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[G.R. No. 121559.

June 18, 1998]

XENTREX AUTOMOTIVE, INC., Petitioner vs. COURT OF APPEALS, MAC-ARTHUR M. SAMSON AND
GERTRUDES C. SAMSON, Respondents.

RESOLUTION
QUISUMBING, J.:

This petition for review on certiorari seeks to reserve respondent appellate court's decision promulgated on
July 31, 1995 affirming the judgment of the Regional Trial Court which ruled as follows:

"WHEREFORE, jusgment is hereby rendered in favor of palintiffs and against the defendant ordering the latter to
pay the former, the following:

1. Moral Damages of P100,000.00 for besmirched reputation, wounded feelings, moral shock, social humilation,
and the like suffered by the plaintiffs;

2. Nominal damages of P50,000.00 in order that the rights of the plaintiffs which have been violated may be
vindicated;

3. Exempalry or corrective damages of P50,000.00 by way of example or correction for public good;

4. Attorneys fees of P20,000.00 and litigation expenses of P6,00.00;

In addition, defendant is ordered to re-imburse (sic) palintiffs the amount of P250,000.00 reperesenting the
advance payment of the car made by the plaintiffs to the defendant, and to pay cost.

SO ORDERED."[1]

Petitioner is a dealer of motor vehicles. On October 25, 1991, private respondents went to petitioner to
purchase a brand new car, a 1991 Nissan Sentra Super Saloon A/T model, valued at P494,000.00. Private
respondents, made an initial deposit of P50,000.00; petitioner issued the corresponding official receipt (O.R. No.
6504). The balance was to be paid thru bank financing. Pending the processing of their application for financing,
private respondents paid an additional P200,000.00. to petitioner which was covered by another receipt (O.R. NO.
6547). Eventually, due to the slow pace in the processing of their application for financing, private respondents
decided to pay the remaining balance on November 6, 1991 by tendering a check in the amount of P250,000.00. As
it turned out however, to private respondent's shock and disppointment, the car had already been sold to another
buyer without their knowledge, prompting them to send a demand letter to petitioner asking the latter to comply
with its obligation to deliver the car. Their demand inheeded, private respondents (plaintiffs below) filed a suit for
breach of contract and damages before the Regional Trial Court of Dagupan City, Branch 42. Denying any liability,
petitioner (defendant below) alleged that the complaint stated no cause of action. After trial, judgment was
rendered by the trial court in private respondents' favor. On appeal by petitioner, theCourt of Appeals affirmed the
decision of the trial court.[2]
It is petitioner's main contention that both the trial and the appellate courts erred in adjusting it liable for
breach of contract and damages. Petitioner argues that there was no perfected contract of sale between the parties
due to private respondents' failure to comply with their obligation to pay the purchase price of the car in full. Thus,
petitioner asserts that it has no obligation to deliver the car to private respondents and therefore could not be held
liable for breach of contract of sales as confirmed by the findings of the trial court and in turn affirmed by the court
of Appeals; hence, petitioner should be held liable for breach of contract for failing to deliver the car to them
We find that the instant petition lacks merit. The issues raised by petitioner are essentially factual matters, the
determination of which are best left to the court below. Well-settled is the rule that factual findings of the lower
courts are entitled to great weight and respect on appeal, and in fact accorded finality when supported by
substantial evidence on the record as in the case.[3] Undoubtedly, there was a perfected contract of sale between
the petitioner and private respondents as confirmed by the trial court when it found that "[b] y accepting a deposit
of P50,000.00 and by pulling out a unit of Philippine Nissan 1.6 cc Sentra Automatic (Flamingo red), defendant
obliged itself to sell to the plaintiffs a determinate thing of a price certain in money which
was P494,000.00".[4] Resultingly, petitioner committed a breach of contract when it allowed the unit in question to
be sold to another buyer to the prejudice of private respondents. The Court of Appeals gave complate accord to the
aforementioned findings and affirmed the same in its decision.[5] In this regard it must be emphasized that the
prevailing rule is that the findings of fact of the trial court, particularly when affirmed by the Court of Appeals, are
binding upon this Court.[6] We have scrutinized the record of this case and found no reason to deviate from the
findings of the court a quo as they are consistent with the law and the evidence on record. Article 1475 of the New
Civil Code is very explicit the "[t]he contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provision of the law governing the form of contracts." Contrary,
therefore, to petitioner's assertion, both the trial court and the Court of Appeals did not commit reversible error in
declaring that there was indeed a perfected contract of sale and that petitioner breached the same when it failed to
deliver the car to private respondents.
However, with respect to the damages awarded to private respondent, the Court cannot sustain the same in its
entirety.
The award for exemplary damages in this case is unwarranted because there is no showing that petitioner
acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.[7] In the same vein, the grant of nominal
damages must also be deleted because the factual basis for such not has been established.
Nevertheless, We sustain the award of moral damages considering private respondent Macarthur Samson's
testimony that he suffered from shock and embarrassment as a result of petitioner's failure to comply with its
obligation.[8] This is consistent with our pronouncement in Tan vs. Court of Appeals[9] and American Express
International, Inc. vs. IAC[10] that "[w]hile petitioner was not in bad faith, its negligence caused the private
respondent to suffer mental anguish, serious anxiety, embarrassment and humiliation, for which he is entitled to
recover reasonable moral damages (Art. 2217, Civil Code)." We however find the amount of P100,000.00 as moral
damages excessive and exorbitant in this case, bearing in mind that these damages are not intended to enrich the
complainant at the expense of the defendant.[11] The amount of P10,000.00 as moral damages is herein deemed
reasonable. Anent the amount of attorney's fees, We also find it proper to reduce the same P10,000.00.
WHEREFORE, the dispositive portion of the decision of the Court of Appeals dated July 31, 1995 is hereby
MODIFIED and judgment is herein rendered ordering herein petitioner to pay private respondents the following
amounts:

1) Moral Damages of 10,000.00 for the shock and embarrassment suffered by private respondent as a result of
petitioner's failure to comply with its obligation.

2) Attorney's fees of P10,000.00 and litigation expenses in the sum of P6,000.00.

3) The amount of P250,000.00 representing the advance payment of the car made by private respondent to
petitioner plus legal interest computed from the time of the filinh of complaint.

Cost against petitioner.


SO ORDERED
[ G.R. No. 186264, July 08, 2013 ]

DR. LORNA C.FORMARAN, PETITIONER, VS. DR. GLENDA B. ONG AND SOLOMON S. ONG, RESPONDENTS.

DECISION

PEREZ, J.:
This is an Appeal by certiorari under Rule 45 of the Revised Rules of Court of the Decision1 of the Court of Appeals
(CA) rendered on August30, 2007, the dispositive portion of which reads as follows:

"WHEREFORE, in the (sic) light of the foregoing, the assailed Decision is REVERSED AND SET ASIDE. The
Complaint of appellee Lorna C. Formaran is DISMISSED. The appellee, her agents or representatives
are ORDERED to vacate the land in question and to restore the same to appellants."

