147 Phil.

646
Pacific Oxygen & Acetylene Co. v. Central Bank (Feb. 27, 1971)

CASTRO, J.:
To cover shipments of various industrial machinery parts, the plaintiff, the Pacific Oxygen and
Acetylene Company, on December 12 and 14, 1961, applied to the Philippine Trust Company for
commercial credit in favor of the Independent Engineering Company, Inc. ofO'Fallen, Illinois,
USA. On the same dates, the Philippine Trust Company issued the letters of credit, 29092-FM
for $4,615.15 (exhibit C) and 29112-FM for $8,354.30 (exhibit D), addressed to the Continental
Illinois National Bank and Trust Company of Chicago, Chicago, Illinois, USA, authorizing the
latter to negotiate drafts drawn by the Independent Engineering Company, Inc. upon the
plaintiff. Upon the opening of the said letters of credit, the plaintiff also applied to the Philippine
Trust Company for the purchase of forward exchange in the same amounts and for the same
purpose, said purchases evidenced by forward exchange contracts 00662 (exhibit 9) and 00678
(exhibit 10).
On December 13 and 14, 1961, the Philippine Trust Company applied to the defendant, the
Central Bank of the Philippines, for the purchase of forward exchange to cover its US dollar
commitments against letters of credit opened under the free market rate. The defendant
approved said applications on December 14 and 18, 1961 in forward exchange contracts 10597
(exhibit 7) and 10671 (exhibit 8).
On January 21, 1962, the defendant issued Circular 133 providing for the suspension of the
margin levy.
Subsequently, the Independent Engineering Company, Inc. drew the corresponding drafts against
the letters of credit in the amounts of $6,853.32, $4,352.61 and $1,500. The Continental Illinois
National Bank and Trust Company honored and paid the drafts on February 23, 1962 (exhibit E),
March 12, 1962 (exhibit F), and March 21, 1962 (exhibit G).
Upon receipt of the debit advice from the Continental Illinois National Bank and Trust
Company, the Philippine Trust Company sent the plaintiff demand letters, asking the latter to
remit to the former, as 15% margin fee, the amounts of P1,981.25 (exhibit O), P3,119.53 (exhibit
N), and P684.31 (exhibit P), or a total of P5,785.09. On August 30, 1963, the plaintiff paid to
the defendant, through the Philippine Trust Company, the margin fee of P3,119.53, and on
September 3, 1963, the margin fees of P1,981.25 and P684.31, all under protest.
On September 30, 1963, the plaintiff filed a complaint against the defendant with the Court of
First Instance of Manila for the refund of the amount of P5,785.09 it had previously paid, under
protest, in the concept of margin fee, and for damages in the amount of P100,000.
In its complaint, the plaintiff contended that inasmuch as the Continental Illinois National Bank
and Trust Company honored and paid the drafts drawn under the letters of credit to the
Independent Engineering Company, Inc. only in February and March, 1962, the sale of foreign
exchange in this case should be considered as having taken place after the suspension of the
margin fee on January 21, 1962, pursuant to the decision of this Court
in Belman Compaia Incorporada vs. Central Bank of the Philippines[1] which held that
"The payment of the amount in foreign currency to the creditor by the bank or its agent or
correspondent is necessary to consummate the contract. Hence, the date of such payment or
delivery of the amount in foreign currency to the creditor determines whether such amount of
foreign currency is subject to the tax imposed by the Government of the country where such
letter of credit was granted."
The plaintiff prayed that the collection of the margin fee in question by the defendant be declared
illegal and invalid.
In its answer, the defendant argued that the sale of foreign exchange in this case, under the letters
of credit covered by forward exchange contracts 10597 and 10671 between the defendant and the
Philippine Trust Company for the account of the plaintiff, should be considered to have taken
place on the dates of execution of the said forward exchange contracts - December 14 and 18,
1961. Said dates falling within the period of effectivity of the 15% margin fee, the defendant
asserts that it had acted in accordance with the law when it required the plaintiff to pay the
margin fee in the amount of P5,785.09.
On June 17, 1964, the lower court rendered judgment in favor of the plaintiff and against the
defendant. The lower court ordered the defendant to return to the plaintiff the amount in
controversy, but without damages, attorney's fees, interests, and costs.
Hence, this appeal by both parties.
The plaintiff-appellant maintains that the trial court erred "in not awarding damages, attorney's
fees, interests and costs to the plaintiff."
The defendant-appellant, on the other hand, maintains that the lower court erred (1) "in holding
that the sale of exchange under a letter of credit covered by a forward exchange contract takes
place on the date of the payment or delivery of the amount in foreign currency to the creditor and
not on the date the said forward exchange contract is executed;" (2) "in applying the ruling laid
down by the Supreme Court in the case of 'Belman Cornpaia Incorporada vs. Central Bank of
the Philippines, G.R. No. L-10195, November 29, 1958'", and (3) "in holding that the collection
by defendant-appellant of the amount of P5,785.09 as margin fees from the plaintiff-appellant is
invalid and illegal."
Resolution of the issue herein presented ultimately hinges on whether or not the 15% margin fee
could properly be imposed upon the sales of foreign exchange in question. To be more precise,
the point at issue is whether the imposable 15% margin fee became collectible upon the
execution of the contracts to purchase the foreign exchange, or upon the payment or delivery of
the amount in foreign currency to the creditor.
No dispute arises as to the authority of the Central Bank to impose and collect a margin fee on all
sales of foreign exchange by the Central Bank itself or by its authorized agent banks. The clear
mandate of section 1 of Republic Act 2609 calls for the collection of a margin fee on "all sales of
foreign exchange by the Central Bank and its authorized agent banks."
The controversy proceeds from the fact that the Central Bank, on January 21, 1962, issued
Circular 133 providing for the suspension of the margin levy. Thus, while the letters of credit in
question opened by the Philippine Trust Company, as well as the forward exchange contracts
between the Central Bank and the Philippine Trust Company for the account of the plaintiff,
were issued or executed during the period when the margin levy was still imposable, the drafts
against the said letters of credit were negotiated, honored and paid by the Continental Illinois
National Bank and Trust Company to the Independent Engineering Company, Inc. during the
period when collection of the margin fee was suspended.
The determinative dates are December 14 and 18, 1961 - the dates of execution of forward
exchange contracts 10597 and 10671 between the defendant and the Philippine Trust Company
for the account of the plaintiff. Republic Act 2609 authorizing the Central Bank to collect a
margin fee "in respect of all sales of foreign exchange by the Central Bank and its authorized
agent banks," as well as the Central Bank circulars implementing the said law, makes no
distinction between perfected and consummated, or between executory and executed,
sales. Under our Civil and Commercial Codes, a sale comes into existence upon its perfection by
mutual consent, even if the subject-matter or the consideration has not been delivered, barring
law or stipulation to the contrary. It is well settled in our law that a contract of sale exists from
the moment one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent. There is perfection of such a contract at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price, from which moment the
parties may reciprocally demand performance, subject to the provisions of the law governing the
form of contracts.
In the case at bar, the contracts of sale of foreign exchange existed and were outstanding from
December 14 and 18, 1961, as revealed by the documents, exhibits 7 and 8. Said dates fall
within the period of the effectivity of the 15% margin fee. Thus, the defendant contravened no
law, and, in fact, none of its own rules and regulations, when it collected from the plaintiff the
amount of P5,785.09 as margin fee.
Indeed, in a similar case between the same parties involving the same issue, we held as follows:
"With the categorical finding in the decision appealed from that the purchase of the forward ex-
change by [from the Central Bank occurred on January 17, 1962, prior to the suspension of the
margin levy on January 21, 1962, it cannot be denied that deference must be paid to the legal
provision calling for a margin fee 'in respect of all sales of foreign exchange by the Central Bank
and its authorized agents x x x.' From Lizarraga Hermanos v. Yap Tico, this Court has
steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law
according to its express terms, interpretation being called for only when such literal application
is impossible.
"As thus viewed, the fact that it was not until February 9 and 13, 1962, that the Continental
Illinois National Bank and Trust Company honored the above drafts cannot therefore be
controlling. The plain and explicit command of the law is too categorical to be
misinterpreted. A contrary impression that might be yielded by Belman Cia., Inc. v. Central
Bank of the Philippines, dealing with the seventeen (17%) percent excise tax cannot prove
decisive of this controversy, as was erroneously held by the lower court. To the extent that there
is an inconsistency between this decision and the Belman dictum, it cannot be considered
authoritative, at least under the circumstances as herein disclosed."[2]
And in Vargas Plow Factory, Inc. vs. The Central Bank of the Vargas Philippines,[3] this Court
reiterated and emphasized the ruling in Pacific Oxygen vs. Central Bank, in the following words:
"The lower court, relying on the ruling in BelmanCia, Inc. vs. Central Bank, 104 Phil. 877, that
there was no consummated sale of foreign exchange until payment of the amount in foreign cur-
rency to the creditor, held that the sales here in question occurred during the period of suspension
of the margin levy by the Central Bank, and that, therefore, no margin fee was payable thereon.
"At the time the decision of the court a quo was rendered (on November 11, 1965), the same was
in accord with the prevailing jurisprudence. Subsequently, however (though the court below
could not have anticipated it), this Court had occasion to re-examine the doctrine of
the Belman case and allied adjudications, and overruled the same, on March 1, 1968, in the case
of Pacific Oxygen Acetylene Co. vs. Central Bank, L-21881, 22 SCRA 917. Therein, this Court
reached the conclusion that Republic Act No. 2609, empowering the Central Bank to collect a
margin fee 'in respect of all sales of foreign exchange by the Central Bank and its authorized
agent banks' (section 1, Republic Act 2609), as well as the Central Bank circulars implementing
said law, made no distinction between perfected and consummated, or between executory and
executed, sales. Under our Civil and Commercial Codes, a sale comes into existence upon its
perfection by mutual consent, even if the subject matter or the consideration has not been
delivered, barring law or stipulation to the contrary, that in this case, does not exist. Addi-
tionally, the only sales of foreign exchange by the Central Bank, or its agent banks, are the ones
made to the appellee herein (Vargas Plow Factory, Inc.), the acceptance of the exporter's drafts
being in the nature of a recognition of the importer's act of assigning to the
exporter, Stahlkontor Hahn Aktiengesellschaft, which issued said drafts, all or part of the foreign
exchange previously sold to the appellant, Vargas Plow Factory, and paid for by the
latter. Otherwise stated, in honoring the drafts issued by the exporter, the local bank did not sell
dollars to said party, but merely caused the delivery to it of dollars previously sold to
the appellee. The foreign exchange having been applied for by the appellee and sold to him by
the bank, as shown by the documents, the opening of a letter of credit in favor
of Stahlkontor Hahn Aktiengesellschaft becomes ultimately but the result of a
stipulation pour autrui that is in no way incompatible with the original sale of the foreign
exchange to appellee herein. It follows that the true sale took place when the forward exchange
contracts were executed in December, 1961, before the margin levy was suspended. Hence the
margin fee was properly collected."
From what we have stated above, the conclusion becomes inevitable that the lower court's award
of damages and attorney's fees to the plaintiff must be set aside.
ACCORDINGLY, the judgment appealed from is reversed insofar as it orders the defendant to
return and pay to the plaintiff the amount of 5,785.09, and affirmed insofar as it absolves the
Central Bank from the payment of damages and attorney's fees. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Fernando, Teehankee, Barredo, Villamor, and Makasiar, JJ., concur.

[1]
104 Phil. 881.
[2]
Pacific Oxygen & Acetylene Company vs. Central Bank of the Philippines, L-21881, March 1,
1968, 22 SCRA 917, 921-922, per Fernando, J.
[3]
L-25732, February 27, 1969, 27 SCRA 84, 87-88, per J.B.L. Reyes, J.
G.R. No. L-33022 April 22, 1975

CENTRAL BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and ABLAZA CONSTRUCTION & FINANCE
CORPORATION, respondents.

F.E. Evangelista for petitioner.

Cruz, Villarin & Laureta for private respondent.

BARREDO, J.:+.wph!1

Petition of the Central Bank of the Philippines for review of the decision of the Court of Appeals
in CA-G.R. No. 43638-R affirming the judgment of the Court of First Instance of Rizal in Civil
Case No. Q-10919 sentenced petitioner to pay respondent Ablaza Construction and Finance
Corporation damages for breach contract in that after having formally and officially awarded,
pursuant to the results of the usual bidding to Ablaza in December 1965 the "contract" for the
construction of its San Fernando, La Union branch building and allowed said contractor to
commence the work up to about May, 1966, albeit without any written formal contract having
been executed, the Bank failed and refused to proceed with the project, unless the plans were
revised and a lower price were agreed to by Ablaza, the Bank claiming that its action was
pursuant to the policy of fiscal restraint announced by the then new President of the Philippines
on December 30, 1965 and the Memorandum Circular No. 1 dated December 31, 1965 of the
same President.

