescissible?
demands a factual, legal or equitable justification upon the basis of which the court
exercises its discretion. Without such a justification, the award is a conclusion
without a premise, its basis being improperly left to speculation and conjecture." The
2.) Did the Court of Appeals err in considering the petitioner as a buyer in
summary award of counsel's fees made in the appealed judgment must therefore be
set aside. bad faith?

A final observation. The appealed judgment ordered petitioner to pay respondent the HELD:
sum of US$591.38 with interest at the legal rate (which we hold to be the rate of six
[6%] per cent under Article 2209 of the Civil Code in force at the time of the
judgment of April 25, 1969) from the filing of the complaint on June 18, 1966 until 1.) No. Under Article 1380 to 1381 (3) of the Civil Code, a contract
fully paid. Petitioner did not appeal from nor question this portion of the judgment otherwise valid may nonetheless be subsequently rescinded by reason of
requiring that it pay respondent-creditor the damage claim with interest in U.S.
injury to third persons, like creditors. The status of creditors could be
currency (with reference to the general rule of discharging obligations in Philippine
currency measured at the prevailing rate of exchange 3 ). Consequently, we find no validly accorded the Bonnevies for they had substantial interests that were
necessity to make any further pronouncement thereon. We merely affirm th prejudiced by the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of Lease.
. Rescission is a remedy granted by law to the contracting parties and even to
third persons, to secure reparation for damages caused to them by a
Guzman, Bocaling & Co. v. Bonnevie, G.R. No. 86150 March 2, 1992 contract, even if this should be valid, by means of the restoration of things
to their condition at the moment prior to the celebration of said contract. It
is a relief allowed for the protection of one of the contracting parties and
FACTS:
even third persons from all injury and damage the contract may cause, or
to protect some incompatible and preferent right created by the contract.
Africa Valdez de Reynoso leased a parcel of land to Raoul S. Bonnevie and Recission implies a contract which, even if initially valid, produces a lesion
Christopher Bonnevie for a period of one year beginning August 8, 1976. or pecuniary damage to someone that justifies its invalidation for reasons of
Reynoso alleged that on November 3, 1976 she notified respondents by equity.
registered mail that she was selling the leased premises for P600,000 and
that she was giving respondents 30 days from receipt of the letter to
2.) No. Petitioner cannot be deemed a purchaser in good faith for the record
exercise their right of first priority to purchase the subject property as
shows that it categorically admitted it was aware of the lease in favor of the
stipulated in their Contract of Lease. On January 20, 1977, Reynoso sent
Bonnevies, who were actually occupying the subject property at the time it
another letter to the respondents informing them that the property had
was sold to petitioner. A purchaser in good faith and for value is one who
been sold. Respondents wrote back to Reynoso that they did not receive her
buys the property of another without notice that some other person has a
first letter and that they had already signified their interest to purchase the
right to or interest in such property and pays a full and fair price for the
property beforehand to Reynosos agent and thus were constrained to refuse
same at the time of such purchase or before he has notice of the claim or
Reynosos request to terminate the lease. Reynoso went on with the sale in
interest of some other person in the property. Good faith connotes an
favor of Guzman, Bocaling & Co. for a lesser price, and filed an ejectment
honest intention to abstain from taking unconscientious advantage of
case against the Bonnevies. Respondents filed an action for annulment of
another. Tested by these principles, the petitioner cannot tenably claim to
the sale. The Court of First Instance ruled in favor of the respondents,
be a buyer in good faith as it had notice of the lease of the property by the
declaring the deed of sale executed by Reynoso in favor of Guzman,
Bonnevies and such knowledge should have cautioned it to look deeper into
the agreement to determine if it involved stipulations that would prejudice
its own interests.
SIGUAN VS LIM
Facts: A criminal case was filed against LIM with RTC-Cebu city for
issuing 2 bouncing checks in the amounts of P300,000 and P241,668,
respectively to Siguan
Meanwhile, on 2 July 1991, a Deed of Donation conveying the following
parcels of land and purportedly executed by LIM on 10 August 1989 in
favor of her children, Linde, Ingrid and Neil, was registered with the Office
of the Register of Deeds of Cebu City. New transfer certificates of title
were thereafter issued in the names of the donees. On 23 June 1993,
petitioner filed an accion pauliana against LIM and her children before
RTC-Cebu City to rescind the questioned Deed of Donation and to declare
as null and void the new transfer certificates of title issued for the lots
covered by the questioned Deed.
Petitioners contention: claimed therein that sometime in July 1991,
LIM, through a Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of creditors, including
her; that LIM conspired and confederated with her children in antedating
the questioned Deed of Donation, to petitioner's and other creditors'
prejudice; and that LIM, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations.
LIMs contention: As regards the questioned Deed of Donation, LIM
maintained that it was not antedated but was made in good faith at a
time when she had sufficient property. Finally, she alleged that the Deed
of Donation was registered only on 2 July 1991 because she was seriously
ill.
Issue: Whether the Deed of Donation executed by Rosa Lim (LIM) in favor
of her children be rescinded for being in fraud of petitioner Maria Antonia
Siguan?
Ruling:
Even assuming arguendo that petitioner became a creditor of LIM prior to
the celebration of the contract of donation, still her action for rescission
would not fare well because the third requisite was not met. Under Article
1381 of the Civil Code, contracts entered into in fraud of creditors may be
rescinded only when the creditors cannot in any manner collect the
claims due them. Also, Article 1383 of the same Code provides that
the action for rescission is but a subsidiary remedy which cannot
be instituted except when the party suffering damage has no
other legal means to obtain reparation for the same. The term
"subsidiary remedy" has been defined as "the exhaustion of all remedies
by the prejudiced creditor to collect claims due him before rescission is
resorted to." It is, therefore, "essential that the party asking for rescission
prove that he has exhausted all other legal means to obtain satisfaction
of his claim. Petitioner neither alleged nor proved that she did so.
On this score, her action for the rescission of the questioned
deed is not maintainable even if the fraud charged actually did
exist."
CABALIW VS SADORRA
Facts: Isidora Cabaliw (2nd wife of Benigno Sadorra) filed a complaint against her
husband named Benigno Sadorra for the abandonment made by the latter. They
have a daughter named Soledad Sadorra. During their marriage they acquired two
(2) parcels of land located in Nueva Vizcaya. On January 30, 1933, judgment was
rendered requiring Benigno Sadorra to pay his wife the amount of P75.00 a month
in terms of support as of January 1, 1933, and P150.00 in concept of attorneys fees
and the costs but Benigno failed to comply with the judgement of the court. Isidora
filed a motion to cite Benigno Sadorra for contempt and the Court of First Instance
of Manila authorized Isidora to take possession of the conjugal property, to
administer the same, and to avail herself of the fruits thereof in payment of the
monthly support in arrears. With this order of the Court, Isidora proceeded to Nueva
Vizcaya to take possession of the aforementioned parcels of land, and it was then
that she discovered that her husband had sold them to his son-in-law Sotero. On
February 1, 1940, Isidora filed with the Court of First Instance of Nueva Vizcaya
against her husband and Sotero Sadorra for the recovery of the lands in question on
the ground that the sale was fictitious; at the same time a notice of lis pendens was
filed with the Register of Deeds of Nueva Vizcaya. In May of 1940, Benigno Sadorra
died.
Issue: Is there a presumption of fraud against Sotero Sadorra?
Ruling: Yes, it was stated on Art. 1387 that Alienation by onerous title are also
presumed fraudulent when made by persons against whom some judgment has
been rendered in any instance or some writ of attachment has been issued. The
decision or attachment need not refer to the property alienated and need not have
been obtained by the party seeking the rescission. the presumption of fraud was
established at the time of the conveyance. The fact that Sotero was living with his
father-in-law and he knew that there was a judgment directing the latter to give a
monthly support to his wife Isidora and that his father-in-law was avoiding payment
and execution of the judgment. It was known to Sotero that his father-in-law had no
properties other than those two parcels of land which were being sold to him. The
fact that a vendor transfers all of his property to a third person when there is a
judgment against him is a strong indication of a scheme to defraud one who may
have a valid interest over his properties. The close relationship between Benigno
and Sotero is called to be a badge of fraud.