The facts adopted by both the trial court and the Court of Appeals are summarized thus:

"According to plaintiff (Petitioner)'s complaint, she owns the afore-described parcel of land which was donated to
her intervivosby [her] uncle and aunt, spouses Melquiades Barraca and Praxedes Casidsid on June 25, 1967; that on
August 12, 1967 upon the proddings and representation of defendant (Respondent) Glenda, that she badly needed
a collateral for a loan which she was applying from a bank to equip her dental clinic, plaintiff made it appear that
she sold one-half of the afore- described parcel of land to the defendant Glenda; that the sale was totally without
any consideration and fictitious; that contrary to plaintiff's agreement with defendant Glenda for the latter to
return the land, defendant Glenda filed a case for unlawful detainer against the plaintiff who consequently suffered
anxiety, sleepless nights and besmirched reputation; and that to protect plaintiff's rights and interest over the land
in question, she was constrained to file the instant case, binding herself to pay P50,000.00 as and for attorney's
fees.

In an answer filed on December 22, 1997, defendant Glenda insisted on her ownership over the land in question on
account of a Deed of Absolute Sale executed by the plaintiff in her favor; and that plaintiff's claim of ownership
therefore was virtually rejected by the Municipal Circuit Trial Court of Ibaja-Nabas, Ibajay, Aklan, when it decided
in her favor the unlawful detainer case she filed against the plaintiff, docketed therein as Civil Case No. 183.
Defendants are also claiming moral damages and attorney's fees in view of the filing of the present case against
them.

Plaintiff's testimony tends to show that the land in question is part of the land donated to her on June 25, 1967 by
spouses Melquiades Barraca and Praxedes Casidsid, plaintiff's uncle and aunt, respectively. As owner thereof, she
declared the land for taxation purposes (Exhibits A-1 to A-5, inclusive). She religiously paid its realty taxes (Exhibit
A-6). She mortgaged the land to Aklan Development Bank to secure payment of a loan.

In 1967, defendant Glenda and her father, Melquiades Barraca came to her residence asking for help. They were
borrowing one-half of land donated to her so that defendant Glenda could obtain a loan from the bank to buy a
dental chair. They proposed that she signs an alleged sale over the said portion of land.

Acceding to their request, she signed on August 12, 1967 a prepared Deed of Absolute Sale (Exhibit C) which they
brought along with them (TSN, p. 22, Ibid), covering the land in question without any money involved. There was
no monetary consideration in exchange for executing Exhibit C. She did not also appear before the Notary Public
Edilberto Miralles when Exhibit C was allegedly acknowledged by her on November 9, 1967.

A month thereafter, plaintiff inquired from her uncle, Melquiades Barracca if they have obtained the loan. The
latter informed her that they did not push through with the loan because the bank's interest therefore was high.
With her uncle's answer, plaintiff inquired about Exhibit C. Her uncle replied that they crampled (kinumos) the
Deed of Absolute Sale (Exhibit C) and threw it away. Knowing that Exhibit C was already thrown away, plaintiff did
not bother anymore about the document (TSN, p. 7, Ibid) she thought that there was no more transaction. Besides,
she is also in actual possession of the land and have even mortgaged the same.
eee
In 1974, plaintiff transferred her residence from Nabas, Aklan, to Antipolo City where she has been residing up to
the present time. From the time she signed the Deed of Absolute Sale (Exhibit C) in August, 1967 up to the present
time of her change of residence to Antipolo City, defendant Glenda never demanded actual possession of the land in
question, except when the latter filed on May 30, 1996 a case for unlawful detainer against her. Following the filing
of the ejectment case, she learned for the first time that the Deed of Absolute Sale was registered on May 25, 1991
and was not thrown away contrary to what Melquiades Barraca told her. Moreover, she and Melquiades Barraca
did not talk anymore about Exhibit C. That was also the first time she learned that the land in question is now
declared for taxation purposes in the name of defendant Glenda.

In closing her direct testimony, plaintiff declared that the filing of the unlawful detainer case against her, caused
her some sleepless nights and humiliation. She also suffered hypertension.

Upon the other hand, relevant matters that surfaced from the testimonies of the defendants shows that on June 25,
1967, Melquiades Barraca, father of the defendant Glenda, donated a parcel of land to her niece, plaintiff Lorna C.
Formaran (Exhibit 3). At the time of the donation, plaintiff was still single. She married Atty. Formaran only in
September, 1967.

Subsequently, on August 12, 1967, Dr. Lorna B. Casidsid, herein plaintiff, executed a Deed of Absolute Sale (Exhibit
1) over one-half portion of the land donated to her, in favor of defendant Glenda. On account of the Sale (Exhibit 1)
defendant Glenda was able to declare in her name the land in question for taxation purposes (Exhibit 4) and paid
the realty taxes (Exhibits 6, 6-A, 6-B and 6-C). She also was able to possess the land in question.

Defendant Glenda maintained that there was money involved affecting the sale of the land in her favor. The sale
was not to enable her to buy a dental chair for she had already one at the time. Besides, the cost of a dental chair in
1967 was only P2,000.00 which she can readily afford.

The document of sale (Exhibit 1) affecting the land in question was not immediately registered after its execution
in 1967 but only on May 25, 1991 in order to accommodate the plaintiff who mortgaged the land to Aklan
Development Bank on May 18, 1978.

Based on the admissions of the parties in their pleadings, during the pre-trial and evidence on record, there is no
contention that on June 25, 1967, the afore-described parcel of land was donated intervivos (Exhibit 3) by spouses
Melquiades Barraca and Praxedes Casidsid to therein plaintiff, Dr. Lorna Casidsid Formaran who was yet single.
She was married to Atty. Formaran in September 1967. Praxedes was the aunt of Lorna as the latter's father was
the brother of Praxedes.

Following the donation, plaintiff immediately took possession of the land wherein one-half (1/2) thereof is the land
in question. Since then up to the present time, is still in actual possession of the land, including the land in question.

Indeed, on May 30, 1996, herein defendant Glenda filed a complaint for unlawful detainer against the plaintiff
before the 7thMunicipal Circuit Trial Court of Ibajay-Nabas, Ibajay, Aklan, docketed there in as Civil Case No. 183.
The case was decided on September 2, 1997, (Exhibit 2) in favor of herein defendant Glenda; ordering the herein
plaintiff to vacate the land in question.