The factual background of this case is related in the following portions of the decision of the trial
court, which the Court of Appeals affirmed without modification: t.hqw

Sometime in 1965, defendant Central Bank of the Philippines issued Invitations to

Bid and Instructions to Bidders for the purpose of receiving sealed proposals for
the general construction of its various proposed regional offices, including the
Central Bank regional office building in San Fernando, La Union.

In response to the aforesaid Invitations to Bid, the plaintiff Ablaza Construction

and Finance Corporation, which was one of the qualified bidders, submitted a bid
proposal for the general construction of defendant's proposed regional office
building in San Fernando, La Union at the public bidding held on November 3,
1965. The said proposal was, as required by the defendant accompanied by a cash
bidder's bond in the sum of P275,000.00.

On December 7, 1965, the Monetary Board of the defendant Central Bank of the
Philippines, after evaluating all the bid proposals submitted during the above-
mentioned bidding, unanimously voted and approved the award to the plaintiff of
the contract for the general construction of defendant's proposed regional office
building in San Fernando, La Union, for the sum of P3,749,000.00 under
plaintiff's Proposal Item No. 2.

Pursuant thereto, on December 10, 1965, Mr. Rizalino L. Mendoza, Assistant to

the Governor and concurrently the Chairman of the Management Building
Committee of the defendant Central Bank of the Philippines, set a telegram to the
plaintiff, informing the latter that the contract for the general construction of
defendant's proposed regional office building in San Fernando, La Union, had
been awarded to the plaintiff. The said telegram was followed by a formal letter,
also dated December 10, 1965, duly signed by said Mr. Rizalino L. Mendoza,
confirming the approval of the award of the above-stated contract under plaintiff's
Proposal Item No. 2 in the amount of P3,749,000.00.

Upon receipt of the aforementioned letter, plaintiff immediately accepted the said
award by means of a letter dated December 15, 1965, whereby plaintiff also
requested permission for its workmen to enter the site of the project, build a
temporary shelter and enclosure, and do some clearing job thereat. Accordingly,
said permission was granted by the defendant as embodied in its letter dated
January 4, 1966, addressed to the plaintiff..

Within five (5) days from receipt by the plaintiff of the said notice of award, and
several times thereafter Mr. Nicomedes C. Ablaza, an officer of the plaintiff
corporation, went personally to see Mr. Rizalino L. Mendoza at the latter's Central
Bank office to follow up the signing of the corresponding contract. A
performance bond in the total amount of P962,250.00 (P275,000.00 of which was
in cash and P687,250.00 in the form of a surety bond) was subsequently posted by
the plaintiff in compliance with the above-stated Instructions to Bidders, which
bond was duly accepted by the defendant.

Pursuant to the permission granted by the defendant, as aforesaid, plaintiff

commenced actual construction work on the project about the middle of January,
1966. On February 8, 1966, by means of a formal letter, defendant requested the
plaintiff to submit a schedule of deliveries of materials which, according to
plaintiff's accepted proposal, shall be furnished by the defendant. In compliance
therewith, on February 16, 1966, plaintiff submitted to the defendant the schedule
of deliveries requested for.

During the period when the actual construction work on the project was in
progress, Mr. Nicomedes G. Ablaza had several meetings with Mr. Rizalino L.
Mendoza at the latter's office in the Central Bank. During those meetings, they
discussed the progress of the construction work being then undertaken by the
plaintiff of the projects of the defendant in San Fernando, La Union, including the
progress of the excavation work.

Sometime during the early part of March, 1966, Mr. Rizalino L. Mendoza was at
the construction site of the said project. While he was there, he admitted having
seen pile of soil in the premises. At that time, the excavation work being
undertaken by the plaintiff was about 20% complete. On March 22, 1966,
defendant again wrote the plaintiff, requesting the latter to submit the name of its
representative authorized to sign the building contract with the defendant. In
compliance with the said request, plaintiff submitted to the defendant the name of
its duly authorized representative by means of a letter dated March 24, 1966.

A meeting called by the defendant was held at the conference room of the Central
Bank on May 20, 1966. At the said meeting, the defendant, thru Finance Secretary
Eduardo Romualdez, announced, among other things, the reduction of the
appropriations for the construction of the defendant's various proposed regional
offices, including that of the proposed San Fernando, La Union regional office
building, the construction of which had already been started by the plaintiff. He
also stated that the Central Bank Associated Architects would be asked to prepare
new plans and designs based on such reduced appropriations. The defendant,
during that same meeting, also advised the plaintiff, thru Messrs. Nicomedes G.
Ablaza and Alfredo G. Ablaza (who represented the plaintiff corporation at the
said meeting), to stop its construction work on the Central Bank Regional office
building in San Fernando, La Union. This was immediately complied with by the
plaintiff, although its various construction equipment remained in the jobsite. The
defendant likewise presented certain offer and proposals to the plaintiff, among
 which were: (a) the immediate return of plaintiff's cash bidder's bond of
P275,000.00; (b) the payment of interest on said bidder's bond at 12% per annum;
(c) the reimbursement to the plaintiff of the value of all the work accomplished at
the site; (d) the entering into a negotiated contract with the plaintiff on the basis of
the reduced appropriation for the project in question; and (e) the reimbursement of
the premium on plaintiff's performance bond. Not one of these offers and
proposals of the defendant, however, was accepted by the plaintiff during that
meeting of May 20, 1966.

On June 3, 1966, plaintiff, thru counsel, wrote the defendant, demanding for the
formal execution of the corresponding contract, without prejudice to its claim for
damages. The defendant, thru its Deputy Governor, Mr. Amado R. Brinas, on
June 15, 1966, replied to the said letter of the plaintiff, whereby the defendant
claimed that an agreement was reached between the plaintiff and the defendant
during the meeting held on May 20, 1966. On the following day, however, in its
letter dated June 16, 1966, the plaintiff, thru counsel, vehemently denied that said
parties concluded any agreement during the meeting in question.

On July 5, 1966, defendant again offered to return plaintiff's cash bidder's bond in
the amount of P275,000.00. The plaintiff, thru counsel, on July 6, 1966, agreed to
accept the return of the said cash bond, without prejudice, however, to its claims
as contained in its letters to the defendant dated June 3, June 10, and June 16,
1966, and with further reservation regarding payment of the corresponding
interest thereon. On July 7, 1966, the said sum of P275,000.00 was returned by
the defendant to the plaintiff.

On January 30, 1967, in accordance with the letter of the plaintiff, thru counsel,
dated January 26, 1967, the construction equipment of the plaintiff were pulled
out from the construction site, for which the plaintiff incurred hauling expenses.

The negotiations of the parties for the settlement of plaintiff's claims out of court
proved to be futile; hence, the present action was instituted by plaintiff against the
defendant." (Pp. 249-256, Rec. on Appeal).

It may be added that the Instructions to Bidders on the basis of which the bid and award in
question were submitted and made contained, among others, the following
provisions: t.hqw

IB 113.4 The acceptance of the Proposal shall be communicated in writing by the

Owner and no other act of the Owner shall constitute the acceptance of the
Proposal. The acceptance of a Proposal shall bind the successful bidder to execute
the Contract and to be responsible for liquidated damages as herein provided. The
rights and obligations provided for in the Contract shall become effective and
binding upon the parties only with its formal execution.

xxx xxx xxx

IB 114.1 The bidder whose proposal is accepted will be required to appear at the
Office of the Owner in person, or, if a firm or corporation, a duly authorized
representative shall so appear, and to execute that contract within five (5) days
after notice that the contract has been awarded to him. Failure or neglect to do so
shall constitute a breach of agreement effected by the acceptance of the Proposal.

xxx xxx xxx

IB 118.1 The Contractor shall commence the work within ten (10) calendar days
from the date he receives a copy of the fully executed Contract, and he shall
 complete the work within the time specified." (Pp. 18-19 & 58-59, Petitioner-
Appellant's Brief.)

In the light of these facts, petitioner has made the following assignment of errors: t.hqw

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS A

PERFECTED CONTRACT BETWEEN PETITIONER CENTRAL BANK OF
THE PHILIPPINES AND RESPONDENT ABLAZA CONSTRUCTION &
FINANCE CORPORATION FOR THE GENERAL CONSTRUCTION WORK
OF PETITIONER'S REGIONAL OFFICE BUILDING AT SAN FERNANDO,
LA UNION.

II. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

HAS COMMITTED A BREACH OF CONTRACT.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

HAD GIVEN ITS APPROVAL TO THE WORK DONE BY RESPONDENT
ABLAZA CONSTRUCTION & FINANCE CORPORATION.

IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE AWARD

OF ACTUAL AND COMPENSATORY DAMAGES, ATTORNEY'S FEES
AND RETAINING FEE IS FAIR AND REASONABLE, AND IN HOLDING
THAT PETITIONER IS LIABLE FOR COSTS." (Pp. A & B, Petitioner-
Appellant's Brief.)

Under the first assigned error, petitioner denotes the major part of its effort to the discussion of
its proposition that there could be no perfected contract in this case, (contrary to the conclusion
of the courts below) because there is no showing of compliance, and in fact, there has been no
compliance with the requirement that there must be a certification of the availability of funds by
the Auditor General pursuant to Section 607 of the Revised Administrative Code which provides
thus: t.hqw

Section 607. Certificate showing appropriation to meet contract. Except in the

case of a contract for personal service or for supplies to be carried in stock, no
contract involving an expenditure by the National Government of three thousand
pesos or more shall be entered into or authorized until the Auditor General shall
have certified to the officer entering into such obligation that funds have been
duly appropriated for such purpose and that the amount necessary to cover the
proposed contract is available for expenditure on account thereof. When
application is made to the Auditor General for the certificate herein required, a
copy of the proposed contract or agreement shall be submitted to him
accompanied by a statement in writing from the officer making the application
showing all obligations not yet presented for audit which have been incurred
against the appropriation to which the contract in question would be chargeable;
and such certificate, when signed by the Auditor, shall be attached to and become
a part of the proposed contract, and the sum so certified shall not thereafter be
available for expenditure for any other purposes until the Government is
discharged from the contract in question.

Except in the case of a contract for supplies to be carried in stock, no contract

involving the expenditure by any province, municipality, chartered city, or
municipal district of two thousand pesos or more shall be entered into or
authorized until the treasurer of the political division concerned shall have
certified to the officer entering into such contract that funds have been duly
appropriated for such purpose and that the amount necessary to cover the
proposed contract is available for expenditure on account thereof. Such certificate,
when signed by the said treasurer, shall be attached to and become part of the
 proposed contract and the sum so certified shall not thereafter be available for
expenditure for any other purpose until the contract in question is lawfully
abrogated or discharged.

For the purpose of making the certificate hereinabove required ninety per centum
of the estimated revenues and receipts which should accrue during the current
fiscal year but which are yet uncollected, shall be deemed to be in the treasury of
the particular branch of the Government against which the obligation in question
would create a charge." (Pp. 23-25, Petitioner-Appellant's Brief.)

It is contended that in view of such omission and considering the provisions of Section 608 of
the same code to the effect that "a purported contract entered into contrary to the requirements of
the next preceding section hereof shall be wholly void", "no contract between the petitioner and
respondent Ablaza Construction and Finance Corporation for the general construction of the
proposed regional office building of the Central Bank in San Fernando, La Union, was ever
perfected because only the first stage, that is the award of the contract to the lowest responsible
bidder, respondent Ablaza Construction and Finance Corporation, was completed." (p. 29,
Petitioner-Appellant's Brief.) And in support of this pose, petitioner relies heavily on Tan C. Tee
& Co. vs. Wright thus: t.hqw

The aforesaid requirements of the Revised Administrative Code for the perfection
of government contracts have been upheld by this Honorable Court in the case
of Tan C. Tee Co. vs. Wright, 53 Phil. 172, in which case it was held that the
award of the contract to the lowest bidder does not amount to entering into the
contract because of the requirement of Section 607 of the Revised Administrative
Code that a copy of the proposed contract shall be submitted to the Auditor
General together with a request for the availability of funds to cover the proposed
contract. Thus, this Honorable Court held: t.hqw

'To award the contract to the lowest responsible bidder is not the
equivalent of entering into the contract. Section 607 of the
Administrative Code requires that a copy of the proposed contract
shall be submitted along with the request for the certificate of
availability of funds, but there could be no proposed contract to be
submitted until after the award was made.'