PRYCE CORP VS PAGCOR
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court,
assailing the May 22, 2002 Decision [2] of the Court of Appeals (CA) in CA-GR
CV No. 51629 and its March 4, 2003 Resolution [3] denying petitioners
Motion for Reconsideration. The assailed Decision disposed thus:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as
follows: (1) In Civil Case No. 93-68266, the appealed decision[,] is
AFFIRMED with MODIFICATION[,] ordering [Respondent] Philippine
Amusement and Gaming Corporation to pay [Petitioner] Pryce Properties
Corporation the total amount of P687,289.50 as actual damages
representing the accrued rentals for the quarter September to November
1993 with interest and penalty at the rate of two percent (2%) per month
from date of filing of the complaint until the amount shall have been fully
paid, and the sum of P50,000.00 as attorneys fees; (2) In Civil Case No. 93-
68337, the appealed decision is REVERSED and SET ASIDE and a new
judgment is rendered ordering [Petitioner] Pryce Properties Corporation to
reimburse [Respondent] Philippine Amusement and Gaming Corporation
the amount of P687,289.50 representing the advanced rental deposits,
which amount may be compensated by [Petitioner] Pryce Properties
Corporation with its award in Civil Case No. 93-68266 in the equal amount
of P687,289.50.[4]
The Facts
According to the CA, the facts are as follows:
Sometime in the first half of 1992, representatives from Pryce Properties
Corporation (PPC for brevity) made representations with the Philippine
Amusement and Gaming Corporation (PAGCOR) on the possibility of setting
up a casino in Pryce Plaza Hotel in Cagayan de Oro City. [A] series of
negotiations followed. PAGCOR representatives went to Cagayan de Oro City
to determine the pulse of the people whether the presence of a casino would
be welcomed by the residents. Some local government officials showed keen
interest in the casino operation and expressed the view that possible
problems were surmountable. Their negotiations culminated with PPCs
counter-letter proposal dated October 14, 1992.
On November 11, 1992, the parties executed a Contract of Lease x x x
involving the ballroom of the Hotel for a period of three (3) years starting
December 1, 1992 and until November 30, 1995. On November 13, 1992,
they executed an addendum to the contract x x x which included a lease of
an additional 1000 square meters of the hotel grounds as living quarters
and playground of the casino personnel. PAGCOR advertised the start of
their casino operations on December 18, 1992.
Way back in 1990, the Sangguniang Panlungsod of Cagayan de Oro City
passed Resolution No. 2295 x x x dated November 19, 1990 declaring as a
matter of policy to prohibit and/or not to allow the establishment of a
gambling casino in Cagayan de Oro City. Resolution No. 2673 x x x dated
October 19, 1992 (or a month before the contract of lease was executed)
was subsequently passed reiterating with vigor and vehemence the policy of
the City under Resolution No. 2295, series of 1990, banning casinos in
Cagayan de Oro City. On December 7, 1992, the Sangguniang Panlungsod
of Cagayan de Oro City enacted Ordinance No. 3353 x x x prohibiting the
issuance of business permits and canceling existing business permits to
any establishment for using, or allowing to be used, its premises or any
portion thereof for the operation of a casino.
In the afternoon of December 18, 1992 and just hours before the actual
formal opening of casino operations, a public rally in front of the hotel was
staged by some local officials, residents and religious leaders. Barricades
were placed [which] prevented some casino personnel and hotel guests from
entering and exiting from the Hotel. PAGCOR was constrained to suspend
casino operations because of the rally. An agreement between PPC and
PAGCOR, on one hand, and representatives of the rallyists, on the other,
eventually ended the rally on the 20th of December, 1992.
On January 4, 1993, Ordinance No. 3375-93 x x x was passed by the
Sangguniang Panlungsod of Cagayan de Oro City, prohibiting the operation
of casinos and providing for penalty for violation thereof. On January 7,
1993, PPC filed a Petition for Prohibition with Preliminary Injunction x x x
against then public respondent Cagayan de Oro City and/or Mayor Pablo P.
Magtajas x x x before the Court of Appeals, docketed as CA G.R. SP No.
29851 praying inter alia, for the declaration of unconstitutionality of
Ordinance No. 3353. PAGCOR intervened in said petition and further
assailed Ordinance No. 4475-93 as being violative of the non-impairment of
contracts and equal protection clauses. On March 31, 1993, the Court of
Appeals promulgated its decision x x x, the dispositive portion of which
reads:
IN VIEW OF ALL THE FOREGOING, Ordinance No. 3353 and Ordinance No.
3375-93 are hereby DECLARED UNCONSTITUTIONAL and VOID and the
respondents and all other persons acting under their authority and in their
behalf are PERMANENTLY ENJOINED from enforcing those ordinances.
SO ORDERED.
Aggrieved by the decision, then public respondents Cagayan de Oro City, et
al. elevated the case to the Supreme Court in G.R. No. 111097, where, in an
En Banc Decision dated July 20, 1994 x x x, the Supreme Court denied the
petition and affirmed the decision of the Court of Appeals.
In the meantime, PAGCOR resumed casino operations on July 15, 1993,
against which, however, another public rally was held. Casino operations
continued for some time, but were later on indefinitely suspended due to
the incessant demonstrations. Per verbal advice x x x from the Office of the
President of the Philippines, PAGCOR decided to stop its casino operations
in Cagayan de Oro City. PAGCOR stopped its casino operations in the hotel
prior to September, 1993. In two Statements of Account dated September 1,
1993 x x x, PPC apprised PAGCOR of its outstanding account for the
quarter September 1 to November 30, 1993. PPC sent PAGCOR another
Letter dated September 3, 1993 x x x as a follow-up to the parties earlier
conference. PPC sent PAGCOR another Letter dated September 15, 1993 x x
x stating its Board of Directors decision to collect the full rentals in case of
pre-termination of the lease.
PAGCOR sent PPC a letter dated September 20, 1993 x x x [stating] that it
was not amenable to the payment of the full rentals citing as reasons
unforeseen legal and other circumstances which prevented it from
complying with its obligations. PAGCOR further stated that it had no other
alternative but to pre-terminate the lease agreement due to the relentless
and vehement opposition to their casino operations. In a letter dated
October 12, 1993 x x x, PAGCOR asked PPC to refund the total
of P1,437,582.25 representing the reimbursable rental deposits and
expenses for the permanent improvement of the Hotels parking lot. In a
letter dated November 5, 1993 x x x, PAGCOR formally demanded from PPC
the payment of its claim for reimbursement.
On November 15, 1993 x x x, PPC filed a case for sum of money in the
Regional Trial Court of Manila docketed as Civil Case No. 93-68266. On
November 19, 1993, PAGCOR also filed a case for sum of money in the
Regional Trial Court of Manila docketed as Civil Case No. 93-68337.
In a letter dated November 25, 1993, PPC informed PAGCOR that it was
terminating the contract of lease due to PAGCORs continuing breach of the
contract and further stated that it was exercising its rights under the
contract of lease pursuant to Article 20 (a) and (c) thereof.
On February 2, 1994, PPC filed a supplemental complaint x x x in Civil
Case No. 93-68266, which the trial court admitted in an Order dated
February 11, 1994. In an Order dated April 27, 1994, Civil Case No. 93-
68377 was ordered consolidated with Civil Case No. 93-68266. These cases
were jointly tried by the court a quo. On August 17, 1995, the court a quo
promulgated its decision. Both parties appealed.[5]
In its appeal, PPC faulted the trial court for the following reasons: 1)
failure of the court to award actual and moral damages; 2) the 50 percent
reduction of the amount PPC was claiming; and 3) the courts ruling that
the 2 percent penalty was to be imposed from the date of the promulgation
of the Decision, not from the date stipulated in the Contract.