After the plaintiff acquired ownership by way of donation over the afore-described parcel of land which includes
the land in question, she declared the same for taxation purposes under Tax Declaration No. 12533, effective 1969
(Exhibit A-1). Revision caused the subsequent and successive cancellation of Exhibit A-1 by Tax Declaration No.
177, effective 1974 (Exhibit A-2); Tax Declaration No. 183 effective 1980 (Exhibit A-3); Tax Declaration No. 187,
effective 1985 (Exhibit A-4); PIN-038-14-001-06-049, effective 1990 (Exhibit A-5); and APP/TD No. 93-001-330,
effective 1994 (Exhibit A-6).

The last two Tax Declarations (Exhibits A-5 and A-6) no longer covered the land in question which was segregated
therefrom when the Deed of Sale executed on August 12, 1967 (Exhibit C) was registered for the first time on May
25, 1991.

Realty taxes of the afore-described parcel of land, including the land in question, have been paid by the plaintiff
since 1967 up to the present time (Exhibit B). However, defendant Glenda paid for the first time the realty taxes of
the land in question on January 9, 1995 (Exhibit 6) and up to the present time (Exhibit 6-A and 6- B).

On account of the Deed of Absolute Sale (Exhibit C or 1) signed by the plaintiff, during the cadastral survey, the
land in question was surveyed in the name of defendant and designated as Lot No. 188 (Exhibit 5) and the other
half on the western side was designated as Lot No. 189. The land in question is particularly described as follows:

A parcel of residential land (Lot No. 188, Cad. Aklan, Bounded on North by Lot No. 196; on the East by Lot No. 187; on
the West by Lot No. 189 all of Cad. No. 758-D; and on the South by Mabini St., containing an area of THREE HUNDRED
FIFTY SEVEN (357) SQUARE METERS, more or less."

Petitioner filed on action for annulment of the Deed of Sale (Civil Case No. 5398) against respondents before the
Regional Trial Court (RTC), of Kalibo, Aklan, Branch 5.

On December 3, 1999, the trial court rendered a Decision in favor of petitioner and against the respondent by
declaring the Deed of Absolute Sale null and void for being an absolutely simulated contract and for want of
consideration; declaring the petitioner as the lawful owner entitled to the possession of the land in question; as
well as ordering (a) the cancellation of respondent Glenda's Tax Declaration No. 1031, and (b) respondents to pay
petitioner P25,000.00 for attorney's fees and litigation expenses.

Respondents coursed an appeal to the CA. The CA, on August 30, 2007, reversed and set aside the Decision of the
trial court and ordered petitioner to vacate the land in question and restore the same to respondents.

Hence, the present petition.

The petition sufficiently shows with convincing arguments that the decision of the CA is based on a
misappreciation of facts.

The Court believes and so holds that the subject Deed of Sale is indeed simulated,[2] as it is: (1) totally devoid of
consideration; (2) it was executed on August 12, 1967, less than two months from the time the subject land was
donated to petitioner on June 25, 1967 by no less than the parents of respondent Glenda Ong; (3) on May 18, 1978,
petitioner mortgaged the land to the Aklan Development Bank for a P23,000.00 loan; (4) from the time of the
alleged sale, petitioner has been in actual possession of the subject land; (5) the alleged sale was registered on May
25, 1991 or about twenty four (24) years after execution; (6) respondent Glenda Ong never introduced any
improvement on the subject land; and (7) petitioner's house stood on a part of the subject land. These are facts and
circumstances which may be considered badges of bad faith that tip the balance in favor of petitioner.

The Court is in accord with the observation and findings of the (RTC,[3] Kalibo, Aklan) thus:

"The amplitude of foregoing undisputed facts and circumstances clearly shows that the sale of the land in question
was purely simulated. It is void from the very beginning (Article 1346, New Civil Code). If the sale was legitimate,
defendant Glenda should have immediately taken possession of the land, declared in her name for taxation
purposes, registered the sale, paid realty taxes, introduced improvements therein and should not have allowed
plaintiff to mortgage the land. These omissions properly militated against defendant Glenda's submission that the
sale was legitimate and the consideration was paid.

While the Deed of Absolute Sale was notarized, it cannot justify the conclusion that the sale is a true conveyance to
which the parties are irrevocably and undeniably bound. Although the notarization of Deed of Absolute Sale, vests
in its favor the presumption of regularity, it does not validate nor make binding an instrument never intended, in
the first place, to have any binding legal effect upon the parties thereto (Suntay vs. Court of Appeals, G.R. No.
114950, December 19, 1995; cited in Ruperto Viloria vs. Court of Appeals, et al., G.R. No. 119974, June 30, 1999)."

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals rendered on August 30, 2007 in CA
G.R. CV No. 66187 is hereby REVERSED and SET ASIDE. The Decision of the Regional Trial Court, Branch 5, Kalibo,
Aklan in Civil Case No. 5398 dated December 3, 1999 is REINSTATED.

SO ORDERED.

G.R. No. 89775 November 26, 1992

JACINTO UY DIO and NORBERTO UY, petitioners,


vs.
HON. COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents.

DAVIDE, JR., J.:

Continuing Suretyship Agreements signed by the petitioners set off this present controversy.

Petitioners assail the 22 June 1989 Decision of the Court in CA-G.R. CV No. 17724 1 which reversed the 2 December
1987 Decision of Branch 45 of the Regional Trial Court (RTC) of Manila in a collection suit entitled "Metropolitan
Bank and Trust Company vs. Uy Tiam, doing business under the name of "UY TIAM ENTERPRISES & FREIGHT
SERVICES," Jacinto Uy Dio and Norberto Uy" and docketed as Civil Case No. 82-9303. They likewise challenge
public respondent's Resolution of 21 August 1989 2 denying their motion for the reconsideration of the former.

The impugned Decision of the Court summarizes the antecedent facts as follows:

It appears that in 1977, Uy Tiam Enterprises and Freight Services (hereinafter referred to as
UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of
credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company
(hereinafter referred to as METROBANK) in the sum of P700,000.00 (Original Records, p. 333). To
secure the aforementioned credit accommodations Norberto Uy and Jacinto Uy Dio executed
separate Continuing Suretyships (Exhibits "E" and "F" respectively), dated 25 February 1977, in
favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay METROBANK any
indebtedness of UTEFS up to the aggregate sum of P300,000.00 while Jacinto Uy Dio agreed to be
bound up to the aggregate sum of P800,000.00.

Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy Tiam,
obtained another credit accommodation from METROBANK in 1978, which credit accommodation
was fully settled before an irrevocable letter of credit was applied for and obtained by the
abovementioned business entity in 1979 (September 8, 1987, tsn, pp. 14-15).

The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum of P815, 600.00,
covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0." It was
applied for and obtain by UTEFS without the participation of Norberto Uy and Jacinto Uy Dio as
they did not sign the document denominated as "Commercial Letter of Credit and Application."
Also, they were not asked to execute any suretyship to guarantee its payment. Neither did
METROBANK nor UTEFS inform them that the 1979 Letter of Credit has been opened and the
Continuing Suretyships separately executed in February, 1977 shall guarantee its payment
(Appellees brief, pp. 2-3; rollo, p. 28).