And to guide government authorities in the letting of government contracts, this

Honorable Court, in said case of Tan C. Tee vs. Wright, supra, laid down the
procedure which should be followed, as follows: t.hqw

`PROCEDURE WHICH SHOULD BE FOLLOWED IN THE

LETTING OF CONTRACTS FOR INSULAR WORKS. The
procedure which should be followed in the letting of contracts for
Insular works is the following: First, there is an award of the
contract by the Director of Public Works to the lowest responsible
bidder. Second, there is a certificate of availability of funds to be
obtained from the Insular Auditor, and in some cases from the
Insular Treasurer, to cover the proposed contract. And third, there
is a contract to be executed on behalf of the Government by the
Director of Public Works with the approval of the department
head.'" (Pp. 27-28, Petitioner-Appellant's Brief.)

The contention is without merit. To start with, the record reveals that it is more of an
afterthought. Respondent never raised this question whether in its pleadings or at the hearings in
the trial court. We have also read its brief in the appellate court and no mention is made therein
of this point. Not even in its memorandum submitted to that court in lieu of oral argument is
there any discussion thereof, even as it appears that emphasis was given therein to various
portions of the Revised Manual of Instructions to Treasurers regarding the perfection and
constitution of public contracts. In fact, reference was made therein to Administrative Order No.
290 of the President of the Philippines, dated February 5, 1959, requiring "all contracts of
whatever nature involving P10,000 or more to be entered into by all bureaus and offices, ...
including the ... Central Bank ... shall be submitted to the Auditor General for examination and
review before the same are perfected and/or consummated, etc.", without mentioning, however,
that said administrative order was no longer in force, the same having been revoked on January
17, 1964 by President Macapagal under Administrative Order No. 81, s. 1964.

Hence, if only for the reason that it is a familiar rule in procedure that defenses not pleaded in the
answer may not be raised for the first time on appeal, petitioner's position cannot be sustained.
Indeed, in the Court of Appeals, petitioner could only bring up such questions as are related to
the issues made by the parties in their pleadings, particularly where factual matters may be
involved, because to permit a party to change his theory on appeal "would be unfair to the
adverse party." (II, Moran, Rules of Court, p. 505, 1970 ed.) Furthermore, under Section 7 of
Rule 51, the appellate court cannot consider any error of the lower court "unless stated in the
assignment of errors and properly argued in the brief."

Even prescinding from this consideration of belatedness, however, it is Our considered view that
contracts entered into by petitioner Central Bank are not within the contemplation of Sections
607 and 608 cited by it. Immediately to be noted, Section 607 specifically refers to
"expenditure(s) of the National Government" and that the term "National Government" may not
be deemed to include the Central Bank. Under the Administrative Code itself, the term "National
Government" refers only to the central government, consisting of the legislative, executive and
judicial departments of the government, as distinguished from local governments and other
governmental entities and is not synonymous, therefore, with the terms "The Government of the
Republic of the Philippines" or "Philippine Government", which are the expressions broad
enough to include not only the central government but also the provincial and municipal
governments, chartered cities and other government-controlled corporations or agencies, like the
Central Bank. (I, Martin, Administrative Code, p. 15.)

To be sure the Central Bank is a government instrumentality. But it was created as an

autonomous body corporate to be governed by the provisions of its charter, Republic Act 265,
"to administer the monetary and banking system of the Republic." (Sec. 1) As such, it is
authorized "to adopt, alter and use a corporate seal which shall be judicially noticed; to make
contracts; to lease or own real and personal property, and to sell or otherwise dispose of the
same; to sue and be sued; and otherwise to do and perform any and all things that may be
necessary or proper to carry out the purposes of this Act. The Central Bank may acquire and hold
such assets and incur such liabilities as result directly from operations authorized by the
provisions of this Act, or as are essential to the proper conduct of such operations." (Sec. 4) It
has capital of its own and operates under a budget prepared by its own Monetary Board and
otherwise appropriates money for its operations and other expenditures independently of the
national budget. It does not depend on the National Government for the financing of its
operations; it is the National Government that occasionally resorts to it for needed budgetary
accommodations. Under Section 14 of the Bank's charter, the Monetary Board may authorize
such expenditures by the Central Bank as are in the interest of the effective administration and
operation of the Bank." Its prerogative to incur such liabilities and expenditures is not subject to
any prerequisite found in any statute or regulation not expressly applicable to it. Relevantly to
the issues in this case, it is not subject, like the Social Security Commission, to Section 1901 and
related provisions of the Revised Administrative Code which require national government
constructions to be done by or under the supervision of the Bureau of Public Works. (Op. of the
Sec. of Justice No. 92, Series of 1960) For these reasons, the provisions of the Revised
Administrative Code invoked by the Bank do not apply to it. To Our knowledge, in no other
instance has the Bank ever considered itself subject thereto.

In Zobel vs. City of Manila, 47 Phil. 169, this Court adopted a restrictive construction of Section
607 of the Administrative Code thus:
The second question to be considered has reference to the applicability of section 607 of the
Administrative Code to contracts made by the City of Manila. In the second paragraph of said
section it is declared that no contract involving the expenditure by any province, municipality,
township, or settlement of two thousand pesos or more shall be entered into or authorized until
the treasurer of the political division concerned shall have certified to the officer entering into
such contract that funds have been duly appropriated for such purpose and that the amount
necessary to cover the proposed contract is available for expenditure on account thereof. It is
admitted that no such certificate was made by the treasurer of Manila at the time the contract
now in question was made. We are of the opinion that the provision cited has no application to
contracts of a chartered city, such as the City of Manila. Upon examining said provision (sec.
607) it will be found that the term chartered city, or other similar expression, such as would
include the City of Manila, is not used; and it is quite manifest from the careful use of terms in
said section that chartered cities were intended to be excluded. In this connection the definitions
of "province," "municipality," and "chartered city," given in section 2 of the Administrative Code
are instructive. The circumstance that for certain purposes the City of Manila has the status both
of a province and a municipality (as is true in the distribution of revenue) is not inconsistent with
this conclusion." 1

We perceive no valid reason why the Court should not follow the same view now in respect to
the first paragraph of the section by confirming its application only to the offices comprised
within the term National Government as above defined, particularly insofar as government-
owned or created corporations or entities having powers to make expenditures and to incur
liabilities by virtue of their own corporate authority independently of the national or local
legislative bodies, as in the case of the petitioner herein, are concerned. Whenever necessary, the
Monetary Board, like any other corporate board, makes all required appropriations directly from
the funds of the Bank and does not need any official statement of availability from its treasurer
or auditor and without submitting any papers to, much less securing the approval of the Auditor
General or any outside authority before doing so. Indeed, this is readily to be inferred from the
repeal already mentioned earlier of Administrative Order No. 290, s. 1959, which petitioner tried
to invoke, overlooking perhaps such repeal. In other words, by that repeal, the requirement that
the Central Bank should submit to the Auditor General for examination and review before
contracts involving P10,000 or more to be entered into by it "before the same are perfected
and/or consummated" had already been eliminated at the time the transaction herein involved
took place. Consequently, the point of invalidity pressed, belatedly at that, by petitioner has no
leg to stand on.

The other main contention of petitioner is that the purported or alleged contract being relied upon
by respondent never reached the stage of perfection which would make it binding upon the
parties and entitle either of them to sue for specific performance in case of breach thereof. In this
connection, since the transaction herein involved arose from the award of a construction
contract 2 by a government corporation and the attempt on its part to discontinue with the
construction several months after such award had been accepted by the contractor and after the
latter had already commenced the work without any objection on the part of the corporation, so
much so that entry into the site for the purpose was upon express permission from it, but before
any written contract has been executed, it is preferable that certain pertinent points be clarified
for the proper resolution of the issue between the parties here and the general guidance of all
who might be similarly situated.

Petitioner buttresses its position in regard to this issue on the provisions earlier quoted in this
opinion of the Instruction to Bidders: t.hqw

IB 113.4 The acceptance of the Proposal shall be communicated in writing by the

Owner and no other act of the Owner shall constitute the acceptance of the
Proposal. The acceptance of a Proposal shall bind the successful bidder to execute
the Contract and to be responsible for liquidated damages as herein provided. The
rights and obligations provided for in the Contract shall become effective and
binding upon the parties only with its formal execution.
 xxx xxx xxx

IB 118.1 The Contractor shall commence the work within ten (10) calendar days
from the date he receives a copy of the fully executed Contract, and he shall
complete the work within the time specified." (Pp. 18-19, Petitioner-Appellant's
Brief.)

Petitioner insists that under these provisions, the rights and obligations of the Bank and Ablaza
could become effective and binding only upon the execution of the formal contract, and since
admittedly no formal contract has yet been signed by the parties herein, there is yet no perfected
contract to speak of and respondent has, therefore, no cause of action against the Bank. And in
refutation of respondent's argument that it had already started the work with some clearing job
and foundation excavations, which has never been stopped by petitioner who had previously
given express permission to respondent to enter the jobsite, build a temporary shelter and
enclosures thereon, petitioner counters that under the above instructions, respondent is supposed
to commence the work "within ten (10) calendar days from the date he receives a copy of the
fully executed Contract," and for said respondent to have started actual construction work before
any contract has been signed was unauthorized and was consequently undertaken at his own risk,
all the above circumstances indicative of estoppel notwithstanding.

We are not persuaded that petitioner's posture conforms with law and equity. According to
Paragraph IB 114.1 of the Instructions to Bidders, Ablaza was "required to appear in the office of
the Owner (the Bank) in person, or, if a firm or corporation, a duly authorized representative
(thereof), and to execute the contract within five (5) days after notice that the contract has been
awarded to him. Failure or neglect to do so shall constitute a breach of agreement effected by
the acceptance of the Proposal." There can be no other meaning of this provision than that the
Bank's acceptance of the bid of respondent Ablaza effected an actionable agreement between
them. We cannot read it in the unilateral sense suggested by petitioner that it bound only the
contractor, without any corresponding responsibility or obligation at all on the part of the Bank.
An agreement presupposes a meeting of minds and when that point is reached in the negotiations
between two parties intending to enter into a contract, the purported contract is deemed perfected
and none of them may thereafter disengage himself therefrom without being liable to the other in
an action for specific performance.

The rather ambiguous terms of Paragraph IB 113.4 of the Instructions to Bidders relied upon by
petitioner have to be reconciled with the other paragraphs thereof to avoid lack of mutuality in
the relation between the parties. This invoked paragraph stipulates that "the acceptance of
(respondent's) Proposal shall bind said respondent to execute the Contract and to be responsible
for liquidated damages as herein provided." And yet, even if the contractor is ready and willing
to execute the formal contract within the five (5) day period given to him, petitioner now claims
that under the invoked provision, it could refuse to execute such contract and still be absolutely
free from any liability to the contractor who, in the meantime, has to make necessary
arrangements and incur expenditures in order to be able to commence work "within ten (10) days
from the date he receives a copy of the fully executed Contract," or be responsible for damages
for delay. The unfairness of such a view is too evident to be justified by the invocation of the
principle that every party to a contract who is sui juris and who has entered into it voluntarily
and with full knowledge of its unfavorable provisions may not subsequently complain about
them when they are being enforced, if only because there are other portions of the Instruction to
Bidders which indicate the contrary. Certainly, We cannot sanction that in the absence of
unavoidable just reasons, the Bank could simply refuse to execute the contract and thereby avoid
it entirely. Even a government owned corporation may not under the guise of protecting the
public interest unceremoniously disregard contractual commitments to the prejudice of the other
party. Otherwise, the door would be wide open to abuses and anomalies more detrimental to
public interest. If there could be instances wherein a government corporation may justifiably
withdraw from a commitment as a consequence of more paramount considerations, the case at
bar is not, for the reasons already given, one of them.
As We see it then, contrary to the contention of the Bank, the provision it is citing may not be
considered as determinative of the perfection of the contract here in question. Said provision
only means that as regards the violation of any particular term or condition to be contained in the
formal contract, the corresponding action therefor cannot arise until after the writing has been
fully executed. Thus, after the Proposal of respondent was accepted by the Bank thru its telegram
and letter both dated December 10, 1965 and respondent in turn accepted the award by its letter
of December 15, 1965, both parties became bound to proceed with the subsequent steps needed
to formalize and consummate their agreement. Failure on the part of either of them to do so,
entities the other to compensation for the resulting damages. To such effect was the ruling of this
Court in Valencia vs. RFC 103 Phil. 444. We held therein that the award of a contract to a bidder
constitutes an acceptance of said bidder's proposal and that "the effect of said acceptance was to
perfect a contract, upon notice of the award to (the bidder)". (at p. 450) We further held therein
that the bidder's "failure to (sign the corresponding contract) do not relieve him of the obligation
arising from the unqualified acceptance of his offer. Much less did it affect the existence of a
contract between him and respondent". (at p. 452)

It is neither just nor equitable that Valencia should be construed to have sanctioned a one-sided
view of the perfection of contracts in the sense that the acceptance of a bid by a duly authorized
official of a government-owned corporation, financially and otherwise autonomous both from the
National Government and the Bureau of Public Works, insofar as its construction contracts are
concerned, binds only the bidder and not the corporation until the formal execution of the
corresponding written contract.