On the other hand, PAGCOR criticized the trial court for the latters
failure to rule that the Contract of Lease had already been terminated as
early as September 21, 1993, or at the latest, on October 14, 1993, when
PPC received PAGCORs letter dated October 12, 1993. The gaming
corporation added that the trial court erred in 1) failing to consider that
PPC was entitled to avail itself of the provisions of Article XX only when PPC
was the party terminating the Contract; 2) not finding that there were valid,
justifiable and good reasons for terminating the Contract; and 3) dismissing
the Complaint of PAGCOR in Civil Case No. 93-68337 for lack of merit, and
not finding PPC liable for the reimbursement of PAGCORS cash deposits
and of the value of improvements.
Ruling of the Court of Appeals
First, on the appeal of PAGCOR, the CA ruled that the PAGCORS
pretermination of the Contract of Lease was unjustified. The appellate court
explained that public demonstrations and rallies could not be considered as
fortuitous events that would exempt the gaming corporation from complying
with the latters contractual obligations. Therefore, the Contract continued
to be effective until PPC elected to terminate it on November 25, 1993.
Regarding the contentions of PPC, the CA held that under Article 1659
of the Civil Code, PPC had the right to ask for (1) rescission of the Contract
and indemnification for damages; or (2) only indemnification plus the
continuation of the Contract. These two remedies were alternative, not
cumulative, ruled the CA.
As PAGCOR had admitted its failure to pay the rentals for September to
November 1993, PPC correctly exercised the option to terminate the lease
agreement. Previously, the Contract remained effective, and PPC could
collect the accrued rentals. However, from the time it terminated the
Contract on November 25, 1993, PPC could no longer demand payment of
the remaining rentals as part of actual damages, the CA added.
Denying the claim for moral damages, the CA pointed out the failure of
PPC to show that PAGCOR had acted in gross or evident bad faith in failing
to pay the rentals from September to November 1993. Such failure was
shown especially by the fact that PPC still had in hand three (3) months
advance rental deposits of PAGCOR. The former could have simply applied
this deposit to the unpaid rentals, as provided in the Contract. Neither did
PPC adequately show that its reputation had been besmirched or the hotels
goodwill eroded by the establishment of the casino and the public protests.
Finally, as to the claimed reimbursement for parking lot improvement,
the CA held that PAGCOR had not presented official receipts to prove the
latters alleged expenses. The appellate court, however, upheld the trial
courts award to PPC of P50,000 attorneys fees.
Hence this Petition.[6]
Issues
In their Memorandum, petitioner raised the following issues:
MAIN ISSUE:
Did the Honorable Court of Appeals commit x x x grave and reversible error
by holding that Pryce was not entitled to future rentals or lease payments
for the unexpired period of the Contract of Lease between Pryce and
PAGCOR?
Sub-Issues:
1. Were the provisions of Sections 20(a) and 20(c) of the Contract of Lease
relative to the right of PRYCE to terminate the Contract for cause and to
moreover collect rentals from PAGCOR corresponding to the remaining term
of the lease valid and binding?
2. Did not Article 1659 of the Civil Code supersede Sections 20(a) and 20(c)
of the Contract, PRYCE having rescinded the Contract of Lease?
3. Do the case of Rios, et al. vs. Jacinto Palma Enterprises, et al. and the
other cases cited by PAGCOR support its position that PRYCE was not
entitled to future rentals?
4. Would the collection by PRYCE of future rentals not give rise to unjust
enrichment?
5. Could we not have harmonized Article 1659 of the Civil Code and Article
20 of the Contract of Lease?
6. Is it not a basic rule that the law, i.e. Article 1659, is deemed written in
contracts, particularly in the PRYCE-PAGCOR Contract of Lease? [7]
The Courts Ruling
The Petition is partly meritorious.
Main Issue:
Collection of Remaining Rentals
PPC anchors its right to collect future rentals upon the provisions of
the Contract. Likewise, it argues that termination, as defined under the
Contract, is different from the remedy of rescission prescribed under Article
1659 of the Civil Code. On the other hand, PAGCOR contends, as the CA
ruled, that Article 1659 of the Civil Code governs; hence, PPC is allegedly
no longer entitled to future rentals, because it chose to rescind the
Contract.
Contract Provisions
Clear and Binding
Article 1159 of the Civil Code provides that obligations arising from
contracts have the force of law between the contracting parties and should
be complied with in good faith. [8]In deference to the rights of the parties, the
law[9] allows them to enter into stipulations, clauses, terms and conditions
they may deem convenient; that is, as long as these are not contrary to law,
morals, good customs, public order or public policy. Likewise, it is settled
that if the terms of the contract clearly express the intention of the
contracting parties, the literal meaning of the stipulations would be
controlling.[10]
In this case, Article XX of the parties Contract of Lease provides in
part as follows:
XX. BREACH OR DEFAULT
a) The LESSEE agrees that all the terms, conditions and/or covenants
herein contained shall be deemed essential conditions of this contract,
and in the event of default or breach of any of such terms, conditions and/or
covenants, or should the LESSEE become bankrupt, or insolvent, or
compounds with his creditors, the LESSOR shall have the right to terminate
and cancel this contractby giving them fifteen (15 days) prior notice delivered
at the leased premises or posted on the main door thereof. Upon such
termination or cancellation, the LESSOR may forthwith lock the premises
and exclude the LESSEE therefrom, forcefully or otherwise, without
incurring any civil or criminal liability. During the fifteen (15) days notice,
the LESSEE may prevent the termination of lease by curing the events or
causes of termination or cancellation of the lease.
b) x x x x x x x x x
c) Moreover, the LESSEE shall be fully liable to the LESSOR for the rentals
corresponding to the remaining term of the lease as well as for any and all
damages, actual or consequential resulting from such default and
termination of this contract.
d) x x x x x x x x x. (Italics supplied)
The above provisions leave no doubt that the parties have covenanted
1) to give PPC the right to terminate and cancel the Contract in the event of
a default or breach by the lessee; and 2) to make PAGCOR fully liable for
rentals for the remaining term of the lease, despite the exercise of such
right to terminate. Plainly, the parties have voluntarily bound themselves to
require strict compliance with the provisions of the Contract by stipulating
that a default or breach, among others, shall give the lessee the termination
option, coupled with the lessors liability for rentals for the remaining term
of the lease.
For sure, these stipulations are valid and are not contrary to law,
morals, good customs, public order or public policy. Neither is there
anything objectionable about the inclusion in the Contract of mandatory
provisions concerning the rights and obligations of the parties. [11] Being the
primary law between the parties, it governs the adjudication of their rights
and obligations. A court has no alternative but to enforce the contractual
stipulations in the manner they have been agreed upon and written. [12] It is
well to recall that courts, be they trial or appellate, have no power to make
or modify contracts.[13] Neither can they save parties from disadvantageous
provisions.
Termination or Rescission?
 Well-taken is petitioners insistence that it had the right to ask
for termination plus the full payment of future rentals under the provisions
of the Contract, rather than just rescission under Article 1659 of the Civil
Code. This Court is not unmindful of the fact
that termination and rescission are terms that have been used loosely and
interchangeably in the past. But distinctions ought to be made, especially in
this controversy, in which the terms mean differently and lead to equally
different consequences.
The term rescission is found in 1) Article 1191 [14] of the Civil Code, the
general provision on rescission of reciprocal obligations; 2) Article 1659,
[15]
which authorizes rescission as an alternative remedy, insofar as the
rights and obligations of the lessor and the lessee in contracts of lease are
concerned; and 3) Article 1380[16] with regard to the rescission of contracts.
In his Concurring Opinion in Universal Food Corporation v. CA,
[17]
Justice J. B. L. Reyes differentiated rescission under Article 1191 from
that under Article 1381 et seq. as follows:
x x x. The rescission on account of breach of stipulations is not predicated
on injury to economic interests of the party plaintiff but on the breach of
faith by the defendant, that violates the reciprocity between the parties. It is
not a subsidiary action, and Article 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder is
subordinated to anything other than the culpable breach of his obligations
to the defendant. This rescission is a principal action retaliatory in
character, it being unjust that a party be held bound to fulfill his promises
when the other violates his. As expressed in the old Latin aphorism: Non
servanti fidem, non est fides servanda. Hence, the reparation of damages for
the breach is purely secondary.