The 1979 letter of credit (Exhibit "B") was negotiated. METROBANK paid Planters Products the
amount of P815,600.00 which payment was covered by a Bill of Exchange (Exhibit "C"), dated 4
June 1979, in favor of (Original Records, p. 331).

Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK and
Trust Receipt (Exh. "D"), dated 4 June 1979, whereby the former acknowledged receipt in trust
from the latter of the aforementioned goods from Planters Products which amounted to P815,
600.00. Being the entrusted, the former agreed to deliver to METROBANK the entrusted goods in
the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2, 1979.

However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a
consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy
and Jacinto Uy Dio, demanding payment of the amount due. Informed of the amount due, UTEFS
made partial payments to the Bank which were accepted by the latter.

Answering one of the demand letters, Dio, thru counsel, denied his liability for the amount
demanded and requested METROBANK to send him copies of documents showing the source of his
liability. In its reply, the bank informed him that the source of his liability is the Continuing
Suretyship which he executed on February 25, 1977.

As a rejoinder, Dio maintained that he cannot be held liable for the 1979 credit accommodation
because it is a new obligation contracted without his participation. Besides, the 1977 credit
accommodation which he guaranteed has been fully paid.

Having sent the last demand letter to UTEFS, Dio and Uy and finding resort to extrajudicial
remedies to be futile, METROBANK filed a complaint for collection of a sum of money (P613,339.32,
as of January 31, 1982, inclusive of interest, commission penalty and bank charges) with a prayer
for the issuance of a writ of preliminary attachment, against Uy Tiam, representative of UTEFS and
impleaded Dio and Uy as parties-defendants.

The court issued an order, dated 29 July 1983, granting the attachment writ, which writ was
returned unserved and unsatisfied as defendant Uy Tiam was nowhere to be found at his given
address and his commercial enterprise was already non-operational (Original Records, p. 37).

On April 11, 1984, Norberto Uy and Jacinto Uy Dio (sureties-defendant herein) filed a motion to
dismiss the complaint on the ground of lack of cause of action. They maintained that the obligation
which they guaranteed in 1977 has been extinguished since it has already been paid in the same
year. Accordingly, the Continuing Suretyships executed in 1977 cannot be availed of to secure Uy
Tiam's Letter of Credit obtained in 1979 because a guaranty cannot exist without a valid obligation.
It was further argued that they can not be held liable for the obligation contracted in 1979 because
they are not privies thereto as it was contracted without their participation (Records, pp. 42-46).

On April 24, 1984, METROBANK filed its opposition to the motion to dismiss. Invoking the terms
and conditions embodied in the comprehensive suretyships separately executed by sureties-
defendants, the bank argued that sureties-movants bound themselves as solidary obligors of
defendant Uy Tiam to both existing obligations and future ones. It relied on Article 2053 of the new
Civil Code which provides: "A guaranty may also be given as security for future debts, the amount of
which is not yet known; . . . ." It was further asserted that the agreement was in full force and effect
at the time the letter of credit was obtained in 1979 as sureties-defendants did not exercise their
right to revoke it by giving notice to the bank. (Ibid., pp. 51-54).
Meanwhile, the resolution of the aforecited motion to dismiss was held in abeyance pending the
introduction of evidence by the parties as per order dated February 21, 1986 (Ibid., p. 71).

Having been granted a period of fifteen (15) days from receipt of the order dated March 7, 1986
within which to file the answer, sureties-defendants filed their responsive pleading which merely
rehashed the arguments in their motion to dismiss and maintained that they are entitled to the
benefit of excussion (Original Records, pp. 88-93).

On February 23, 1987, plaintiff filed a motion to dismiss the complaint against defendant Uy Tiam
on the ground that it has no information as to the heirs or legal representatives of the latter who
died sometime in December, 1986, which motion was granted on the following day (Ibid., pp. 180-
182).

After trial, . . . the court a quo, on December 2, 198, rendered its judgment, a portion of which reads:

The evidence and the pleadings, thus, pose the querry (sic):

Are the defendants Jacinto Uy Dioand Norberto Uy liable for the obligation
contracted by Uy Tiam under the Letter of Credit (Exh. B) issued on March 30, 1987
by virtue of the Continuing Suretyships they executed on February 25, 1977?

Under the admitted proven facts, the Court finds that they are not.

a) When Uy and Dio executed the continuing suretyships, exhibits E and F, on


February 25, 1977, Uy Tiam was obligated to the plaintiff in the amount of
P700,000.00 and this was the obligation which both obligation which both
defendants guaranteed to pay. Uy Tiam paid this 1977 obligation and such
payment extinguished the obligation they assumed as guarantors/sureties.

b) The 1979 Letter of Credit (Exh. B) is different from the 1977 Letter of Credit
which covered the 1977 account of Uy Tiam. Thus, the obligation under either is
apart and distinct from the obligation created in the other as evidenced by the
fact that Uy Tiam had to apply anew for the 1979 transaction (Exh. A). And Dio and
Uy, being strangers thereto, cannot be answerable thereunder.

c) The plaintiff did not serve notice to the defendants Dio and Uy when it extended
to Credit at least to inform them that the continuing suretyships they executed on
February 25, 1977 will be considered by the plaintiff to secure the 1979 transaction
of Uy Tiam.

d) There is no sufficient and credible showing that Dio and Uy were fully informed
of the import of the Continuing Suretyships when they affixed their signatures
thereon that they are thereby securing all future obligations which Uy Tiam may
contract the plaintiff. On the contrary, Dio and Uy categorically testified that they
signed the blank forms in the office of Uy Tiam at 623 Asuncion Street, Binondo,
Manila, in obedience to the instruction of Uy Tiam, their former employer. They
denied having gone to the office of the plaintiff to subscribe to the documents
(October 1, 1987, tsn, pp. 5-7, 14; October 15, 1987, tsn, pp. 3-8, 13-16). (Records,
pp. 333-334). 3

xxx xxx xxx

In its Decision, the trial court decreed as follows:


PREMISES CONSIDERED, judgment is hereby rendered:

a) dismissing the COMPLAINT against JACINTO UY DIO and NORBERTO UY;

b) ordering the plaintiff to pay to Dio and Uy the amount of P6,000.00 as attorney's fees and
expenses of litigation; and

c) denying all other claims of the parties for want of legal and/or factual basis.