Such unfairness and inequity would even be more evident in the case at bar, if We were to
uphold petitioner's pose. Pertinently to the point under consideration, the trial court found as
follows:

To determine the amount of damages recoverable from the defendant, plaintiff's claim for actual
damages in the sum of P298,433.35, as hereinabove stated, and the recommendation of Messrs.
Ambrosio R. Flores and Ricardo Y. Mayuga, as contained in their separate reports (Exhs. "13"
and "15"), in the amounts of P154,075.00 and P147,500.00, respectively, should be taken into
account.

There is evidence on record showing that plaintiff incurred the sum of P48,770.30 for the
preparation of the jobsite, construction of bodegas, fences field offices, working sheds, and
workmen's quarters; that the value of the excavation work accomplished by the plaintiff at the
site was P113,800.00; that the rental of the various construction equipment of the plaintiff from
the stoppage of work until the removal thereof from the jobsite would amount to P78,540.00
(Exhs. "K" - "K-l"); that the interest on the cash bond of P275,000.00 from November 3, 1965 to
July 7, 1966 at 12% per annum would be P22,000.00; that for removing said construction
equipment from the jobsite to Manila, plaintiff paid a hauling fee of P700.00 (Exhs. "L" - "L-1"
); that for the performance bond that the plaintiff posted as required under its contract with the
defendant, the former was obliged to pay a premium of P2,216.55; and that the plaintiff was
likewise made to incur the sum of P32,406.50, representing the 3% contractor's tax (Exhs. "AA"
- "A-l"). The itemized list of all these expenditures, totalling P298,433.35 is attached to the
records of this case (Annex "B", Complaint) and forms part of the evidence of the plaintiff. Mr.
Nicomedes G. Ablaza, the witness for the plaintiff, properly identified said document and
affirmed the contents thereof when he testified during the hearing. The same witness likewise
explained in detail the various figures contained therein, and identified the corresponding
supporting papers.

It is noteworthy, in this connection, that there is nothing in the records that would show that the
defendant assailed the accuracy and/or reasonableness of the figures presented by the plaintiff;
neither does it appear that the defendant offered any evidence to refute said figures.

While it is claimed by the defendant that the plaintiff incurred a total expense of only
P154,075.00 according to the report of Mr. Ambrosio R. Flores, or P147,500.00, according to the
report of Mr. Ricardo Y. Mayuga, the Court finds said estimates to be inaccurate. To cite only an
instance, in estimating, the value of the excavation work, the defendant merely measured the
depth, length and width of the excavated, area which was submerged in water, without
ascertaining the volume of rock and the volume of earth actually excavated as was done by the
plaintiff who prepared a detailed plan showing the profile of the excavation work performed in
the site (Exh. "B"). Likewise, the unit measure adopted by the defendant was in cubic meter
while it should be in cubic yard. Also the unit price used by the defendant was only P8.75 for
rock excavation while it should be P10.00 per cubic yard; and only P4.95 for earth excavation
while it should be P5.50 per cubic yard as clearly indicated in plaintiff's proposal (Annex "A",
Complaint; same as Annex "1", Answer). The Court, therefore, can not give credence to
defendant's, aforementioned estimates in view of their evident inaccuracies.

The Court finds from the evidence adduced that Plaintiff claim for actual damages in the sum of
P298,433.35 is meritorious.

The Bulk of plaintiffs claims consists of expected profit which it failed to realize due to the
breach of the contract in question by the defendant. As previously stated, the plaintiff seeks to
recover the amount of P814,190.00 by way of unrealized expected profit. This figure represents
18% of P4,523,275.00 which is the estimated direct cost of the subject project.

As it has been established by the evidence that the defendant in fact was guilty of breach of
contract and, therefore, liable for damages (Art. 1170, New Civil Code), the Court finds that the
plaintiff is entitled to recover from the defendant unrealized expected profit as part of the actual
or compensatory damages. Indemnification for damages shall comprehend not only the value of
the loss suffered, but also that of the profits which the obligee failed to obtain (Art. 2200, New
Civil Code).

Where a party is guilty of breach of contract, the other party is entitled to recover the profit
which the latter would have been able to make had the contract been performed (Paz P. Arrieta,
et al., plaintiffs-appellees, vs. National Rice Corporation defendant-appellant, G.R. No. L-15645,
promulgated on January 31, 1964; Vivencio Cerrano, plaintiff-appellee, vs. Tan Chuco,
defendant-appellant, 38 Phil. 392).

Regarding the expected profit, a number of questions will have to be answered: Is the 18%
unrealized expected profit being claimed by the plaintiff reasonable? Would the plaintiff be
entitled to the whole amount of said expected profit although there was only partial performance
of the contract? Would the 18% expected profit be based on the estimated direct cost of the
subject in the amount of P4,523,275.00, or on plaintiff's bid proposal of P3,749,000.00?

On the question of reasonableness of the 18% expected profit, the Court noted that according to
defendant's own expert witness, Mr. Ambrosio R. Flores, 25% contractor's profit for a project
similar in magnitude as the one involved in the present case would be ample and reasonable.
Plaintiff's witness, Mr. Nicomedes G. Ablaza, an experienced civil engineer who has been
actively engaged in the construction business, testified that 15% to 20% contractor's profit would
be in accordance with the standard engineering practice. Considering the type of the project
involved in this case, he stated, the contractor's profit was placed at 18%. Taking into
consideration the fact that this percentage of profit is even lower than what defendant's witness
considered to be ample and reasonable, the Court believes that the reasonable percentage should
be 18% inasmuch as the actual work was not done completely and the plaintiff has not invested
the whole amount of money called for by the project." (Pp. 263-268, Record on Appeal.)

These findings have not been shown to Us to be erroneous. And additional and clarificatory
details, which We find to be adequately supported by the record, are stated in Respondents' brief
thus: t.hqw
23. In a letter dated January 4, 1966, petitioner Central Bank, through the same
Mr. Mendoza, to this request of respondent Ablaza. (Annex "D-1" to the Partial
Stipulation of Facts, R.A., p. 146).

24. Acting upon this written permission, respondent Ablaza immediately brought
its men and equipment from Manila to the construction site in San Fernando, La
Union, and promptly commenced construction work thereat. This work, consisted
of the setting up of an enclosure around the site, the building of temporary shelter
for its workmen, and the making of the necessary excavation works.
(Commissioner's Report, R.A., p. 181).

25. Following the commencement of such construction work, petitioner Central

Bank, through a letter dated February 8, 1966, formally requested respondent
Ablaza to submit to petitioner the following:t.hqw

(a) A schedule of deliveries of material which, under the terms of

respondent Ablaza's approved proposal, were to be furnished by
petitioner.

(b) A time-table for the accomplishment of the construction work.

In short, as early as February 8, 1966, or more than three months

prior to petitioner's repudiation of the contract in question the
latter (petitioner) already took the above positive steps it
compliance with its own obligations under the contract.

26. Acting upon petitioner's above letter of February 8, 1966, on February 16,
1966, respondent Ablaza submitted the schedule of deliveries requested by
petitioner. (Commissioner's Report, R.A., p. 182; Decision id., 252; also Exhs.
"D" to "D-7", inclusive.)

27. During the period of actual construction, respondent Ablaza, on several

occasions, actually discussed the progress of the work with Mr. Mendoza. In
addition, in March 1966, the latter (Mr. Mendoza) personally visited the
construction site. There he saw the work which respondent had by that time
already accomplished which consisted of the completion of approximately 20% of
the necessary excavation works. (Commissioner's Report, R.A., p. 182; Decision,
id., p. 252).

28. Following Mr. Mendoza's visit at the construction site, or more specifically on
March 22, 1966, the latter (Mendoza) wrote to respondent Ablaza, instructing the
latter to formally designate the person to represent the corporation at the signing
of the formal construction contract. (Exh. "H"; also t.s.n., pp. 119-121, December
18, 1967).

29. By a letter dated March 24, 1966, respondent Ablaza promptly complied with
the above request. (Exh. "I"; also t.s.n., pp 121-123, December 18, 1967).

30. Subsequently, respondent Ablaza posted the required performance guaranty

bond in the total amount of P962,250.00, consisting of (a) a cash bond in the
amount of P275,000.00, and (b) a surety bond, PSIC Bond No. B-252-ML, dated
May 19, 1966, in the amount of P687,250.00. In this connection, it is important to
note that the specific purpose of this bond was to guarantee "the faithful
Performance of the Contract" by respondent Ablaza. (Partial Stipulation of Facts,
par. 6, R.A., p. 141). This performance guaranty bond was duly accepted by
petitioner.(Id.)
31. However, on May 20, 1966, petitioner Central Bank called for a meeting with
representatives of respondent Ablaza and another contractor. This meeting was
held at the Conference Room of the Central Bank Building. At this meeting, then
Finance Secretary Eduardo Romualdez, who acted as the representative of
petitioner, announced that the Monetary Board had decided to reduce the
appropriations for the various proposed Central Bank regional office
buildings, including the one for San Fernando, La Union.

32. In view of this decision, Secretary Romualdez informed respondent Ablaza

that new plans and designs for the proposed regional office building in San
Fernando would have to be drawn up to take account of the reduction in
appropriation. Secretary Romualdez then advised respondent to suspend work at
the construction site in San Fernando in the meanwhile. (Decision, R.A., pp. 253-
254).

33. After making the above announcements, Secretary Romualdez proposed that
all existing contracts previously entered into between petitioner Central Bank and
the several winning contractors (among them being respondent Ablaza) be
considered set aside.

34. Obviously to induce acceptance of the above proposal, Secretary Romualdez

offered the following concessions to respondent Ablaza: t.hqw

(a) That its cash bond in the amount of P275,000.00 be released

immediately, and that interest be paid thereon at the rate of 12%
per annum.

(b) That respondent Ablaza be reimbursed for expenses incurred

for the premiums on the performance bond which it posted, and
which petitioner had already accepted. (Decision, R.A., pp. 253-
254).

35. In addition, Secretary Romualdez also proposed the conclusion of a new

contract with respondent Ablaza for the construction of a more modest regional
office building at San Fernando, La Union, on a negotiated basis. However, the
sincerity and feasibility of this proposal was rendered dubious by a caveat
attached to it, as follows: t.hqw

'4. Where auditing regulations would permit, the Central Bank

would enter into a negotiated contract with the said corporation
(Ablaza) for the construction work on the building on the basis of
the revised estimates.' (Annex "8" to Answer, R.A., p. 95).

36. The revised cost fixed for this proposed alternative regional office building
was fixed at a maximum of P3,000,000.00 (compared to P3,749,000.00 under the
contract originally awarded to respondent). (Annex "6-A" to Answer, R.A., p. 87).

37. Needless perhaps to state, respondent Ablaza rejected the above proposals
(pars. 34 and 35, supra.), and on June 3, 1966, through counsel, wrote to
petitioner demanding the formal execution of the contract previously awarded to
it, or in the alternative, to pay "all damages and expenses suffered by (it) in the
total amount of P1,181,950.00 ... "(Annex "7" to Answer, R.A., pp. 89-
91; Decision, id., p. 254).

38. In a letter dated June 15, 1966, petitioner Central Bank, through Deputy
Governor Amado R. Brinas, replied to respondent Ablaza's demand denying any
liability on the basis of the following claim: t.hqw
 `(That, allegedly) in line with the agreement ... reached between
the Central Bank and Ablaza Construction and Finance
Corporation at a meeting held ... on May 20, 1966,' "whatever
agreements might have been previously agreed upon between
(petitioner and respondent) would be considered set aside."
(Decision, R.A., p. 255; Annex "8" to Answer, id., pp. 93-96.)

39. The above claim was, however, promptly and peremptorily denied by
respondent Ablaza, through counsel, in a letter dated June 16, 1966. (Partial
Stipulation of Facts, par. 9, R.A., p. 142, also Annex "G" thereof; Commissioner's
Report, R.A., p. 185; Decision, id., p. 255.)" (Appellee's Brief, pars. 23 to 39, pp.
14-19.)

None of these facts is seriously or in any event sufficiently denied in petitioner's reply brief.

Considering all these facts, it is quite obvious that the Bank's insistence now regarding the need
for the execution of the formal contract comes a little too late to be believable. Even
assuming arguendo that the Revised Manual of Instructions to Treasurers were applicable to the
Central Bank, which is doubtful, considering that under the provisions of its charter already
referred to earlier, disbursements and expenditures of the Bank are supposed to be governed by
rules and regulations promulgated by the Monetary Board, in this particular case, the attitude and
actuations then of the Bank in relation to the work being done by Ablaza prior to May 20, 1966
clearly indicate that both parties assumed that the actual execution of the written contract is a
mere formality which could not materially affect their respective contractual rights and
obligations. In legal effect, therefore, the Bank must be considered as having waived such
requirement.