On the contrary, in rescission by reason of lesion or economic prejudice, the
cause of action is subordinated to the existence of that prejudice, because it
is the raison detre as well as the measure of the right to rescind. x x x. [18]
Relevantly, it has been pointed out that resolution was originally used
in Article 1124 of the old Civil Code, and that the term became the basis
for rescission under Article 1191 (and, conformably, also Article 1659). [19]
Now, as to the distinction between termination (or cancellation)
and rescission (more properly, resolution), Huibonhoa v. CA[20] held that,
where the action prayed for the payment of rental arrearages, the aggrieved
party actually sought the partial enforcement of a lease contract. Thus, the
remedy was not rescission, but termination or cancellation, of the contract.
The Court explained:
x x x. By the allegations of the complaint, the Gojoccos aim was to cancel or
terminate the contract because they sought its partial enforcement in
praying for rental arrearages. There is a distinction in law between
cancellation of a contract and its rescission. To rescind is to declare a
contract void in its inception and to put an end to it as though it never were. It
is not merely to terminate it and release parties from further obligations to
each other but to abrogate it from the beginning and restore the parties to
relative positions which they would have occupied had no contract ever been
made.
x x x. The termination or cancellation of a contract would necessarily entail
enforcement of its terms prior to the declaration of its cancellation in the same
way that before a lessee is ejected under a lease contract, he has to fulfill his
obligations thereunder that had accrued prior to his ejectment. However,
termination of a contract need not undergo judicial intervention. x x x.
[21]
(Italics supplied)
Rescission has likewise been defined as the unmaking of a contract, or
its undoing from the beginning, and not merely its
termination. Rescission may be effected by both parties by mutual
agreement; or unilaterally by one of them declaring a rescission of contract
without the consent of the other, if a legally sufficient ground exists or if a
decree of rescission is applied for before the courts. [22] On the other
hand, termination refers to an end in time or existence; a close, cessation or
conclusion. With respect to a lease or contract, it means an ending, usually
before the end of the anticipated term of such lease or contract, that may be
effected by mutual agreement or by one party exercising one of its remedies
as a consequence of the default of the other. [23]
Thus, mutual restitution is required in a rescission (or resolution), in
order to bring back the parties to their original situation prior to the
inception of the contract.[24] Applying this principle to this case, it means
that PPC would re-acquire possession of the leased premises, and PAGCOR
would get back the rentals it paid the former for the use of the hotel space.
In contrast, the parties in a case of termination are not restored to
their original situation; neither is the contract treated as if it never existed.
Prior to its termination, the parties are obliged to comply with their
contractual obligations. Only after the contract has been cancelled will they
be released from their obligations.
In this case, the actions and pleadings of petitioner show that it never
intended to rescind the Lease Contract from the beginning. This fact was
evident when it first sought to collect the accrued rentals from September to
November 1993 because, as previously stated, it actually demanded the
enforcement of the Lease Contract prior to termination. Any intent to
rescind was not shown, even when it abrogated the Contract on November
25, 1993, because such abrogation was not the rescission provided for
under Article 1659.
Future Rentals
As to the remaining sub-issue of future rentals, Rios v. Jacinto is [25]
inapplicable, because the remedy resorted to by the lessors in that case was
rescission, not termination. The rights and obligations of the parties
in Rios were governed by Article 1659 of the Civil Code; hence, the Court
held that the damages to which the lessor was entitled could not have
extended to the lessees liability for future rentals.
Upon the other hand, future rentals cannot be claimed as
compensation for the use or enjoyment of anothers property after the
termination of a contract. We stress that by abrogating the Contract in the
present case, PPC released PAGCOR from the latters future obligations,
which included the payment of rentals. To grant that right to the former is
to unjustly enrich it at the latters expense.
However, it appears that Section XX (c) was intended to be a penalty
clause. That fact is manifest from a reading of the mandatory provision
under subparagraph (a) in conjunction with subparagraph (c) of the
Contract. A penal clause is an accessory obligation which the parties attach
to a principal obligation for the purpose of insuring the performance thereof
by imposing on the debtor a special prestation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled.[26]
Quite common in lease contracts, this clause functions to strengthen
the coercive force of the obligation and to provide, in effect, for what could
be the liquidated damages resulting from a breach. [27] There is nothing
immoral or illegal in such indemnity/penalty clause, absent any showing
that it was forced upon or fraudulently foisted on the obligor. [28]
In obligations with a penal clause, the general rule is that the penalty
serves as a substitute for the indemnity for damages and the payment of
interests in case of noncompliance; that is, if there is no stipulation to the
contrary,[29] in which case proof of actual damages is not necessary for the
penalty to be demanded.[30] There are exceptions to the aforementioned rule,
however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1)
when there is a stipulation to the contrary, 2) when the obligor is sued for
refusal to pay the agreed penalty, and 3) when the obligor is guilty of fraud.
In these cases, the purpose of the penalty is obviously to punish the obligor
for the breach. Hence, the obligee can recover from the former not only the
penalty, but also other damages resulting from the nonfulfillment of the
principal obligation. [31]
In the present case, the first exception applies because Article XX (c)
provides that, aside from the payment of the rentals corresponding to the
remaining term of the lease, the lessee shall also be liable for any and all
damages, actual or consequential, resulting from such default and
termination of this contract. Having entered into the Contract voluntarily
and with full knowledge of its provisions, PAGCOR must be held bound to
its obligations. It cannot evade further liability for liquidated damages.
Reduction of Penalty
In certain cases, a stipulated penalty may nevertheless be equitably
reduced by the courts.[32] This power is explicitly sanctioned by Articles
1229 and 2227 of the Civil Code, which we quote:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or unconscionable.
The question of whether a penalty is reasonable or iniquitous is
addressed to the sound discretion of the courts. To be considered in fixing
the amount of penalty are factors such as -- but not limited to -- the type,
extent and purpose of the penalty; the nature of the obligation; the mode of
the breach and its consequences; the supervening realities; the standing
and relationship of the parties; and the like.[33]
In this case, PAGCORs breach was occasioned by events that, although
not fortuitous in law, were in fact real and pressing. From the CAs factual
findings, which are not contested by either party, we find that PAGCOR
conducted a series of negotiations and consultations before entering into
the Contract. It did so not only with the PPC, but also with local
government officials, who assured it that the problems were surmountable.
Likewise, PAGCOR took pains to contest the ordinances [34] before the courts,
which consequently declared them unconstitutional. On top of these
developments, the gaming corporation was advised by the Office of the
President to stop the games in Cagayan de Oro City, prompting the former
to cease operations prior to September 1993.

Also worth mentioning is the CAs finding that PAGCORs casino

operations had to be suspended for days on end since their start in
December 1992; and indefinitely from July 15, 1993, upon the advice of the
Office of President, until the formal cessation of operations in September
1993. Needless to say, these interruptions and stoppages meant that
PAGCOR suffered a tremendous loss of expected revenues, not to mention
the fact that it had fully operated under the Contract only for a limited time.

While petitioners right to a stipulated penalty is affirmed, we consider

the claim for future rentals to the tune of P7,037,835.40 to be highly
iniquitous. The amount should be equitably reduced. Under the
circumstances, the advanced rental deposits in the sum of P687,289.50
should be sufficient penalty for respondents breach.
WHEREFORE, the Petition is GRANTED in part. The assailed Decision
and Resolution are hereby MODIFIED to include the payment of penalty.
Accordingly, respondent is ordered to pay petitioner the additional amount
of P687,289.50 as penalty, which may be set off or applied against the
formers advanced rental deposits. Meanwhile, the CAs award to petitioner of
actual damages representing the accrued rentals for September to
November 1993 -- with interest and penalty at the rate of two percent (2%)
per month, from the date of filing of the Complaint until the amount shall
have been fully paid -- as well as the P50,000 award for attorneys fees,
is AFFIRMED. No costs.