SO ORDERED. (Records, p. 336) 4

From the said Decision, the private respondent appealed to the Court of Appeals. The case was docketed as CA-G.R.
CV No. 17724. In support thereof, it made the following assignment of errors in its Brief:

I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT DEFENDANTS-
APPELLEES JACINTO UY DIO AND NORBERTO UY ARE SOLIDARILY LIABLE TO PLAINTIFF-
APPELLANT FOR THE OBLIGATION OF DEFENDANT UY TIAM UNDER THE LETTER OF CREDIT
ISSUED ON MARCH 30, 1979 BY VIRTUE OF THE CONTINUING SURETYSHIPS THEY EXECUTED ON
FEBRUARY 25, 1977.

II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT IS ANSWERABLE TO


DEFENDANTS-APPELLEES JACINTO UY DIO AND NORBERTO UY FOR ATTORNEY'S FEES AND
EXPENSES OF LITIGATION. 5

On 22 June 1989, public respondent promulgated the assailed Decision the dispositive portion of which reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED AND SET,
ASIDE. In lieu thereof, another one is rendered:

1) Ordering sureties-appellees Jacinto Uy Dio and Norberto Uy to pay, jointly and


severally, to appellant METROBANK the amount of P2,397,883.68 which represents
the amount due as of July 17, 1987 inclusive of principal, interest and charges;

2) Ordering sureties-appellees Jacinto Uy Dio and Norberto Uy to pay, jointly and


severally, appellant METROBANK the accruing interest, fees and charges thereon
from July 18, 1987 until the whole monetary obligation is paid; and

3) Ordering sureties-appellees Jacinto Uy Dio and Norberto Uy to pay, jointly and


severally, to plaintiff P20,000.00 as attorney's fees.

With costs against appellees.

SO ORDERED. 6

In ruling for the herein private respondent (hereinafter METROBANK), public respondent held that the Continuing
Suretyship Agreements separately executed by the petitioners in 1977 were intended to guarantee payment of Uy
Tiam's outstanding as well as future obligations; each suretyship arrangement was intended to remain in full force
and effect until METROBANK would have been notified of its revocation. Since no such notice was given by the
petitioners, the suretyships are deemed outstanding and hence, cover even the 1979 letter of credit issued by
METROBANK in favor of Uy Tiam.

Petitioners filed a motion to reconsider the foregoing Decision. They questioned the public respondent's
construction of the suretyship agreements and its ruling with respect to the extent of their liability thereunder.
They argued the even if the agreements were in full force and effect when METROBANK granted Uy Tiam's
application for a letter of credit in 1979, the public respondent nonetheless seriously erred in holding them liable
for an amount over and above their respective face values.

In its Resolution of 21 August 1989, public respondent denied the motion:

. . . considering that the issues raised were substantially the same grounds utilized by the lower
court in rendering judgment for defendants-appellees which We upon appeal found and resolved to
be untenable, thereby reversing and setting aside said judgment and rendering another in favor of
plaintiff, and no new or fresh issues have been posited to justify reversal of Our decision herein, . . .
.7

Hence, the instant petition which hinges on the issue of whether or not the petitioners may be held liable as
sureties for the obligation contracted by Uy Tiam with METROBANK on 30 May 1979 under and by virtue of the
Continuing Suretyship Agreements signed on 25 February 1977.

Petitioners vehemently deny such liability on the ground that the Continuing Suretyship Agreements were
automatically extinguished upon payment of the principal obligation secured thereby, i.e., the letter of credit
obtained by Uy Tiam in 1977. They further claim that they were not advised by either METROBANK or Uy Tiam
that the Continuing Suretyship Agreements would stand as security for the 1979 obligation. Moreover, it is posited
that to extend the application of such agreements to the 1979 obligation would amount to a violation of Article
2052 of the Civil Code which expressly provides that a guaranty cannot exist without a valid obligation. Petitioners
further argue that even granting, for the sake of argument, that the Continuing Suretyship Agreements still
subsisted and thereby also secured the 1979 obligations incurred by Uy Tiam, they cannot be held liable for more
than what they guaranteed to pay because it s axiomatic that the obligations of a surety cannot extend beyond
what is stipulated in the agreement.

On 12 February 1990, this Court resolved to give due course to the petition after considering the allegations, issues
and arguments adduced therein, the Comment thereon by the private respondent and the Reply thereto by the
petitioners; the parties were required to submit their respective Memoranda.

The issues presented for determination are quite simple:

1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by
virtue of the Continuing Suretyship Agreements they separately signed in 1977; and

2. On the assumption that they are, what is the extent of their liabilities for said 1979 obligations.

Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not known at
the time the guaranty is
executed. 8 This is the basis for contracts denominated as continuing guaranty or suretyship. A continuing
guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing,
covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation
and is generally intended to provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable.9 Otherwise stated,
a continuing guaranty is one which covers all transactions, including those arising in the future, which are within
the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. 10 A
guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a
standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period,
especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that
the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing
one. 11

In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any
debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be
furnished the principal debtor "at any time," or "on such time" that the principal debtor may require, have been
construed to indicate a continuing guaranty. 12

In the case at bar, the pertinent portion of paragraph I of the suretyship agreement executed by petitioner Uy
provides thus:

I. For and in consideration of any existing indebtedness to the BANK of UY TIAM (hereinafter called
the "Borrower"), for the payment of which the SURETY is now obligated to the BANK, either as
guarantor or otherwise, and/or in order to induce the BANK, in its discretion, at any time or from time
to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the
request, or for the account of the Borrower, either with or without security, and/or to purchase or
discount, or to make any loans or advances evidence or secured by any notes, bills, receivables,
drafts, acceptances, checks, or other instruments or evidences of indebtedness (all hereinafter
called "instruments") upon which the Borrower is or may become liable as maker, endorser,
acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee, the punctual
payment at maturity to the loans, advances credits and/or other obligations hereinbefore referred to,
and also any and all other indebtedness of every kind which is now or may hereafter become due or
owing to the BANK by the Borrower, together with any and all expenses which may be incurred by
the BANK in collecting all or any such instruments or other indebtedness or obligations herein
before referred to, and/or in enforcing any rights hereunder, and the SURETY also agrees that the
BANK may make or cause any and all such payments to be made strictly in accordance with the
terms and provisions of any agreement(s) express or implied, which has (have) been or may
hereafter be made or entered into by the Borrow in reference thereto, regardless of any law,
regulation or decree, unless the same is mandatory and non-waivable in character, nor or hereafter
in effect, which might in any manner affect any of the terms or provisions of any such agreement(s)
or the Bank's rights with respect thereto as against the Borrower, or cause or permit to be invoked
any alteration in the time, amount or manner of payment by the Borrower of any such instruments,
obligations or indebtedness; provided, however, that the liability of the SURETY hereunder shall
not exceed at any one time the aggregate principal sum of PESOS: THREE HUNDRED THOUSAND
ONLY (P300,000.00) (irrespective of the currenc(ies) in which the obligations hereby guaranteed
are payable), and such interest as may accrue thereon either before or after any maturity(ies)
thereof and such expenses as may be incurred by the BANK as referred to above. 13