To be more concrete, from December 15, 1965, when Ablaza accepted the award of the contract
in question, both parties were supposed to have seen to it that the formal contract were duly
signed. Under the Instructions to Bidders, Ablaza was under obligation to sign the same within
five (5) days from notice of the award, and so, he called on the Bank at various times for that
purpose. The Bank never indicated until May, 1966 that it would not comply. On the contrary, on
February 8, 1966, Ablaza was requested to submit a "schedule of deliveries of materials" which
under the terms of the bid were to be furnished by the Bank. On March 22, 1966, Ablaza
received a letter from the Bank inquiring as to who would be Ablaza's representative to sign the
formal contract. In the meanwhile, no less than Mr. Rizalino Mendoza, the Chairman of the
Management Building Committee of the Central Bank who had been signing for the Bank all the
communications regarding the project at issue, had visited the construction site in March, 1966,
just before he wrote the request abovementioned of the 22nd of that month for the nomination of
the representative to sign the formal contract, and actually saw the progress of the work and that
it was being continued, but he never protested or had it stopped. All these despite the fact that the
Memorandum Circular being invoked by the Bank was issued way back on December 31, 1965
yet. And when finally on May 20, 1966 the Bank met with the representatives of Ablaza
regarding the idea of changing the plans to more economical ones, there was no mention of the
non-execution of the contract as entitling the Bank to back out of it unconditionally. Rather, the
talk, according to the findings of the lower courts, was about the possibility of setting aside
whatever agreement there was already. Under these circumstances, it appears that respondent has
been made to believe up to the time the Bank decided definitely not to honor any agreement at all
that its execution was not indispensable to a contract to be considered as already operating and
respondent could therefore proceed with the work, while the contract could be formalized later.

Petitioner contends next that its withdrawal from the contract is justified by the policy of
economic restraint ordained by Memorandum Circular No. 1. We do not see it that way.
Inasmuch as the contract here in question was perfected before the issuance of said
Memorandum Circular, it is elementary that the same may not be enforced in such a manner as to
result in the impairment of the obligations of the contract, for that is not constitutionally
permissible. Not even by means of a statute, which is much more weighty than a mere
declaration of policy, may the government issue any regulation relieving itself or any person
from the binding effects of a contract. (Section 1 (10), Article III, Philippine Constitution of
1953 and Section 11, Article IV, 1973 Constitution of the Philippines.) Specially in the case of
the Central Bank, perhaps, it might not have been really imperative that it should have revised its
plans, considering that it has its own resources independent of those of the national government
and that the funds of the Central Bank are derived from its own operations, not from taxes. In
any event, if the memorandum circular had to be implemented, the corresponding action in that
direction should have been taken without loss of time and before the contract in question had
taken deeper roots. It is thus clear that in unjustifiably failing to honor its contract with
respondent, petitioner has to suffer the consequences of its action.

The last issue submitted for Our resolution refers to the amount of damages awarded to Ablaza
by the trial court and found by the Court of Appeals to be "fair and reasonable." Again, after a
review of the record, We do not find sufficient ground to disturb the appealed judgment even in
this respect, except as to attorney's fees.

There are three principal items of damages awarded by the courts below, namely: (1)
compensation for actual work done in the amount of P298,433.35, (2) unrealized profits
equivalent to 18% of the contract price of P3,749,000 or P674,820.00 and (3) 15% of the total
recovery as attorney's fees in addition to the P5,000 already paid as retaining fee. All of these
items were the subject of evidence presented by the parties. According to the Court of
Appeals: t.hqw

As regard the accuracy and reasonableness of the award for damages, both actual
and compensatory, it is to be noted that the trial court subjected the
Commissioner's report and the evidence adduced therein to a careful scrutiny.
Thus, when the appellant called the trial court's attention to the fact that the
P814,190.00 unrealized expected profit being claimed by appellee represented
18% of P4,523,275.00 which was the estimated cost of the project, while the
contract awarded to appellee was only in the amount of P3,749,000.00 as per its
bid proposal, the Court made the necessary modification. It is further to be noted
that the amount of 18% of the estimated cost considered in the said award is much
less than that given by appellant's own expert witness, Ambrosio R. Flores. He
testified that 25% as contractor's profit "would be fair, ample and reasonable."
(T.s.n, p. 557, Batalla.)" (p. 17 A, Appellant's brief.)

Basically, these are factual conclusions which We are not generally at liberty to disregard. And
We have not been shown that they are devoid of reasonable basis.

There can be no dispute as to the legal obligation of petitioner to pay respondent the actual
expenses it has incurred in performing its part of the contract.

Upon the other hand, the legal question of whether or not the Bank is liable for unrealized profits
presents no difficulty. In Arrieta vs. Naric G.R. No. L-15645, Jan. 31, 1964, 10 SCRA 79, this
Court sustained as a matter of law the award of damages n the amount of U.S. $286,000, payable
in Philippine Currency, measured in the rate of exchange prevailing at the time the obligation
was incurred (August, 1952), comprising of unrealized profits of the plaintiff, Mrs. Paz Arrieta,
in a case where a government-owned corporation, the Naric failed to proceed with the purchase
of imported rice after having accepted and approved the bid of Arrieta and after she had already
closed her contract with her foreign sellers.

Actually, the law on the matter is unequivocally expressed in Articles 2200 and 2201 of the Civil
Code thus: t.hqw

ART. 2200. Identification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits, which the obligee failed to obtain..
 ART. 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have forseen
or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.

Construing these provisions, the following is what this Court held in Cerrano vs. Tan Chuco, 38
Phil. 392: t.hqw

.... Article 1106 (now 2200) of the Civil Code establishes the rule that prospective
profits may be recovered as damages, while article 1107 (now 2201) of the same
Code provides that the damages recoverable for the breach of obligations not
originating in fraud (dolo) are those which were or might have been foreseen at
the time the contract was entered into. Applying these principles to the facts in
this case, we think that it is unquestionable that defendant must be deemed to
have foreseen at the time he made the contract that in the event of his failure to
perform it, the plaintiff would be damaged by the loss of the profit he might
reasonably have expected to derive from its use.

When the existence of a loss is established, absolute certainty as to its amount is

not required. The benefit to be derived from a contract which one of the parties
has absolutely failed to perform is of necessity to some extent, a matter of
speculation, but the injured party is not to be denied all remedy for that reason
alone. He must produce the best evidence of which his case is susceptible and if
that evidence warrants the inference that he has been damaged by the loss of
profits which he might with reasonable certainty have anticipated but for the
defendant's wrongful act, he is entitled to recover. As stated in Sedgwick on
Damages (Ninth Ed., par. 177):

The general rule is, then, that a plaintiff may recover compensation for any gain
which he can make it appear with reasonable certainty the defendant's wrongful
act prevented him from acquiring, ...'. (See also Algarra vs. Sandejas, 27 Phil.
Rep., 284, 289; Hicks vs. Manila Hotel Co., 28 Phil. Rep., 325.) (At pp. 398-399.)

Later, in General Enterprises, Inc. vs. Lianga Bay Logging Co. Inc., 11 SCRA 733, Article 2200
of the Civil Code was again applied as follows: t.hqw

Regarding the actual damages awarded to appellee, appellant contends that they
are unwarranted inasmuch as appellee has failed to adduce any evidence to
substantiate them even assuming arguendo that appellant has failed to supply the
additional monthly 2,000,000 board feet for the remainder of the period agreed
upon in the contract Exhibit A. Appellant maintains that for appellee to be entitled
to demand payment of sales that were not effected it should have proved (1) that
there are actual sales made of appellee's logs which were not fulfilled, (2) that it
had obtained the best price for such sales, (3) that there are buyers ready to buy at
such price stating the volume they are ready to buy, and (4) appellee could not
cover the sales from the logs of other suppliers. Since these facts were not proven,
appellee's right to unearned commissions must fail.

This argument must be overruled in the light of the law and evidence on the
matter. Under Article 2200 of the Civil Code, indemnification for damages
comprehends not only the value of the loss suffered but also that of the profits
which the creditor fails to obtain. In other words, lucrum cessans is also a basis
for indemnification. The question then that arises is: Has appellee failed to make
 profits because of appellant's breach of contract, and in the affirmative, is there
here basis for determining with reasonable certainty such unearned profits?

Appellant's memorandum (p. 9) shows that appellee has sold to Korea under the
contract in question the following board feet of logs, Breareton
Scale: t.hqw

Months Board Feet

From June to August 1959 3,007,435

September, 1959 none
October, 1959 2,299,805
November, 1959 801,021
December, 1959 1,297,510

Total 7,405,861

The above figures tally with those of Exhibit N. In its brief (p. 141) appellant
claims that in less than six months' time appellee received by way of commission
the amount of P117,859.54, while in its memorandum, appellant makes the
following statement:

`11. The invoice F.O.B. price of the sale through plaintiff General is P767,798.82
but the agreed F.O.B. price was P799,319.00, the commission at 13% (F.O.B.) is
P117,859.54. But, as there were always two prices Invoice F.O.B price and
F.O.B. price as per contract, because of the sales difference amounting to
P31,920.18, and the same was deducted from the commission, actually paid to
plaintiff General is only P79,580.82.' " It appears, therefore, that during the period
of June to December, 1959, in spite of the short delivery incurred by appellant,
appellee had been earning its commission whenever logs were delivered to it. But
from January, 1960, appellee had ceased to earn any commission because
appellant failed to deliver any log in violation of their agreement. Had appellant
continued to deliver the logs as it was bound to pursuant to the agreement it is
reasonable to expect that it would have continued earning its commission in much
the same manner as it used to in connection with the previous shipments of logs,
which clearly indicates that it failed to earn the commissions it should earn during
this period of time. And this commission is not difficult to estimate. Thus, during
the seventeen remaining months of the contract, at the rate of at least 2,000,000
board feet, appellant should have delivered thirty-four million board feet. If we
take the number of board feet delivered during the months prior to the
interruption, namely, 7,405,861 board feet, and the commission received by
appellee thereon, which amounts to P79,580.82, we would have that appellee
received a commission of P.0107456 per board feet. Multiplying 34 million board
feet by P.0107456, the product is P365,350.40, which represents the lucrum
cessans that should accrue to appellee. The award therefore, made by the court a
quo of the amount of P400,000.00 as compensatory damages is not speculative,
but based on reasonable estimate.

In the light of these considerations, We cannot say that the Court of Appeals erred in making the
aforementioned award of damages for unrealized profits to respondent Ablaza.

With respect to the award for attorney's fees, We believe that in line with the amount fixed in
Lianga, supra., an award of ten per centum (10%) of the amount of the total recovery should be
enough.
 [GR No. 46419. February 20, 1940.]

THE FILIPINO NATIONAL BANK, plaintiff-appellant, against AH SING, defendant-

appellant.

Mr Ramon Diokno in representation of the appellant-appellant.

D. Claro M. Recto, D. Gaudencio Garcia, D. Rafael S. Castilo, and D. Antonio Habana, Jr.,
in representation of the respondent-appellant.

SYLLABUS

1. REAL ESTATE AGREEMENT OF INMUBLES; DELIVERY OF THE PROPERTY TO

THE BUYER; POSSESSION AND ENJOY THE SAME; BILATERAL PROMISE. - The
contract concluded by the parties is the actual sale of the properties that were the subject of the
contract. According to their terms the parties agreed on both the land that was the object of the
contract and the price and the way in which the latter was to be paid. Not only this, but the
parties agreed that the land would be delivered to the defendant and that, in fact, took possession
of the land, introduced improvements in them and benefited from its fruits, paying, in addition,
the time limits agreed upon That they overcome. Article 14o0 of the Civil Code is strictly
applicable to the case, which provides that the sale is perfected between buyer and seller and is
obligatory for both, Provided that they have agreed on the object of the contract and on the price,
even if neither has been delivered. Moreover, the sale was also consummated from the moment
the lands were delivered to the defendant and the latter came into possession and enjoyment of
them (Article 14o2 of the Civil Code). The contract was an accepted bilateral promise that in law
becomes the same contract of purchase and sale that defines article 1445 of the Civil Code.