SO ORDERED.
UY TONG VS CA
Direct appeal on a pure question of law from the orders of the then Court of First
Instance of Manila, Branch XXI, sitting as an insolvency court in Special
Proceedings No. 29835, entitled "In Re: Petition for Voluntary Insolvency of Uy Tong
alias Teodoro Uy," declaring as duly proved the indebtedness of insolvent Uy Tong
in favor of herein appellants, claimants Eduardo Lopez, et al., in the amount of
P100,575.00 with legal interest from August 10, 1954; but denying the set-off of
such amount against the indebtedness of said claimants to insolvent Uy Tong
amounting to P55,000.00 with legal interest from February 24, 1954, until the
preferred claims shall have been fully satisfied.
Unquestionably, the principle of compensation or set-off as recognized both in
Article 1279 of the Civil Code 1 and Section 58 of the Insolvency Law 2 is applicable
to the case at bar. However, the amount which claimants Eduardo Lopez, et al., may
set off against their indebtedness in favor of insolvent Uy Tong is limited only to the
rentals of the Benavides Building due from the latter for the period from February
28, 1955 up to May 25, 1955, the date when the petition for voluntary in solvency
was filed, and not the whole amount representing rentals from February 28, 1955 to
June 16, 1961. It is a settled principle that "a debt of the bankrupt arising prior to the
bankruptcy cannot be set off against installments of rent falling due after bankruptcy,
although the installments are payable under a written lease in effect before the
bankruptcy." 3 Upon this premise, the conclusion is easily reached that the debt of
claimants which arose prior to bankruptcy cannot be set-off against the installments
of rent falling due from the insolvent after bankruptcy. The reason therefor is quite
evident: with respect to the difference between the debt of claimants Eduardo
Lopez, et al., in the amount of P55,000.00 plus interest, and the rentals
corresponding to the period from February 28 to May 25, 1955, retention or
controversy had been effectively commenced by third persons upon their filing of
claims in the insolvency proceedings of which claimants Lopez, et al., had due
notice. For compensation to take place, it is necessary, among other legal
requisites, "that over neither of them (the two debts) there be any retention or
controversy, commenced by third persons and communicated in due time to the
debtor." 4 This essential element of compensation being absent, the same cannot
take place.
Besides, to allow compensation to the concurrent amount of the mutual debts and
credits would in effect give claimants Lopez, et al., undue preference over other
creditors, as such set-off will totally deplete the estate of the insolvent, a situation
entirely contrary to the purpose of insolvency proceedings, which is to effect an
equitable distribution of the insolvent's estate among his creditors.
WHEREFORE, the orders appealed from are hereby modified in the sense that
claimants Eduardo Lopez, et al., are allowed to set off from their indebtedness of
P55,000.00 plus interest, whatever amount was due from insolvent Uy Tong as
rentals of the Benavidez Building from February 28 to May 25, 1955. The difference
shall be paid pro rata with other unpreferred claims, but only after the preferred
claims, if any, shall have been satisfied. Let the records of this case be remanded to
the court a quo for further proceedings. No costs.
SO ORDERED.1wph1.t
CHINA BANKING CORPORATION, petitioner, vs. HON. COURT OF APPEALS,
PAULINO ROXAS CHUA and KIANG MING CHU CHUA, respondents.
DECISION
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari assailing the decision rendered by the
Court of Appeals on June 26, 1997 which affirmed the decision of the Regional Trial
Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 63199 entitled "Paulino
Roxas Chua and Kiang Ming Chu Chua, Plaintiffs versus China Banking
Corporation, the Sheriff of Manila and the Register of Deeds of Pasig, Defendants."
The facts of the case are not in dispute:
Alfonso Roxas Chua and his wife Kiang Ming Chu Chua were the owners of a
residential land in San Juan, Metro Manila, covered by Transfer Certificate of Title
No. 410603. On February 2, 1984, a notice of levy affecting the property was issued
in connection with Civil Case No. 82-14134 entitled, "Metropolitan Bank and Trust
Company, Plaintiff versus Pacific Multi Commercial Corporation and Alfonso Roxas
Chua, Defendants," before the Regional Trial Court, Branch XLVI of Manila. The
notice of levy was inscribed and annotated at the back of TCT 410603.
Subsequently, Kiang Ming Chu Chua filed a complaint against the City Sheriff of
Manila and Metropolitan Bank and Trust Company, questioning the levy of the
abovementioned property. She alleged that the judgment of the court in Civil Case
No. 82-14134 against Alfonso Roxas Chua could not be enforced against TCT
410603 inasmuch as the land subject thereof was the conjugal property of the
spouses.
The parties thereafter entered into a compromise agreement to the effect that the
levy on TCT 410603 was valid and enforceable only to the extent of the undivided
portion of the property pertaining to the conjugal share of Alfonso Roxas Chua.
Meanwhile, on June 19, 1985, petitioner China Bank filed with the Regional Trial
Court of Manila, Branch 29, an action for collection of sum of money against Pacific
Multi Agro-Industrial Corporation and Alfonso Roxas Chua which was docketed as
Civil Case No. 85-31257. The complaint was anchored on three (3) promissory
notes with an aggregate amount of P2,500,000.00 plus stipulated interest.
On November 7, 1985, the trial court promulgated its decision in Civil Case No. 85-
31257 in favor of China Banking Corporation, the dispositive portion of which reads
as follows:
PREMISES CONSIDERED, judgment is hereby rendered in favor
of the plaintiff and against the defendants; ordering the latter to
pay, jointly and severally, the former, under the first cause of
action, the sum of P1,800,000.00, representing the unpaid of the
promissory note, plus 21% interest per annum and an additional
amount equivalent to 1/10 of 1% per day of the total amount due,
as penalty both from and after October 4, 1983, until fully paid;
under the second cause of action, to pay the plaintiff the amount
of P350,000.00 representing the unpaid principal of the
promissory note, plus 12% interest per annum and an additional
amount equivalent to 1/10 of 1% per day of the total amount due,
as penalty both from and after September 14, 1983, until fully
paid; under the third cause of action, to pay the plaintiff the further
sum of P350,000.00, representing the unpaid principal of the
promissory note, plus 12% interest per annum and an additional
amount equivalent to 1/10 % of 1% per day of the total amount
due as penalty both from and after September 14, 1983, until fully
paid; and to pay the same plaintiff the amount equivalent to 10%
of the foregoing sums, as and for attorneys fees, such amount to
bear the same rate of interest as the principal obligation under
each promissory note, compounded monthly, until fully paid; and
to pay the costs of suit.
SO ORDERED.[1]
On September 8, 1986, an alias notice of levy on execution on the one-half ()
undivided portion of TCT 410603 belonging to Alfonso Chua was issued in
connection with Civil Case 82-14134. The notice was inscribed and annotated at the
back of TCT 410603 on September 15, 1986 and a certificate of sale covering the
one-half undivided portion of the property was executed in favor of Metropolitan
Bank and Trust Company. The certificate of sale was inscribed at the back of said
TCT on December 22, 1987.
Meanwhile, Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chuas
appeal was dismissed by the Court of Appeals on September 29, 1988 for failure to
file brief.[2]
On November 21, 1988, Alfonso Roxas Chua executed a public instrument
denominated as "Assignment of Rights to Redeem," whereby he assigned his rights
to redeem the one-half undivided portion of the property to his son, private
respondent Paulino Roxas Chua.[3] Paulino redeemed said one-half share on the
very same day. The instrument was inscribed at the back of TCT 410603 as Entry
No. 7629, and the redemption of the property by Paulino was inscribed as Entry No.