Paragraph I of the Continuing Suretyship Agreement executed by petitioner Dio contains identical provisions
except with respect to the guaranteed aggregate principal amount which is EIGHT THOUSAND PESOS
(P800,000.00). 14

Paragraph IV of both agreements stipulate that:

VI. This is a continuing guaranty and shall remain in full force and effect until written notice shall
have been received by the BANK that it has been revoked by the SURETY, but any such notice shall not
release the SURETY, from any liability as to any instruments, loans, advances or other obligations
hereby guaranteed, which may be held by the BANK, or in which the BANK may have any interest at
the time of the receipt (sic) of such notice. No act or omission of any kind on the BANK'S part in the
premises shall in any event affect or impair this guaranty, nor shall same (sic) be affected by any
change which may arise by reason of the death of the SURETY, or of any partner(s) of the SURETY,
or of the Borrower, or of the accession to any such partnership of any one or more new partners. 15

The foregoing stipulations unequivocally reveal that the suretyship agreement in the case at bar are continuing in
nature. Petitioners do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they
had not revoked the suretyship agreements. Accordingly, as correctly held by the public respondent:

Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce appellant to
grant any application for credit accommodation (letter of credit/trust receipt) UTEFS may desire to
obtain from appellant bank. By its terms, each suretyship is a continuing one which shall remain in
full force and effect until the bank is notified of its revocation.

xxx xxx xxx

When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from appellant bank, for the
purpose of obtaining goods (covered by a trust receipt) from Planters Products, the continuing
suretyships were in full force and effect. Hence, even if sureties-appellees did not sign the
"Commercial Letter of Credit and Application, they are still liable as the credit accommodation
(letter of credit/trust receipt) was covered by the said suretyships. What makes them liable
thereunder is the condition which provides that the Borrower "is or may become liable as maker,
endorser, acceptor or otherwise." And since UTEFS which (sic) was liable as principal obligor for
having failed to fulfill the obligatory stipulations in the trust receipt, they as insurers of its
obligation, are liable thereunder. 16

Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the
1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under
Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the
succeeding article provides that "[a] guaranty may also be given as security for future debts, the amount of which is
not yet known." Secondly, Article 2052 speaks about a valid obligation, as distinguished from a void obligation, and
not an existing or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which
reads:

Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an


unenforceable contract. It may also guarantee a natural obligation.

As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend that the public
respondent gravely erred in finding them liable for more than the amount specified in their respective agreements,
to wit: (a) P800,000.00 for petitioner Dio and (b) P300,000.00 for petitioner Uy.

The limit of the petitioners respective liabilities must be determined from the suretyship agreement each had
signed. It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is
settled that the obligation of the surety cannot be extended by implication beyond its specified limits. To the
extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. 17

Indeed, the Continuing Suretyship Agreements signed by petitioner Dio and petitioner Uy fix the aggregate
amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a
guarantor may bond himself for less, but not for more than the principal debtor, both as regards the amount and
the onerous nature of the conditions. 18 In the case at bar, both agreements provide for liability for interest and
expenses, to wit:

. . . and such interest as may accrue thereon either before or after any maturity(ies) thereof and
such expenses as may be incurred by the BANK referred to above.19

They further provide that:

In the event of judicial proceedings being instituted by the BANK against the SURETY to enforce any
of the terms and conditions of this undertaking, the SURETY further agrees to pay the BANK a
reasonable compensation for and as attorney's fees and costs of collection, which shall not in any
event be less than ten per cent (10%) of the amount due (the same to be due and payable
irrespective of whether the case is settled judicially or extrajudicially). 20
Thus, by express mandate of the Continuing Suretyship Agreements which they had signed, petitioners
separately bound themselves to pay interest, expenses, attorney's fees and costs. The last two items are
pegged at not less than ten percent (10%) of the amount due.

Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs.
Article 2055 of the Civil Code provides: 21

Art. 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is
stipulated therein.

If it be simple or indefinite, it shall comprise not only the principal obligation, but also all its
accessories, including the judicial costs, provided with respect to the latter, that the guarantor shall
only be liable for those costs incurred after he has been judicially required to pay.

Interest and damages are included in the term accessories. However, such interest should run only from the
date when the complaint was filed in court. Even attorney's fees may be imposed whenever appropriate,
pursuant to Article 2208 of the Civil Code. Thus, in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang
Machinery Co., Inc., 22 this Court held:

Petitioner objects to the payment of interest and attorney's fees because: (1) they were not
mentioned in the bond; and (2) the surety would become liable for more than the amount stated in
the contract of suretyship.

xxx xxx xxx

The objection has to be overruled, because as far back as the year 1922 this Court held in Tagawa
vs. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover from the surety as
part of their damages, interest at the legal rate even if the surety would thereby become liable to
pay more than the total amount stipulated in the bond. The theory is that interest is allowed only by
way of damages for delay upon the part of the sureties in making payment after they should have
done so. In some states, the interest has been charged from the date of the interest has been
charged from the date of the judgment of the appellate court. In this jurisdiction, we rather prefer to
follow the general practice, which is to order that interest begin to run from the date when the
complaint was filed in court, . . .

Such theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently
recognized in the Rules of Court (Rule 53, section 6) and with Article 1108 of the Civil Code (now
Art. 2209 of the New Civil Code).

In other words the surety is made to pay interest, not by reason of the contract, but by reason of its
failure to pay when demanded and for having compelled the plaintiff to resort to the courts to
obtain payment. It should be observed that interest does not run from the time the obligation
became due, but from the filing of the complaint.

As to attorney's fees. Before the enactment of the New Civil Code, successful litigants could not
recover attorney's fees as part of the damages they suffered by reason of the litigation. Even if the
party paid thousands of pesos to his lawyers, he could not charge the amount to his opponent (Tan
Ti vs. Alvear, 26 Phil. 566).