2. ID .; FOREIGN; CONSTITUTION OF THE PHILIPPINES; ACQUIRED RIGHTS; DUE

PROCESS OF LAW. - According to article 5, Title XII, of the Constitution, the defendant can
not acquire in final purchase the lands that were the object of the contract because he is a
foreigner or citizen of the Republic of China, And that the promise can not be fulfilled by the
claimant, the annulment of the contract and the restitution of the lands and the price proceed. We
declare that the prohibition does not reach the defendant because Article 5, Title XII, of the
Constitution has no retroactive effect. Once the defendant of land had been made prior to
November 15, 1935, the date on which the Constitution entered into force, the rights he acquired
in this respect can not be deprived because he would object to the precept of Article 1 (1), Title
III, of the Constitution, which provides that no one shall be deprived of his property without due
process of law. Of the Constitution has no retroactive effect. Once the defendant of land had
been made prior to November 15, 1935, the date on which the Constitution entered into force,
the rights he acquired in this respect can not be deprived because he would object to the precept
of Article 1 (1), Title III, of the Constitution, which provides that no one shall be deprived of his
property without due process of law. Of the Constitution has no retroactive effect. Once the
defendant of land had been made prior to November 15, 1935, the date on which the Constitution
entered into force, the rights he acquired in this respect can not be deprived because he would
object to the precept of Article 1 (1), Title III, of the Constitution, which provides that no one
shall be deprived of his property without due process of law.

DECISION

IMPERIAL, M .:

The plaintiff brought the action to obtain the annulment of the contract concluded between him
and the defendant on April 4, 1934. The plaintiff claims that the contract is a promise of sale of
real estate and that being prohibited by the Constitution the transfer of agricultural land To a
foreigner, the promised sale is not already realizable and should be annulled, both parts being
reintegrated the land and the price, with their legal interests. The defendant contends that the
contract is an absolute sale; And that the prohibition of the Constitution is not applicable because
it has no retroactive effect and because, in addition, it had already acquired a right that the same
Constitution protects. The plaintiff appealed the part of the decision issued by the Court of First
Instance of Avao that he ordered him to pay the defendant the sum of P2,877.50 as value of the
useful and necessary expenses made by the latter on the land, , Because the defendant was not
condemned to pay him the value of the fruits of the lands that perceived. The defendant's appeal
of the part of the same judgment that declared that the contract is a promise of sale; That the
improvements made by him to land may be acquired by the plaintiff through payment of his
value; That the contract is null and void; And that the parties must reciprocally reimburse the
land and the amortization paid,

With legal interests over the last since April 4, 1934 The issues raised in this appeal revolve
around the interpretation of the contract concluded, so it should be transcribed below: jgc:
chanrobles.com.ph

"PROMISE OF SALE "

" Notorious is to all JGC: chanrobles.com.ph

"That the Philippine National Bank, one caria Ban- corporation created, organized and existing
under and by Act No. 2012, as was reformed, headquartered Is located in the City of Manila and
with a branch established in the municipality of Davao, Province of Davao, IF, later designated
as First Party; And A. Sing, of legal age, trader and domiciled in said municipality of Davao,
Province of Davao, IF, which later became designated as Part hereby agree, stipulate , and notes:
JGC: chanrobles.com.ph

. "First in consideration of the sum of twenty - five thousand pesos (P25,000), the Second Party
Obliges to satisfy in the form that is most expressly stated, a party hereby undertakes to sell,
assign, and transfer at all to the Second Party all its right, title, interest and participation in two
parcels of land located in the District of Samal, Province of Davao, which are described as
follows: jgc: chanrobles.com.ph

"1. A parcel of land (lot No. 3, plan II-10758) with all buildings and improvements, except those
herein expressly noted as belonging to other persons, situated in the neighborhood of
Quinawitnon, neighborhood of Babac, Municipal district of Samal; Bounded on the N. by
property of Placida Quiones; On the NE. By public lands; On the SE. By public lands; On the
SW. By property of Basilides Bustamante; And on the NW. By the Gulf of Davao, property of
Bocboc, the road and properties of Mayond-gon, the Municipal Government of Samal, Lelango,
Bancao, Angel Mamay-ya and Libudan Et. To the.; Containing an area of 3,223,867 square
meters, more or less;

"2. A parcel of land (lot No. 4, plan-10758) with all buildings and improvements, except those
herein expressly noted and belonging to other persons, situated in the site of Quinawitnon,
neighborhood of Babac, municipal district of Samal; Bounded on the SE by a road, on the S. by
properties of Logan and Gutom, on the SW by the Gulf of Davao, and on the NW by property of
Libudon et al., Containing an area of 16, 481 square meters, more or less; Whose properties are
more particularly described in title transfer certificate No. 1099 issued by the title registrar of
Davao in the name of the Philippine National Bank.

"Second, that the Second Party shall pay the price stipulated above as follows: jgc:
chanrobles.com.ph

" Two thousand pesos (P2,000) in cash, upon the granting of this contract; And
"The balance of twenty-three thousand pesos (P23,000), with its interest at 8 per cent per annum,
in twenty equal annual amortizations of P2,342.55 each, and the first amortization must be paid
on April 3, 1936.

" Third. That the Second Party also pay the contributions and taxes, both due and due, That
affect the said properties, as well as any other charges that weigh on them, and the expenses of
granting this contract and the definitive deed of sale, if applicable, the documentary stamps and
the registration rights in relation to this transaction .

"Fourth, that the possession of said properties shall be assigned to the Second Party on the date
of the granting of this contract.

" Fifth. That the First Party will not respond to the Second Part of the sanitation in case of
eviction nor for the defects or hidden charges of said properties.

"Sixth, that once paid in full by the Second Party the price stipulated above, the First Party shall
grant the corresponding definitive deed of sale of all its right, title, Interest and participation in
the repeated properties in favor of the Second Party.

If the Second Party fails to pay, upon its expiration, any amortization as stipulated in the second
paragraph hereof, or fails to fulfill any of the conditions specified above, this contract shall be
automatically terminated and canceled, and , In such case all the amounts paid by the Second
Party shall be considered as rents paid for the use and occupation of said properties during the
time elapsed from the granting of this contract until such termination and cancellation,
whereupon the First Party may be immediately possessed Of the same and sell them to another
person.

"In faith of which, the parties sign the present in Davao, Davao, IF, Today April 4, 1934. "
cralaw virtua1aw library

In the agreement of facts that the parties have submitted the following admissions are made: jgc:
chanrobles.com.ph

" 1. That the parties admit the due grant and authenticity of Exhibit A, attached to this agreement
of facts.

"2. That it is also admitted that the defendant has been religiously fulfilling its obligations under
the terms of the Exhibito A contract, and that the depreciation corresponding to the year 1937
was deposited by the defendant in the registry of this Court for Have the complainant refused and
refused to accept it.

"3. That it is also admitted that the defendant since the granting of Exhibit A, together with this
agreement, until this date, Has been and continued in the possession of the lands, subject of the
contract Exhibito A, and continues said defendant occupying them.

"4. That it is also admitted that the plaintiff has requested the defendant to return and deliver the
lands, subject to the Exhibito A contract, and the defendant has refused to do so.

" A copy of the letter of formal notice addressed to the defendant by the plaintiff's attorney is
attached to this agreement and is marked as Exhibit B, and the respondent's response to Hon.
Ramon Diokno regarding the letter from the manager of his branch in Davao, Also binds to this
agreement and is marked as Exhibit C.

"6. That the lands, object of Exhibito A contract, are for agricultural purposes or agricultural
lands.

" Will entitle the contractors to claim reciprocally the fulfillment of the contract. In our opinion,
the contract entered into by the parties is the actual sale of the properties that were the subject of
the contract. According to their terms, the parties agreed on both the land that was the object of
the contract and the price and manner in which the latter should be paid. Not only this, but the
parties agreed that the land would be delivered to the defendant and this , In fact, took possession
of the lands, introduced improvements in them and benefited from their fruits, paying, in
addition, the agreed terms as they expire. Article 1450 of the Civil Code is strictly applicable to
the case, which provides that the sale is perfected between buyer and seller and is mandatory for
both, Provided that they have agreed on the object of the contract and on the price, even if
neither has been delivered. Moreover, the sale was also consummated from the moment the lands
were delivered to the defendant and the latter entered into possession and enjoyment of them
(article 1462 of the Civil Code). It is implied that the contract is no more than a single unilateral
pledge accepted that in law does not confer any action to the one that tries to buy. We believe
that the contract was an accepted bilateral promise that in law becomes the same contract of
purchase and sale that defines article 1445 of the Civil Code. On this point it is worth mentioning
the commentary of the Manresa writer who says: jgc: chanrobles.com.ph "(b) Bilateral pledge -
This promise is reciprocal, it is buying and selling. When it is accepted by both parties, it has the
same value as what we have come to call a contract of purchase and sale. In order to convince
ourselves of this, it is sufficient to bear in mind that all the essential requirements of said contract
are given in this legal situation. "The Code recognizes this in the article that we commented
upon, stating that, having conformity in the thing and in the price, it will give the right to the
contractors to demand reciprocally the fulfillment of the contract. (10 Manresa, 2nd edition, page
70.) In relation to the second point, Article 5, Title XII, of the Constitution provides: jgc:
chanrobles.com.ph"ART. Of hereditary succession, no private agricultural land shall be
transferred or ceded except in favor of individuals, The rights that he acquired in that concept
can not be deprived because he would challenge the precept of Article 1 (1), Title III, of the
Constitution, which provides that no one shall be deprived of his property without due process of
law. In the light of the foregoing conclusions, the appellant's appeal is without merit and his error
statements do not require further consideration. The judgment is revoked; The contract in
question is declared valid; And the Clerk of the Court of First Instance of Davao will deliver to
the plaintiff the Manager's Check No. 11153 for the sum of P2,342.55 that the person deposited
in payment of the expired term, with the costs of both instances to the plaintiff. That is how it is
commanded. Avancea, Pres., Villa-real, Diaz, Laurel and Concepcion, MM.,
G.R. No. L-7382 June 29, 1955

SOUTHWESTERN SUGAR AND MOLASSES COMPANY, plaintiff-appellee,

vs.
ATLANTIC GULF & PACIFIC COMPANY, defendant-appellant.

Arturo A. Alafriz and A. B. Alcera for appellant.

Mariano Agoncillo for appellee.

BAUTISTA ANGELO, J.:

This is an action for specific performance.

On March 24, 19 53, the Atlantic Gulf & Pacific Company of Manila, hereafter called Atlantic
Gulf for short, granted an option to Southwestern Sugar & Molasses Co. (Far East) Inc.,
hereafter called Southwestern Company, to buy its barge No. 10 for the sum of P30,000 to be
exercised within a period of ninety days.

On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the latter that it
wanted "to exercise our option at your earliest convenience" and requested that it be notified as
soon as the barge was available.

On May 12, 1953, the Atlantic Gulf replied stating that their understanding was that the "offer of
option" is to be a cash transaction and to be effected "at the time the lighter is available", and, on
June 25, 1953, reiterating the unavailability of the barge, it further advised the Southwestern
Company that since there is still further work for it, and as this situation still applies" the barge
could not be turned over to the latter company.

On June 27, 1953, in view if such vacillating attitude, the Southwestern Company instituted the
present action to compel the Atlantic Gulf to sell the barge in line with the option, depositing
with the court a check covering the sum of P30,000. This check however was later withdrawn
with the approval of the court.

On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices to the
Southwestern Company stating as reason therefor that the option was granted merely as a favor.
The Atlantic Gulf set up as a defense the option to sell made by it to the Southwestern Company
is null and void because it is not supported by any consideration.

After due trial, the lower court rendered judgment granting plaintiff's prayer for specific
performance. It further ordered the defendant to pay damages in an amount equivalent to 6 per
centum per annum on the sum of P30,000 from the date of the filing of the complaint, and to pay
the sum of P600 as attorney's fees, plus the costs of action.

The case before us on the assertion that the only issue involved is one of law.

The option granted by appellant to appellee is contained in a letter dated March 24, 1953 which
reads as follows:

March 24, 1953

Southwestern Sugar & Molasses Co. Far East, Inc.

145 Muelle de Binondo
Manila, Philippines
Gentlemen:
 This is to confirm our conversion of today whereby we offer you our Barge No. 10,
which is 120' 00" long by 44"-0 wide and 9'-0" deep, for the sum of of P30,000. Barge to
cleaned of creosote and fuel oil.

This option is to be good for ninety (90) days, or until June 30, 1953.

Yours very truly,

ATLANTIC, GULF & PACIFIC CO. OF

MANILA
(Sgd.) W. H. SCHOENING

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10
for the sum of P30,000 under the terms stated above has no legal effect because it is not
supported by any consideration and in support thereof it invokes article 1479 of the new Civil
Code. This article provides:

ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

An accepted unilateral promise to buy or sell a determinate thing for a price certain is
binding upon the promisor if the promise is supported by a consideration distinct from the
price.