7630, both dated March 14, 1989.[4]
On the other hand, in connection with Civil Case No. 85-31257, another notice of
levy on execution was issued on February 4, 1991 by the Deputy Sheriff of Manila
against the right and interest of Alfonso Roxas Chua in TCT 410603. Thereafter, a
certificate of sale on execution dated April 13, 1992 was issued by the Sheriff of
Branch 39, RTC Manila in Civil Case No. 85-31257, in favor of China Bank and
inscribed at the back of TCT 410603 as Entry No. 01896 on May 4, 1992.[5]
On May 20, 1993, Paulino Roxas Chua and Kiang Ming Chu Chua instituted Civil
Case No. 63199 before the RTC of Pasig, Metro Manila against China Bank,
averring that Paulino has a prior and better right over the rights, title, interest and
participation of China Banking Corporation in TCT 410603; that Alfonso Roxas Chua
sold his right to redeem one-half (1/2) of the aforesaid conjugal property in his favor
on November 21, 1988 while China Banking Corporation acquired its right from the
notice of levy of execution dated January 30, 1991; that the assignment of rights in
his favor was annotated at the back of TCT 410603 on March 14, 1989 and
inscribed as Entry No. 7629, and his redemption of the property was effected in an
instrument dated January 11, 1989 and inscribed and annotated at the back of TCT
410603 on March 14, 1989, two years before the annotation of the rights of China
Banking Corporation on TCT 410603 on February 4, 1991.
The trial court rendered a decision on July 15, 1994 in favor of private respondent
Paulino Roxas Chua and against China Banking Corporation, the decretal portion of
which reads:
WHEREFORE, foregoing premises considered, this Court finds
sufficient preponderance of evidence against defendants in favor
of plaintiffs and therefore render (sic) judgment ordering
defendant to pay plaintiffs:
a) P100,000.00 as moral damages and P50,000.00 as exemplary
damages plus 12% interest per annum to start from the date of
this decision until fully paid;
b) P100,000.00 attorneys fee; and
c) the cost of the suit.
The writ of preliminary injunction issued by this Court on 30 June
1993 enjoining China Banking Corporation, the Sheriff of Manila
and the Register of Deeds of San Juan, their officers,
representatives, agents or persons acting on their behalf from
causing the transfer of possession, ownership and certificate of
title or otherwise disposing of the property covered by TCT No.
410603 in favor of defendant bank or to any other person is
hereby made permanent. The Register of Deeds of San Juan,
Metro Manila is also hereby ordered to cancel all annotations in
TCT No. 410603 in favor of defendant China Banking Corporation
adverse to the rights and interest of plaintiffs.
SO ORDERED.[6]
The trial court ruled that the assignment was made for a valuable consideration and
was executed two years before petitioner China Bank levied the conjugal share of
Alfonso Roxas Chua on TCT 410603. The trial court found that Paulino redeemed
the one-half portion of the property, using therefor the amount of P100,000.00 which
he withdrew from his savings account as evidenced by his bankbook and the
receipts of Metrobank for his payment of the redemption price. The court noted that
Paulino at that time was already of age and had his own source of income.
On appeal, the Court of Appeals affirmed the ruling of the trial court. It held that
petitioner China Bank had been remiss in the exercise of its rights as creditor; and
that it should have exercised its right of redemption under Sections 29 and 30, Rule
39 of the Rules of Court.
The issues raised by petitioner before us essentially boil down to whether or not the
assignment of the right of redemption made by Alfonso Roxas Chua in favor of
private respondent Paulino was done to defraud his creditors and may be rescinded
under Article 1387 of the Civil Code.
Under Article 1381(3) of the Civil Code, contracts which are undertaken in fraud of
creditors when the latter cannot in any manner collect the claims due them, are
rescissible.
The existence of fraud or intent to defraud creditors may either be presumed in
accordance with Article 1387 of the Civil Code or duly proved in accordance with the
ordinary rules of evidence. Article 1387 reads:
Art. 1387. All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered
into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienation by onerous title are also presumed fraudulent when
made by persons against whom some judgment has been
rendered in any instance or some writ of attachment has been
issued. The decision or attachment need not refer to the property
 alienated, and need not have been obtained by the party seeking
rescission.
In addition to these presumptions, the design to defraud creditors
may be proved in any other manner recognized by the law of
evidence.
Hence, the law presumes that there is fraud of creditors when:
a) There is alienation of property by gratuitous title by the debtor
who has not reserved sufficient property to pay his debts
contracted before such alienation; or
b) There is alienation of property by onerous title made by a
debtor against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The
decision or attachment need not refer to the property alienated
and need not have been obtained by the party seeking rescission.
After his conjugal share in TCT 410603 was foreclosed by Metrobank, the only
property that Alfonso Roxas Chua had was his right to redeem the same, it forming
part of his patrimony. "Property" under civil law comprehends every species of title,
inchoate or complete, legal or equitable.
Alfonso Roxas Chua sold his right of redemption to his son, Paulino Roxas Chua, in
1988. Thereafter, Paulino redeemed the property and caused the annotation thereof
at the back of TCT 410603. This preceded the annotation of the levy of execution in
favor of China Bank by two (2) years and the certificate of sale in favor of China
Bank by more than three (3) years. On this basis, the Court of Appeals concluded
that the allegation of fraud made by petitioner China Bank is vague and
unsubstantiated.
Such conclusion, however, runs counter to the law applicable in the case at bar.
Inasmuch as the judgment of the trial court in favor of China Bank against Alfonso
Roxas Chua was rendered as early as 1985, there is a presumption that the 1988
sale of his property, in this case the right of redemption, is fraudulent under Article
1387 of the Civil Code. The fact that private respondent Paulino Roxas Chua
redeemed the property and caused its annotation on the TCT more than two years
ahead of petitioner China Bank is of no moment. As stated in the case of Cabaliw
vs. Sadorra,[7] "the parties here do not stand in equipoise, for the petitioners have in
their favor, by a specific provision of law, the presumption of fraudulent transaction
which is not overcome by the mere fact that the deeds of sale were in the nature of
public instruments."
This presumption is strengthened by the fact that the conveyance has virtually left
Alfonsos other creditors with no other property to attach. It should be noted that the
presumption of fraud or intention to defraud creditors is not just limited to the two
instances set forth in the first and second paragraphs of Article 1387 of the Civil
Code. Under the third paragraph of the same article, the design to defraud creditors
may be proved in any other manner recognized by the law of evidence. In the early
case of Oria vs. Mcmicking,[8] the Supreme Court considered the following instances
as badges of fraud:
1. The fact that the consideration of the conveyance is fictitious or
is inadequate.
2. A transfer made by a debtor after suit has begun and while it is
pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son,
when there are present other of the above circumstances
7. The failure of the vendee to take exclusive possession of all the
property. (Underscoring provided)
Before China Bank obtained judgment against Pacific Multi Agro-Industrial
Corporation and Alfonso Roxas Chua on November 7, 1985, Alfonso Roxas Chua
had only his one-half share of the conjugal property in question to pay his previous
creditor, Metrobank. Even his son, private respondent Paulino Roxas Chua himself,
knew this as shown by the following excerpts of his testimony during the trial:
Q: You said that month before or October 1988 your father
approached you regarding his problem with respect to his
property, subject of this case, can you tell us what in particular did
he tell you about Metrobank?
A: He told me about his problem with Metrobank,about the loan
with Metrobank and Metrobank gonna foreclose his property.
xxxxxxxxx
Q: What did your father tell you regarding his problem?
A: He told me about Metrobank, our house will gonna foreclose
(sic). He cannot pay Metrobank anymore. His business is down.[9]
Despite Alfonso Roxas Chuas knowledge that it is the only property he had which
his other creditors could levy, he still assigned his right to redeem his one-half share
of the conjugal property in question from Metrobank in favor of his son, Paulino.
Alfonsos intent to defraud his other creditors, specifically, China Bank, becomes
even more apparent when we take into consideration the fact that immediately after
the Court of Appeals rendered its Resolution dated September 29, 1988, dismissing
the appeal of Pacific Multi-Agro and Alfonso Roxas Chua in CA-G.R. No. CV-14681
entitled, "China Banking Corporation, Plaintiff-Appellee versus Pacific Multi Agro-
Industrial Corporation, et al., Defendants-Appellants,"[10] he assigned his right to
redeem one-half of the conjugal property to his son on November 21, 1988.