However the New Civil Code permits recovery of attorney's fees in eleven cases enumerated in
Article 2208, among them, "where the court deems it just and equitable that attorney's (sic) fees
and expenses of litigation should be recovered" or "when the defendant acted in gross and evident
bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim." This gives the
courts discretion in apportioning attorney's fees.
The records do not reveal the exact amount of the unpaid portion of the principal obligation of Uy Tiam to
MERTOBANK under Irrevocable Letter of Credit No. SN-Loc-309 dated 30 March 1979. In referring to the last
demand letter to Mr. Uy Tiam and the complaint filed in Civil Case No. 82-9303, the public respondent mentions
the amount of "P613,339.32, as of January 31, 1982, inclusive of interest commission penalty and bank
charges." 23This is the same amount stated by METROBANK in its Memorandum. 24 However, in summarizing Uy
Tiam's outstanding obligation as of 17 July 1987, public respondent states:

Hence, they are jointly and severally liable to appellant METROBANK of UTEFS' outstanding
obligation in the sum of P2,397,883.68 (as of July 17, 1987) P651,092.82 representing the
principal amount, P825,133.54, for past due interest (5-31-82 to 7-17-87) and P921,657.32, for
penalty charges at 12%per annum (5-31-82 to 7-17-87) as shown in the Statement of Account
(Exhibit I). 25

Since the complaint was filed on 18 May 1982, it is obvious that on that date, the outstanding principal
obligation of Uy Tiam, secured by the petitioners' Continuing Suretyship Agreements, was less than
P613,339.32. Such amount may be fully covered by the Continuing Suretyship Agreement executed by
petitioner Dio which stipulates an aggregate principal sum of not exceeding P800,000.00, and partly
covered by that of petitioner Uy which pegs his maximum liability at P300,000.00.

Consequently, the judgment of the public respondent shall have to be modified to conform to the foregoing
exposition, to which extent the instant petition is impressed with partial merit.

WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged decision has to be modified with
respect to the extend of petitioners' liability. As modified, petitioners JACINTO UY DIO and NORBERTO UY are
hereby declared liable for and are ordered to pay, up to the maximum limit only of their respective Continuing
Suretyship Agreement, the remaining unpaid balance of the principal obligation of UY TIAM or UY TIAM
ENTERPRISES & FREIGHT SERVICES under Irrevocable Letter of Credit No. SN-Loc-309, dated 30 March 1979,
together with the interest due thereon at the legal rate commencing from the date of the filing of the complaint in
Civil Case No. 82-9303 with Branch 45 of the Regional Trial Court of Manila, as well as the adjudged attorney's fees
and costs.

All other dispositions in the dispositive portion of the challenged decision not inconsistent with the above are
affirmed.

SO ORDERED.

[G.R. No. 113564. June 20, 2001]

INOCENCIA YU DINO and her HUSBAND doing business under the trade name "CANDY CLAIRE FASHION
GARMENTS", petitioners, vs. COURT OF APPEALS and ROMAN SIO, doing business under the name
"UNIVERSAL TOY MASTER MANUFACTURING", respondents.

D E C I S I O N*
PUNO, J.:
Though people say, "better late than never", the law frowns upon those who assert their rights past the
eleventh hour. For failing to timely institute their action, the petitioners are forever barred from claiming a sum of
money from the respondent.
This is a petition for review on certiorari to annul and set aside the amended decision of the respondent court
dated January 24, 1994 reversing its April 30, 1993 decision and dismissing the plaintiff-petitioners' Complaint on
the ground of prescription.
The following undisputed facts gave rise to the case at bar:
Petitioners spouses Dino, doing business under the trade name "Candy Claire Fashion Garment" are engaged
in the business of manufacturing and selling shirts.[1] Respondent Sio is part owner and general manager of a
manufacturing corporation doing business under the trade name "Universal Toy Master Manufacturing."[2]
Petitioners and respondent Sio entered into a contract whereby the latter would manufacture for the
petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance
with the sample approved by the petitioners. These frogs and mooseheads were to be attached to the shirts
petitioners would manufacture and sell.[3]
Respondent Sio delivered in several installments the 40,000 pieces of frogs and mooseheads. The last delivery
was made on September 28, 1988. Petitioner fully paid the agreed price.[4] Subsequently, petitioners returned to
respondent 29,772 pieces of frogs and mooseheads for failing to comply with the approved sample.[5] The return
was made on different dates: the initial one on December 12, 1988 consisting of 1,720 pieces,[6] the second on
January 11, 1989,[7] and the last on January 17, 1989.[8]
Petitioners then demanded from the respondent a refund of the purchase price of the returned goods in the
amount of P208,404.00. As respondent Sio refused to pay,[9] petitioners filed on July 24, 1989 an action for
collection of a sum of money in the Regional Trial Court of Manila, Branch 38.
The trial court ruled in favor of the petitioners, viz:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs Vicente and Inocencia Dino and against
defendant Toy Master Manufacturing, Inc. ordering the latter to pay the former:

1. The amount of Two Hundred Eight Thousand Four Hundred Four (P208,404.00) Pesos with legal interest
thereon from July 5, 1989, until fully paid; and

2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney's fees and the costs of this suit.

The counterclaim on the other hand is hereby dismissed for lack of merit."[10]

Respondent Sio sought recourse in the Court of Appeals. In its April 30, 1993 decision, the appellate court
affirmed the trial court decision. Respondent then filed a Motion for Reconsideration and a Supplemental Motion
for Reconsideration alleging therein that the petitioners' action for collection of sum of money based on a breach of
warranty had already prescribed. On January 24, 1994, the respondent court reversed its decision and dismissed
petitioners' Complaint for having been filed beyond the prescriptive period. The amended decision read in
part, viz:

"Even if there is failure to raise the affirmative defense of prescription in a motion to dismiss or in an appropriate
pleading (answer, amended or supplemental answer) and an amendment would no longer be feasible, still
prescription, if apparent on the face of the complaint may be favorably considered (Spouses Matias B. Aznar, III, et
al. vs. Hon. Juanito A. Bernad, etc., supra, G.R. 81190, May 9, 1988). The rule in Gicano vs. Gegato (supra) was
reiterated in Severo v. Court of Appeals, (G.R. No. 84051, May 19, 1989).

WHEREFORE the Motion For Reconsideration is granted. The judgment of this Court is set aside and judgment is
hereby rendered REVERSING the judgment of the trial court and dismissing plaintiff's complaint."[11]

Hence, this petition with the following assignment of errors:


I.

The respondent Court of Appeals seriously erred in dismissing the complaint of the Petitioners on the ground
that the action had prescribed.

II.

The respondent Court of Appeals seriously erred in holding that the defense of prescription would still be
considered despite the fact that it was not raised in the answer, if apparent on the face of the complaint.

We first determine the nature of the action filed in the trial court to resolve the issue of
prescription. Petitioners claim that the Complaint they filed in the trial court on July 24, 1989 was one for the
collection of a sum of money. Respondent contends that it was an action for breach of warranty as the sum of
money petitioners sought to collect was actually a refund of the purchase price they paid for the alleged defective
goods they bought from the respondent.
We uphold the respondent's contention.
The following provisions of the New Civil Code are apropos:

"Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not, is a
contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and
not for the general market, it is a contract for a piece of work."

"Art. 1713. By the contract for a piece of work the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or
skill, or also furnish the material."