On the other hand, appellee contends that, even granting that the "offer of option" is not
supported by any consideration, that option became binding on appellant when the appellee gave
notice to its acceptance, and that having accepted it within the period of option, the offer can no
longer be withdrawn and in any event such withdrawal is ineffective. In support of this
contention, appellee invokes article 1324 of the Civil Code which provides:

ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon consideration, as something paid or promised.

There is no question that under article 1479 of the new Civil Code "an option to sell", or a
"promise to buy or to sell", as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said article that
a unilateral promise to buy or sell, even if accepted, is only binding if supported by a
consideration. In other words, "an accepted unilateral promise" can only have a binding effect if
supported by a consideration, which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. Here it is not disputed that the option
is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of
it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may
be withdrawn at any time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to "a promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.

We are not oblivious of the existence of American authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration
(12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from applying them in
view of the specific provision embodied in article 1479. While under the "offer of option" in
question appellant has assumed a clear obligation to sell its barge to appellee and the option has
been exercised in accordance with its terms, and there appears to be no valid or justifiable reason
for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on
the matter is clear. Our imperative duty is to apply it unless modified by Congress.

Wherefore, the decision appealed from is reversed, without pronouncement as to costs.

Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes,
J.B.L., JJ., concur.
G.R. No. L-12888 April 29, 1961

R. F. NAVARRO, doing business under the firm name of R.F. NAVARRO &
COMPANY, plaintiff-appellant,
vs.
SUGAR PRODUCERS COOPERATIVE MARKETING ASSOCIATION INC., defendant-
appellee.

Marquez, Quirino and Associates for plaintiff-appellant.

San Juan, Africa and Benedicto for defendant-appellee.

BARRERA, J.:

Plaintiff-appellant R. F. Navarro (doing business under the firm name R.F. Navarro & Company)
appeals directly to us from the order of the Court of First Instance of Rizal (in Civil Case No.
1733-P) dismissing his complaint for lack of cause of action, on the assertion that only questions
of law are involved herein.

The material and pertinent allegations of plaintiff's complaint are:

2. On September 19th, 1956, defendant formally offered to plaintiff the sale from 15,000
to 20,000 metric tons of molasses, 1st-degrees gravity, 60% sugar by invert, at P50.00 per
metric ton, ex-warehouse San Carlos and Bais, Negros Occidental, giving him up to noon
of September 24th, 1956 within which to accept the offer, with the admonition that upon
its failure to hear from him by then, the defendant shall feel free to negotiate the sale with
other possible buyers;

3. On September 21st, 1956, answering an inquiry made by the plaintiff, the defendant
advised the latter that the cost of pumping the molasses offered by it for sale is P1.20 per
metric ton in San Carlos district and P3.00 per metric ton in Bais district and that the date
of delivery thereof shall start from February on to March, April and May, 1957, as
milling in the districts indicated (San Carlos and Bais) starts during the month of January;

4. Promptly at five minutes before noon of September 24th, 1956, plaintiff formally
accepted the offer of sale tendered by the defendant by informing the latter in writing that
he binds himself to purchase from the preferred 20,000 metric tons of molasses in
question for P50.00 per metric ton, and the day after September 21st, 1956, plaintiff upon
the request of defendant, made the following clarifications of his agreement to purchase
the said molasses, (1) 20,000 metric tons of Philippine molasses, 185-degrees specific
gravity, 60% sugar by invert; (2) Price P50.00 Philippine currency, per metric ton ex-
warehouse; (3) shipments to be in quantities of 3,000 or more metric tons every each
shipment during the month of February, March, April and May until the whole amount
has been completely shipped; and (4)payment shall be by irrevocable, divisible and
assignable domestic letter of credit to be opened in a local bank in defendant's favor;

5. On the same day plaintiff made the foregoing clariffications of his acceptance of the
sale, the defendant hurried advised plaintiff that it committed a typographical error
indicating the specific gravity of the molasses at 185-degrees which should be only 85-
degrees, the latter being the high for molasses at 60% sugar by invert, and requesting
plain that the "specific gravity" be amended accordingly, which correction and
amendment plaintiff readily agreed to and accepted:

6. That neither on September 24th, 1956 when plaintiff exercised his option nor on
September 25th when he request plaintiff to clarify his acceptance to indicate the manner
payment, nor upon the submittal of the clarification which presented by plaintiff himself
and received by the defendant thru its President, Amado Garcia, and for three days the
after, there was no single word, effort or hint that the defendant's offer, accepted by the
plaintiff, was qualified in any way whatsoever;

7. That on September 24th, 1956, relying upon the consummation and perfection of the
purchase and sale of 20,000 metric tons of molasses in question as indicated above,
plaintiff through his business associate here in Manila (J.D. QUIRINO) continued
negotiations for the resale of said molasses to foreign buyers of said conunodity by
immediately communicating the availability of said commodity through letters,
cablegrams a long-distance calls to the latter's business contacts in U.S.A., a Japan, and
ultimately disposing and reselling the said molasses for forward deliveries in accordance
with plaintiff's agreement with the defendant;

8. On September 28th, 1956, three days after an agreement had been consummated on the
price, quantity and quality of said molasses and the manner of payment thereof, the
defendant, belatedly and abruptly advised plaintiff of its desire add certain additional
conditions to be incorporated in the formal contract of purchase and sale then under
preparation by it for signature, which were never even mentioned nor hinted at in its
original offer or proposal, on the untenable pretext that they were 'standard conditions' on
all contracts for the sale said commodity, the most onerous of which were,

"(a) That upon the signing of the contract of purchased and sale; plaintiff shall pay
defendant in cash an amount equivalent to 50% of the purchase value Of the molasses;

"(b) that to cover the remaining and unpaid balance of the purchase price, plaintiff shall
open with the Philippine National Bank an irrevocable domestic letter of credit in favor
of defendant, which shall be assignable and divisible; and

"(c) that in negotiating the said letter of credit, plaintiff shall allow defendant
immediately to withdraw from the same the corresponding amount representing 50% of
the value of the molasses withdrawn from the central, upon presentation of the requisite
certificate thereof (certainly a condition which, taken with (a) above, is most one-sided in
favor only of the seller);

9. On October 2nd, 1956, plaintiff personally conferred with the defendant's manager,
Amado G. Garcia, with a view of threshing out the difficulties necessarily evoked by the
foregoing conditions belatedly demanded by the defendant, but the latter remained
adamant in the defendant, and the day after (October 3rd, 1956), it peremptorily gave
plaintiff up to noon again of October 26th, 1956, within which to decide upon his
acceptance of said additional conditions with the warning that if he failed to do so, it
would feel free to advise its planters concerned that they could negotiate their molasses
with other parties;

10. On October 5th, 1956, plaintiff, in a spirit of cooperation and in his desire to insure
the success of his purchase of the molasses in question, reiterated to the defendant his
readiness and willingness, already imparted to it during their conference on October
2nd , to assist defendant in working out certain financing transactions with the bank
whereby it may be possible to provide in the letter of credit to be opened in favor of the
defendant authority to draw cash advances up to 50% of the contract value of the
molasses, under certain conditions, and alternatively, plaintiff expressed his willingness
to satisfy defendant's desire to be paid in advance an amount equivalent to 50% of the
purchase value of the molasses, but provided, that their original agreement of P50.00 for
metric ton were to be converted into what is known as "equal standard condition", under
which the purchase value would be only P32.00 per metric ton;

11. On the very same day and evidently without even any attempt to consider the matter
further, defendant simply and rudely turned down the foregoing friendly gesture of the
plaintiff caused by the additional conditions demanded by the defendant in its letter of
 September 28, 1956 (indicated in par. 7 above), and bluntly informed plaintiff that in
view of his non-acceptance of said conditions it would not continue with the sale of the
molasses in question to plaintiff and that it felt free to offer the same to any other
interested buyer.

Claiming breach of contract, plaintiff prayed that judgment be rendered ordering defendant to
comply with and perform its contractual obligations, pursuant to its agreement with plaintiff of
September 19 and 24, 1956 and in case of failure to do so, to pay plaintiff any and all damages
he may suffer by reason of such non-compliance, plus moral damages and to pay plaintiff
reasonable attorney's fees and actual costs of the litigation.

As heretofore stated, upon defendant's motion to dismiss on the ground that it (complaint) states
no cause of action for the reason that "there is no binding contract between" plaintiff and
defendant, under Article 1479 of the New Civil Code, the trial court dismissed the action in an
order which in part reads:

ORDER

xxx xxx xxx

The defendant contends that the complaint states no cause of action because defendant's
promise to sell, although accepted by the plaintiff, is not supported by any consideration
distinct from the price and, under Article 1479 of the New Civil Code, is not binding.
Article 1479 provides:

"A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

"An accepted unilateral promise to buy or sell a determinable thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price."

Although the existence of a lawful consideration or cause of support a contract is

presumed, yet from the allegations of the herein complaint, it is apparent that the
defendant's promise to sell is not supported by any consideration. In fact, the absence of
any consideration of the option given to the plaintiff was admitted by plaintiff's counsel
in his oral argument opposing the defendant's motion to dismiss. Plaintiff, however,
contends that the option became binding on the defendant when plaintiff gave notice of
its acceptance and that having been accepted within the period of the option, the offer can
no longer be withdrawn and, in any event, such withdrawal is ineffective because there
had already arisen an existing bilateral contract which can be enforced.

The case of Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. (51 O.G.
3447) is practically on all fours with the case at bar. In said case, on March 24, 1953,
defendant Atlantic Gulf & Pacific Co. granted an option to plaintiff Southwestern Sugar
& Molasses Co. to buy its barge for P30,000.00 to be exercised within ninety days. On
May 11, 1953, Atlantic Gulf wrote Southwestern Sugar that it was exercising its option
and that it be notified as soon as the barge was available. On May 12, 1953, Atlantic Gulf
replied that their understanding was that the "offer of option" is to be cash transaction and
to be effected at the time the barge was available. On June 25, 1953, Atlantic Gulf
informed Southwestern Sugar that the damage action could not be turned over to the
latter. On June 27, 1953, Southwestern Sugar instituted an action for specific
performance in line with the accepted option, depositing with the Court the purchase
price of 30,000.00. Atlantic Gulf, relying upon Article 1479 of the New Civil Code,
contended that the option was not valid because it was not supported by any
consideration apart from the price. Southwestern Sugar contended that the option became
binding on Atlantic Gulf when plaintiff gave notice of its acceptance during the option
 period citing as its authority Article 1324 of the New Civil Code which provides that
'when the offer or has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal except
"when the option is founded upon a consideration, as something paid or promised."
Upholding the contention of Atlantic Gulf and holding that the promise to sell was not
valid because it was not supported by a consideration distinct from the price, the
(Supreme) Court stated:

"There is no question that under Article 1479 of the New Civil Code "an option to
sell" or a "promise to buy or to sell", as used in said article, to be valid must be
"supported by a consideration distinct from the price". This is clearly inferred
from the context of said article that a unilateral promise to buy or to sell, even if
accepted, is only binding if supported by a consideration. In other words, "an
accepted unilateral promise" can only have a binding effect if supported by a
consideration. Here, it is not disputed that the option is without consideration. It
can, therefore, be withdrawn notwithstanding the acceptance made of it by
appellee."

"It is true that under Article 1324 of the New Civil Code, the general rule
regarding offer and acceptance is that, when the offer or gives to the offeree a
certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but this
general provision must be interpreted as modified by the provision of Article 1479
above referred to, which applies to "a promise to buy and sell" specifically. As
already stated, this rule requires that a premise to sell to be valid must be
supported by a consideration distinct from the price."

On the strength of the above ruling laid down in the above cited case of Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., supra, the facts of which are
identical with those alleged in the present complaint, this Court rules that since the herein
defendant's promise to sell is not supported by any consideration distinct from the price,
said promise si invalid and enforceable. Plaintiff's complaint does not, hence state a cause
of action.

While under the allegations of the present complaint, here in defendant may have
assumed a clear obligation to sell it molasses to plaintiff at P50.00 per metric ton and,
under the complaint, said defendant may have no justifiable reason not to proceed with
the sale, yet, this Court cannot do otherwise that declare the option not binding and
unenforceable in view of the clear provisions of the law on the matter. Thus, said the
Supreme Court in the above-mentioned case of Southwestern Sugar v. Atlantic Gulf:

"While under the "offer of option" in question, appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in
accordance with its terms, and there appears to be no valid or justifiable reason
for the appellant to withdraw its offer, this Court cannot adopt a different attitude
because the la on the matter is clear. Our imperative duty is to apply it unless
modified by Congress."

WHEREFORE, the Court sustains, as it hereby sustain the defendant's motion to dismiss
and hereby declares plaintiff's complaint dismissed, without costs.

SO ORDERED.

His motion for reconsideration having been denied, plain plaintiff interposed this appeal.