410603 in favor of petitioner is LIFTED. The Assignment of Rights to Redeem dated
November 21, 1988 executed by Alfonso Roxas Chua in favor of Paulino Roxas
Chua is ordered RESCINDED. The levy on execution dated February 4, 1991 and
the Certificate of Sale dated April 30, 1992 in favor of petitioner are DECLARED
VALID against the one-half portion of the subject property.

The Court of Appeals, however, maintained that although the transfer was made SO ORDERED.
between father and son, the conveyance was not fraudulent since Paulino had
indeed paid the redemption price of P1,463,375.39 to Metrobank and the sum of
P100,000.00 to his father. The Court of Appeals reiterated the findings of the trial
court that Paulino at that time had his own source of income, having been given
HK$1Million by his maternal grandmother which he used to invest in a buy-and-sell
business of stuffed toys.

It bears emphasis that it is not sufficient that the conveyance is founded on a
valuable consideration. In the case of Oria vs. Mcmicking,[11] we had occasion to
state that "In determining whether or not a certain conveyance is fraudulent the
question in every case is whether the conveyance was a bona fide transaction or a
trick and contrivance to defeat creditors, or whether it conserves to the debtor a
special right. It is not sufficient that it is founded on good considerations or is made
with bona fide intent: it must have both elements. If defective in either of these,
although good between the parties, it is voidable as to creditors. x x x The test as to
whether or not a conveyance is fraudulent is, does it prejudice the rights of
creditors?"
CALTEX VS PNOC
PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into an
Agreement of Assumption of Obligations ("Agreement").
Among the actions enumerated in the Annexes is Caltex (Phils.), Inc. v.
Luzon Stevedoring Corporation which at that time was pending before the
then Intermediate Appellate Court (IAC) directing LUSTEVECO to pay
Caltex.

The mere fact that the conveyance was founded on valuable consideration does not The Decision of the IAC became final and executory.
necessarily negate the presumption of fraud under Article 1387 of the Civil Code.
There has to be a valuable consideration and the transaction must have been The Regional Trial Court of Manila, issued a writ of execution in favor of
made bona fide.
Caltex. However, the judgment was not satisfied because of the prior
foreclosure of LUSTEVECOs properties.
In the case at bar, the presumption that the conveyance is fraudulent has not been
overcome. At the time a judgment was rendered in favor of China Bank against
Caltex subsequently learned of the Agreement between PSTC and
Alfonso and the corporation, Paulino was still living with his parents in the subject
property. Paulino himself admitted that he knew his father was heavily indebted and LUSTEVECO. Caltex sent successive demands to PSTC asking for the
could not afford to pay his debts. The transfer was undoubtedly made between satisfaction of the judgment rendered by the CFI. PSTC informed Caltex
father and son at a time when the father was insolvent and had no other property to
pay off his creditors. Hence, it is of no consequence whether or not Paulino had that it was not a party to the prior case and thus, PSTC would not pay
given valuable consideration for the conveyance. LUSTEVECOs judgment debt. PSTC advised Caltex to demand satisfaction
of the judgment directly from LUSTEVECO.
With regard to the finding of the Court of Appeals that petitioner was remiss in its
duties for not having availed of redemption under Rule 39 of the Rules of Court, it Caltex filed a complaint for sum of money against PSTC.
should be borne in mind that petitioner is not limited to the procedure outlined in
Rule 39 of the Rules of Court to enforce its claim against its debtor Alfonso Roxas The Issues
Chua. Verily, Article 1387 of the Civil Code clearly states that conveyances made by
the debtor to defraud his creditor may be rescinded. The issues in this case are:

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in
CA-G.R. CV No. 46735 is REVERSED and SET ASIDE. The permanent injunction
enjoining petitioner, the Sheriff of Manila, the Register of Deeds of San Juan, their
officers, representatives, agents and persons acting on their behalf from causing the
transfer of possession, ownership and title of the property covered by TCT No.
1. Whether PSTC is bound by the Agreement when it assumed all
the obligations of LUSTEVECO; and
2. Whether Caltex is a real party in interest to file an action to recover from
PSTC the judgment debt against LUSTEVECO.
The Ruling of this Court
The petition is meritorious.
Caltex May Recover from PSTC Under the Terms of the Agreement
Caltex may recover the judgment debt from PSTC not because of a
stipulation in Caltexs favor but because the Agreement provides that PSTC
shall assume all the obligations of LUSTEVECO.
In this case, LUSTEVECO transferred, conveyed and assigned to PSTC all of
LUSTEVECOs business, properties and assets pertaining to its tanker and
bulk business "together with all the obligations relating to the said
business, properties and assets."
When PSTC assumed all the properties, business and assets of
LUSTEVECO pertaining to LUSTEVECOs tanker and bulk business, PSTC
also assumed all of LUSTEVECOs obligations pertaining to such business.
The Agreement specifically mentions the case between LUSTEVECO
and Caltex, docketed as AC-G.R. CV No. 62613, then pending before
the IAC. The Agreement provides that PSTC may demand and receive any
claim out of counter-suits or counterclaims arising from the actions
enumerated in the Annexes.
Disposition of Assets should not Prejudice Creditors
Even without the Agreement, PSTC is still liable to Caltex.
The disposition of all or substantially all of the assets of a corporation is
allowed under Section 40 of Batas Pambansa Blg. 68, otherwise known as
The Corporation Code of the Philippines ("Corporation Code").
While the Corporation Code allows the transfer of all or substantially all the
properties and assets of a corporation, the transfer should not prejudice the
creditors of the assignor. The only way the transfer can proceed without
prejudice to the creditors is to hold the assignee liable for the obligations of
the assignor. The acquisition by the assignee of all or substantially all of the
assets of the assignor necessarily includes the assumption of the assignors
liabilities, unless the creditors who did not consent to the transfer choose to
rescind the transfer on the ground of fraud. To allow an assignor to transfer
all its business, properties and assets without the consent of its creditors
and without requiring the assignee to assume the assignors obligations will
defraud the creditors. The assignment will place the assignors assets
beyond the reach of its creditors.
In this case, PSTC was aware of the pendency of the case between Caltex
and LUSTEVECO. PSTC assumed LUSTEVECOs obligations, including
specifically any obligation that might arise from Caltexs suit against
LUSTEVECO. The Agreement transferred the unencumbered assets of
LUSTEVECO to PSTC, making any money judgment in favor of Caltex
unenforceable against LUSTEVECO. To allow PSTC to renege on its
obligation under the Agreement will allow PSTC to defraud Caltex. This
militates against the statutory policy of protecting creditors from fraudulent
contracts.
Even if PSTC did not expressly assume to pay the creditors of LUSTEVECO,
PSTC would still be liable to Caltex up to the value of the assets transferred.
The transfer of all or substantially all of the unencumbered assets of
LUSTEVECO to PSTC cannot work to defraud the creditors of LUSTEVECO.
A creditor has a real interest to go after any person to whom the debtor
fraudulently transferred its assets.
WHEREFORE, we REVERSE and SET ASIDE the 31 May 2001
FLORO ENTERPRISES VS CA
In this Petition for Review, Floro Enterprises, Inc. seeks to set aside the decision of
the Court of Appeals in CA-G.R. CV No. 27602 which reversed the decision of the
Regional Trial Court, Branch 16, Manila, in the action for replevin with damages
instituted by herein petitioner Floro Enterprises, Inc. ("Floro, Inc.") against herein
private respondent Philippine Rabbit Bus Lines, Inc. ("Phil. Rabbit ").
On 25 February 1981, Floro, Inc. and Phil. Rabbit entered into an agreement
denominated as "Agreement for Equipment Lease, Service and Maintenance"
whereby Floro, Inc. agreed to furnish Phil. Rabbit with certain computer equipment
including four (4) Model 85 Visual Display Units or monitors. Appearing on the
bottom portion of the Agreement was a handwritten annotation made by Mr. Ernesto
P. Lagman, a sales representative of Floro, Inc., which read: "After (5) five years,
the computer becomes your property."