As this Court ruled in Engineering & Machinery Corporation v. Court of Appeals, et al.,[12] "a contract for a
piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the
thing transferred is one not in existence and which would never have existed but for the order of the person
desiring it. In such case, the contract is one for a piece of work, not a sale.On the other hand, if the thing subject of
the contract would have existed and been the subject of a sale to some other person even if the order had not been
given then the contract is one of sale."[13] The contract between the petitioners and respondent stipulated that
respondent would manufacture upon order of the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of
vinyl mooseheads according to the samples specified and approved by the petitioners. Respondent Sio did not
ordinarily manufacture these products, but only upon order of the petitioners and at the price agreed
upon.[14] Clearly, the contract executed by and between the petitioners and the respondent was a contract for a
piece of work. At any rate, whether the agreement between the parties was one of a contract of sale or a piece of
work, the provisions on warranty of title against hidden defects in a contract of sale apply to the case at bar, viz:

"Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the thing. This contract shall be governed by the following
articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of
price in a contract of sale."

"Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have,
should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower
price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known
them."
Petitioners aver that they discovered the defects in respondent's products when customers in their
(petitioners') shirt business came back to them complaining that the frog and moosehead figures attached to the
shirts they bought were torn. Petitioners allege that they did not readily see these hidden defects upon their
acceptance. A hidden defect is one which is unknown or could not have been known to the vendee. [15] Petitioners
then returned to the respondent 29,772 defective pieces of vinyl products and demanded a refund of their
purchase price in the amount of P208,404.00. Having failed to collect this amount, they filed an action for collection
of a sum of money.
Article 1567 provides for the remedies available to the vendee in case of hidden defects, viz:

"Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing
from the contract and demanding a proportionate reduction of the price, with damages in either case."

By returning the 29,772 pieces of vinyl products to respondent and asking for a return of their purchase price,
petitioners were in effect "withdrawing from the contract" as provided in Art. 1567. The prescriptive period for
this kind of action is provided in Art. 1571 of the New Civil Code, viz:

"Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months from
the delivery of the thing sold." (Emphasis supplied)

There is no dispute that respondent made the last delivery of the vinyl products to petitioners on September
28, 1988. It is also settled that the action to recover the purchase price of the goods petitioners returned to the
respondent was filed on July 24, 1989,[16] more than nine months from the date of last delivery. Petitioners having
filed the action three months after the six-month period for filing actions for breach of warranty against hidden
defects stated in Art. 1571,[17] the appellate court dismissed the action.
Petitioners fault the ruling on the ground that it was too late in the day for respondent to raise the defense of
prescription. The law then applicable to the case at bar, Rule 9, Sec. 2 of the Rules of Court, provides:

"Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived;
except the failure to state a cause of action . . . "

Thus, they claim that since the respondent failed to raise the defense of prescription in a motion to dismiss or in its
answer, it is deemed waived and cannot be raised for the first time on appeal in a motion for reconsideration of the
appellate court's decision.
As a rule, the defense of prescription cannot be raised for the first time on appeal. Thus, we held in Ramos v.
Osorio,[18] viz:

"It is settled law in this jurisdiction that the defense of prescription is waivable, and that if it was not raised as a
defense in the trial court, it cannot be considered on appeal, the general rule being that the appellate court is not
authorized to consider and resolve any question not properly raised in the lower court (Subido vs. Lacson, 55 O.G.
8281, 8285; Moran, Comments on the Rules of Court, Vol. I, p. 784, 1947 Edition)."

However, this is not a hard and fast rule. In Gicano v. Gegato,[19] we held:

". . .(T)rial courts have authority and discretion to dimiss an action on the ground of prescription when the parties'
pleadings or other facts on record show it to be indeed time-barred; (Francisco v. Robles, Feb, 15, 1954; Sison v.
McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC,
Feb. 28, 1958; 32 SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may do so on the basis of a motion to
dismiss (Sec. 1,f, Rule 16, Rules of Court), or an answer which sets up such ground as an affirmative defense (Sec. 5,
Rule 16), or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration
(Ferrer v. Ericta, 84 SCRA 705); or even if the defense has not been asserted at all, as where no statement
thereof is found in the pleadings (Garcia v. Mathis, 100 SCRA 250; PNB v. Pacific Commission House, 27
SCRA 766; Chua Lamco v. Dioso, et al., 97 Phil. 821); or where a defendant has been declared in default (PNB v.
Perez, 16 SCRA 270). What is essential only, to repeat, is that the facts demonstrating the lapse of the
prescriptive period be otherwise sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiff's complaint, or otherwise established by the evidence." (emphasis supplied)

In Aldovino, et al. v. Alunan, et al.,[20] the Court en banc reiterated the Garcia v. Mathis doctrine cited in
the Gicano case that when the plaintiff's own complaint shows clearly that the action has prescribed, the action
may be dismissed even if the defense of prescription was not invoked by the defendant.
It is apparent in the records that respondent made the last delivery of vinyl products to the petitioners on
September 28, 1988. Petitioners admit this in their Memorandum submitted to the trial court and reiterate it in
their Petition for Review.[21] It is also apparent in the Complaint that petitioners instituted their action on July 24,
1989. The issue for resolution is whether or not the respondent Court of Appeals could dismiss the petitioners'
action if the defense of prescription was raised for the first time on appeal but is apparent in the records.
Following the Gicano doctrine that allows dismissal of an action on the ground of prescription even after
judgment on the merits, or even if the defense was not raised at all so long as the relevant dates are clear on the
record, we rule that the action filed by the petitioners has prescribed. The dates of delivery and institution of the
action are undisputed. There are no new issues of fact arising in connection with the question of prescription, thus
carving out the case at bar as an exception from the general rule that prescription if not impleaded in the answer is
deemed waived.[22]
Even if the defense of prescription was raised for the first time on appeal in respondent's Supplemental
Motion for Reconsideration of the appellate court's decision, this does not militate against the due process right of
the petitioners. On appeal, there was no new issue of fact that arose in connection with the question of
prescription, thus it cannot be said that petitioners were not given the opportunity to present evidence in the trial
court to meet a factual issue. Equally important, petitioners had the opportunity to oppose the defense of
prescription in their Opposition to the Supplemental Motion for Reconsideration filed in the appellate court and in
their Petition for Review in this Court.
This Court's application of the Osorio and Gicano doctrines to the case at bar is confirmed and now enshrined
in Rule 9, Sec. 1 of the 1997 Rules of Civil Procedure, viz:

"Section 1. Defense and objections not pleaded. - Defenses and objections not pleaded whether in a motion to
dismiss or in the answer are deemed waived. However, when it appears from the pleadings that the court has no
jurisdiction over the subject matter, that there is another action pending between the same parties for the same
cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the
claim." (Emphasis supplied)

WHEREFORE, the petition is DENIED and the impugned decision of the Court of Appeals dated January 24,
1994 is AFFIRMED. No costs.
SO ORDERED.