The Agreement provided for the payment by Phil. Rabbit to Floro, Inc. of a
downpayment upon signing of the Agreement and certain monthly payments, plus
certain other amounts upon delivery of the computer equipment. 1The computer
equipment specified in the Agreement was delivered to Phil. Rabbit on September
1981 except for the four (4) Model 85 monitors. In lieu thereof, Floro, Inc. delivered
and installed Model 82 monitors. Phil. Rabbit made several verbal and written
demands on Floro, Inc. to deliver the Model 85 monitors. Upon assurances made by
Floro, Inc. that the Model 85 monitors "will be forthcoming", Phil. Rabbit made
several payments in accordance with the terms of the Agreement. However, despite
the assurances made by Floro, Inc., the Model 85 monitors were never delivered to
Phil. Rabbit.
On 10 January 1983, Phil. Rabbit wrote Floro, Inc. asking for the cancellation of the
Agreement alleging that the computers were not placed in full operation due to the
nondelivery of the Model 85 monitors. In a letter dated 4 February 1983, Floro, Inc.
expressed its conformity to the "mutual cancellation" of the Agreement and
demanded the return of the computer equipment. Phil. Rabbit informed Floro, Inc.
that the computer equipment would be returned only upon the reimbursement of the
amount of P295,169.00, which the former had already paid the latter.
On 31 May 1983, Floro, Inc. wrote Phil. Rabbit reiterating its demand for the return
of the equipment and payment of back rentals in the amount of P265,291.50. Phil.
Rabbit insisted on the return of the payments it had previously made. On 10 August
1983, Floro, Inc. proposed to put the computer systems in operating condition and
to start the "lease contract" all over again for another sixty (60) months but crediting
under the new contract the monthly rentals already paid by Phil. Rabbit. No
agreement was reached by the parties.
On 27 July 1984, Floro, Inc. filed in the Regional Trial Court ("RTC"), Branch 16,
Manila, an action to recover possession of the computer equipment through a writ of
replevin, unpaid rentals, damages for depreciation and attorney's fees.
The RTC rendered judgment ordering Phil. Rabbit to pay Floro, Inc. the sums of
P291,008.36 as back rental payments, P8,000.00 as attorney's fees and the costs
of suit. 2 The trial court characterized the Agreement between the parties as one of
lease and ruled that the handwritten annotation made by Mr. Ernesto P. Lagman on
the Agreement was not authorized by Floro, Inc. The trial court also held that Phil.
Rabbit was not entitled to reimbursement of the amounts it had paid to Floro, Inc.
since it had been able to make use of the computer equipment for its operations
despite the nondelivery of the Model 85 monitors. 3
On appeal, the Court of Appeals ("CA") reversed the decision of the trial court. The
CA characterized the agreement between the parties as one of sale on an
installment basis and not of lease. That the intention of Phil. Rabbit and Floro, Inc.
was to enter into a contract of sale on installment was found by the CA to have been
sufficiently established by the handwritten annotation made by Mr. Ernesto P.
Lagman on the bottom portion of the Agreement stating: "After (5) five years, the
computer becomes your property." 4
The CA did not give credence to the contention of Floro, Inc. that it did not authorize
Mr. Lagman to make said annotation on its behalf. Respondent appellate court
noted that Floro, Inc. did not express any objection to the annotation despite
knowledge of the existence thereof. In addition, officers of Floro Inc. who were
presented as its witnesses testified to the effect that the transaction between Phil.
Rabbit and Floro, Inc. had been one of sale on an installment basis. 5
Since the parties had agreed to a mutual cancellation of the Agreement, respondent
appellate court ordered each to restore to the other what each had received under
the Agreement in accordance with Article 1385 of the Civil Code. The computer
equipment had been previously returned to Floro, Inc. by virtue of the writ of
replevin issued by the trial court. The CA found that Phil. Rabbit had been able to
make use of the computer equipment for a period of six (6) months; hence, Phil.
Rabbit was ordered to pay the sum of P120,564.00 to be deducted from the sum of
P295,169.00 which it had already paid to Floro, Inc. For its part, Floro, Inc. was
ordered to return the balance of P174,605.00. 6
Floro, Inc. filed this Petition for Review on Certiorari praying for the reversal of the
decision of the CA and the reinstatement of the RTC decision. 7
Specifically, Floro, Inc. takes exception to the finding of respondent
appellate court that the Agreement between the parties was one of sale on
installment and not of lease. Floro, Inc. maintains that it was not bound by
the annotation made by Mr. Lagman on the Agreement as it did not
authorize the latter to make said annotation.
It would seem that the issue to be resolved in this case is whether the contract
entered into by petitioner Floro, Inc. and private respondent Phil. Rabbit was one of
sale on installment basis, as found by the CA, or one of lease, as found by the RTC.
However, the Court does not see any real need for resolving this issue in view of the
fact that the parties had agreed to a mutual cancellation of their transaction. As
established by both respondent appellate court and the trial court, on 10 January
1983 private respondent Phil. Rabbit wrote petitioner Floro, Inc. asking for the
cancellation of the Agreement and the latter, through a letter dated 4 February 1983,
communicated to the former its conformity thereto. 8 Whether the contract is
characterized as a sale or a lease, the consequences of the cancellation would be
the same. The parties are to be restored to their original positions inter se as far as
practicable.
When petitioner Floro, Inc. failed to deliver the Model 85 monitors, private
respondent Phil. Rabbit would have been entitled to refuse to pay the full amount
stipulated in the Agreement. However, private respondent Phil. Rabbit opted to
cancel the Agreement, to which petitioner Floro, Inc. expressed its conformity. In
legal effect, the parties entered into another contract for the dissolution of the
previous one, and they are bound by that contract. The dissolution or the
cancellation of the original Agreement necessarily involves restoration of the parties
to the status quo ante prevailing immediately prior to the execution of the
Agreement i.e. the computer equipment reverts back to petitioner Floro, Inc. and
private respondent Phil. Rabbit is reimbursed the amounts it had paid to the former.
However, in this case, Phil. Rabbit cannot reasonably demand reimbursement for
the full amount it had paid to petitioner Floro, Inc. because it cannot be gainsaid that
Phil. Rabbit had utilized the computer equipment for its operations and benefitted
from such use. Phil. Rabbit cannot be allowed to unjustly enrich itself at the expense
of Floro, Inc.
Hence, respondent appellate court was correct in ordering the parties to restore to
each other what each of them had received under the contract but taking into
account the use by private respondent Phil. Rabbit of the computer equipment.
However, it was not quite correct in invoking, in this connection, Article 1385 of the
Civil Code. Article 1385 refers to contracts that are rescissible for causes specified
in Articles 1381 and 1382 of the Civil Code but it does not refer to contracts that are
dissolved by mutual consent of the
parties. 9 Rather, the mutual restoration is in consonance with the basic principle that
when an obligation has been extinguished or resolved, it is the duty of the court to
require the parties to surrender whatever they may have received from the other so
that they may be restored, as far as practicable, to their original situation. 10
Petitioner Floro, Inc. had already been able to recover the computer equipment
through the writ of replevin issued by the trial court in its favor. Upon the other hand,
on the basis of the records of the case, respondent appellate court ordered Phil.
Rabbit to pay petitioner Floro, Inc. the sum of P120,564.00 representing payment
for the use of the computer equipment for a period of approximately six (6) months,
said amount to be deducted from the sum of P295,169.00 which had already been
paid to the latter. Floro, Inc. was accordingly ordered to return to Phil. Rabbit the
remaining balance of P174,605.00. The Court finds no reason to disturb this finding
by the CA there being no showing that the same was based on a misapprehension
of facts or constituted grossly excessive imputed compensation for the period of use
by Phil. Rabbit.
The Court sees no need to resolve the other issues raised in the petition.
WHEREFORE, finding no reversible error on the part of respondent Court of
Appeals, the Court Resolved to DENY the Petition for Review on Certiorari and the
decision in CA-G.R. CV No. 27602 is hereby AFFIRMED.