It is the contention of plaintiff-appellant that "the lower court erred in characterizing the
transaction had between plaintiff and the defendant as an accepted unilateral promise to buy or to
sell, and in deciding that as there was no consideration therefor, Article 1479, paragraph 2 of the
Civil Code, and the ruling in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,
51 Off. Gaz. 3447, are applicable thereto."

In support of his claim, appellant seeks in his brief to differentiate his case from that of
Southwestern Sugar & Molasses Company v. Atlantic Gulf & Pacific Company relied upon by
the trial court by arguing that what was involved in the Atlantic Gulf case was a mere option,
while here the transaction is a bilateral promise to sell and buy which requires no consideration
distinct from the selling price.

This contention is not borne out by the facts alleged in the complaint. In the first place, as noted
by the trial court in its order denying plaintiff's motion for reconsideration, plaintiff himself, in
paragraph 6 of his complaint, referred to the transaction as an "option" which he exercised on
September 24, 1956. Then again, in his memorandum in lieu of oral argument, he expressly
agreed that the offer made by defendant and described in paragraph 2 of plaintiff's complaint is,
In option, a unilateral promise to sell. (See page 4 of the memorandum.) And, undoubtedly, this
is the offer, the option, the unilateral promise to sell that was accepted by plaintiff five minutes
before the deadline noon of September 24, 1956.(See first part of paragraph 4 of the
complaint.) This acceptance, without consideration, did not create an enforceable obligation on
the part of the defendant. The offer as well as the acceptance, did not contemplate nor produce an
immediately binding and enforceable contract of sale. Both lack a most essential element the
manner of payment of the purchase price. In fact, it was only after the exercise of the option or
acceptance of the unilateral promise to sell that the terms of payment were first discussed. This
was in connection with the clarification of plaintiff's acceptance which was transmitted to
defendant on September 25, 1956. (See last part of paragraph 6 of the complaint.) Plaintiff's offer
of a domestic letter of credit was not accepted by defendant who insisted on a cash payment of
50% of the purchase value, upon signing of a contract. (See paragraphs 8 and 9 of the
complaint.) Plaintiff, on the other hand, agreed to accede to this provided the price is reduced
from P50.00 per metric ton to 7132.00 Defendant rejected defendant's alternative counter-offer.
In the circumstance, there was no complete meeting of the minds of the parties necessary for the
perfection of a contract of sale. Consequently, appellee was justified in withdrawing its offer to
sell the molasses in question.(See Zayco vs. Serra, 44 Phil. 326; Montinola v. Victorias Milling
Co., et al., 54 Phil. 782; and Batangan v. Cojuangco 78 Phil. 481.)

In view of the conclusion we have reached, it would not be necessary to pass upon appellee's
motion to dismiss the appeal.

WHEREFORE, finding no reversible error in the order appealed from, the same is hereby
affirmed, with cost against the plaintiff-appellant. So ordered.
G.R. No. L-28269 August 15, 1969

CONSUELO VDA. DE QUIRINO, petitioner,

vs.
JOSE PALARCA, respondent.

Rosendo J. Tansinsin for petitioner.

Jose Palarca in his own behalf.

CONCEPCION, C.J.:

Appeal by certiorari, taken by Consuelo Vda. de Quirino, petitioner herein and defendant in the
lower courts, from a decision of the Court of Appeals affirming that of the Court of First Instance
of Manila, the dispositive part of which reads:

FOR THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment

ordering the defendant within fifteen (15) days from the date this judgment becomes
final, to execute a deed of conveyance in favor of the plaintiff Jose Palarca, of age,
Filipino, married to Querubina Cristobal, over Lot 30, Block 84 of the Sulucan
Subdivision, covered by TCT 59442 of the Manila Registry, with his postal address at
544 Corner Quezon Blvd., Manila, and directing said defendant to deliver the certificate
of title, and ordering the plaintiff to deliver to the defendant at the time of receiving the
aforesaid deed of sale and title, the amount of P12,000 in cash. Costs is charged against
the defendant.

On October 4, 1947, said petitioner hereinafter referred to as the lessor and respondent
Jose Palarca hereinafter referred to as the lessee entered into a lease contract whereby the
former leased to the latter a parcel of land known as Lot 30 of block 84 of the Sulucan
Subdivision, located at Sampaloc, Manila, with an area of about 150 square meters, and more
particularly described in TCT No. 59442 of the Office of the Register of Deeds of Manila. In
their written contract of lease it was stipulated, inter alia, that the term thereof would be ten (10)
years, from November 1, 1947 to November 1, 1957; that the monthly rental would be P250,
payable in advance; that the lessee could demolish the lessor's old building on the leased
premises and construct thereon any building and/or improvements suitable for school purposes,
which new building and/or improvements shall belong to the lessee; that within one (1) year after
the expiration of the lease, the lessee would have "the right and option to buy the leased
premises" for P12,000; that, should the lessee fail to exercise this option, said (new) building
and/or improvements shall be evaluated by a committee organized therefor, as set forth in the
contract; that, after such "valuation," the lessor shall "have the option to buy" said "building
and/or improvements within ... one (1) year, after the expiration of the contract"; and that, should
neither of the parties exercise their respective options, both "shall be free to look for a buyer for
his or her respective property."

By a letter, dated September 15, 1958, the lessee informed the lessor that the former (lessee) was
exercising "his right to buy the leased property for the agreed price of P12,000," and inquired
"when" the latter (lessor) would be "ready to execute the deed of sale," so that the agreed price
could be delivered to her. Soon thereafter, before the expiration of the term of his option, or on
October 6, 1958, the lessee wrote a follow-up letter to the lessor, advising her that the former had
in his "possession the amount of P12,000 with which to purchase" the leased premises, and,
asked her, once more, "when" she would be ready to execute the corresponding deed of sale, in
order that he (lessee) could pay said price. Through her counsel, the lessor replied, however, on
October 10, 1958, that she "cannot accede" to the lessee's requests "because the ... contract of
October 4, 1947, has been novated by another agreement, wherein the rent of P250 a month was
reduced to P100.00."

Thereupon, that same month, the lessee instituted the present action to compel the lessor to
comply with her obligation to execute the corresponding deed of sale in his (lessee's) favor, upon
payment by him of said sum of P12,000. The lessor filed her answer admitting some allegations
of the complaint and denying other allegations thereof, as well as alleging, as special defense,
that the lease contract had been "modified" by a subsequent agreement of the parties, which had
been observed and carried out by them, and that payment of the stipulated price had not been
properly tendered or validly consigned. The lessor, likewise, set up a counterclaim for damages,
attorney's fees and expenses of litigation. After appropriate proceedings, the Court of First
Instance rendered the decision adverted to above, which was affirmed by the Court of Appeals.
Hence, this petition for review on certiorari, in which the lessor maintains: (1) that the lessee's
option to purchase the leased premises was null and void for want of consideration; (2) that the
lessee should have been sentenced to pay rentals, during the pendency of this case; and (3) that
the lessee should have been sentenced, also, to pay damages, attorney's fees and the costs of the
suit.

The first contention is clearly without merit. To begin with, it is based upon the premise that the
option of the lessee is devoid of consideration, which is false. Indeed, in reciprocal contracts, like
the one in question, the obligation or promise of each party is the consideration for that of the
other. 1 In the language of Article 1350 of our Civil Code, "(i)n onerous contracts the cause is
understood to be, for each contracting party, the prestation or promise of a thing or service by the
other ... ." As a consequence, "(t)he power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him." 2

In the case at bar, the consideration for the lessor's obligation to sell the leased premises to the
lessee, should he choose to exercise his option to purchase the same, is the obligation of the
lessee to sell to the lessor the building and/or improvements constructed and/or made by the
former, if he fails to exercise his option to buy said premises. Then, again, the amount of the
rentals agreed upon in the contract of October 4, 1947 which amount turned out to be so
burdensome upon the lessee, that the lessor agreed, five (5) years later, to reduce it 1 as well as
the building and/or improvements contemplated to be constructed and/or introduced by the
lessee, were, undoubtedly, part of the consideration for his option to purchase the leased
premises.

Then, again, the alleged lack of consideration therefor was not set up as a defense or otherwise
put in issue, either in the trial court or in the Court of Appeals. The appealed decisions of the
Court of First Instance and the Court of Appeals, and the records before us show that the
defenses mainly pressed in said courts were the alleged cancellation of the lessee's option and his
failure to make a valid tender and consignation of the stipulated price. The cancellation of the
option was sought to be deduced from a novation made in 1952, when, upon the lessee's request,
the lessor agreed to reduce the monthly rental from P250 to P100. Neither defense was, however,
sustained by said courts, and, we think, correctly.

Indeed, not being inconsistent with the lessee's option to purchase the leased premises, said
agreement to reduce the rental did not necessarily cancel or extinguish the option. Although the
lessor would have the Court believe that she consented to said reduction, condition that the
option be cancelled, this claim had not been proven. What is more, it was refuted by her letter to
the lessee, Exhibit D, dated January 29, 1952, stating that "in view of the fact that you (lessee)
find it very difficult to pay the rental of P250, I am willing to reduce it to P100 from January
1952, on the condition that the remaining balance (of the rental) will be settled." The
cancellation of the option was not, therefore, one of the conditions for the aforementioned
reduction of the rental.

Then, too, the consignation referred to in Article 1256 of our Civil Code is inapplicable to the
present case, because said provision refers to consignation as one of the means for the payment
or discharge of a "debt," whereas the lessee was not indebted to the lessor for the price of the
leased premises. 3 The lessee merely exercised a right of option and had no obligation to pay said
price until the execution of the deed of sale in his favor, which the lessor refused to do.
Said want of consideration not having pleaded or otherwise alleged as one of her defenses in
either one of the lower courts, the lessor may not set it up, for the first time, in her present second
appeal. 4

As regards the rentals during the pendency of this case, suffice it to note that, had the lessor
readily complied with her obligation to execute the corresponding deed of conveyance to the
lessee, upon payment by him of the agreed price of P12,000, which he tendered in October,
1958, the premises in question would have become his property on or before November 1, 1958,
and since then he would have had no obligation to pay rentals. As a consequence, it is neither
just nor fair to impose such obligation upon him by reason of the lessor's illegal breach of their
contract. Otherwise, she would be rewarded therefor and we would jeopardize the sanctity of
contractual obligations.

The last point raised by the lessor is a mere corollary to those already disposed of. Hence, it
needs no further discussion.

WHEREFORE, the decision appealed from should be, as it is hereby affirmed, with costs against
the lessor, petitioner-appellant Consuelo Vda. de Quirino.
G.R. No. L-15752 December 29, 1962

RUPERTO SORIANO, ET AL., plaintiffs-appellees,

vs.
BASILIO BAUTISTA, ET AL., defendants.
BASILIO BAUTISTA and SOFIA DE ROSAS, defendants-appellants.

---------------------------------

G.R. No. L-17457 December 29, 1962

BASILIO BAUTISTA, ET AL., plaintiffs,

BASILIO BAUTISTA and SOFIA DE ROSAS, plaintiffs-appellants,
vs.
RUPERTO SORIANO, ET AL., defendants appellees.

Amado T. Garrovillas, Ananias C. Ona, Norberto A. Ferrera and Pedro N. Belmi for appellants
Basilio Bautista and Sofia de Rosas.
Javier and Javier for appellees Ruperto Soriano, et al.

MAKALINTAL, J.:

The judgment appealed from, rendered on March 10, 1959 by the Court of First Instance of
Rizal, after a joint trial of both cases mentioned in the caption, orders "the spouses Basilio
Bautista and Sofia de Rosas to execute a deed of sale covering the property in question in favor
of Ruperto Soriano and Olimpia de Jesus upon payment by the latter of P1,650.00 which is the
balance of the price agreed upon, that is P3,900.00, and the amount previously received by way
of loan by the said spouses from the said Ruperto Soriano and Olimpia de Jesus, to pay the sum
of P500.00 by way of attorney's fees, and to pay the costs.

Appellants Basilio Bautista and Sofia de Rosas have adopted in their appeal brief the following
factual findings of the trial court:

Spouses Basilio Bautista and Sofia de Rosas are the absolute and registered owners of a
parcel of land, situated in the municipality of Teresa, province of Rizal, covered by
Original Certificate of Title No. 3905, of the Register of Deeds of Rizal and particularly
described as follow:

A parcel of land (lot No. 4980) of the Cadastral Survey of Teresa; situated in the
municipality of Teresa; bounded on the NE. by Lot No. 5004; on the SE. by Lots
Nos. 5003 and 4958; on the SW. by Lot 4949; and the W. and NW by a creek ....
Containing the area of THIRTY THOUSAND TWO HUNDRED TWENTY
TWO (30,222) square meters, more or less. Date of Survey, December 1913-June,
1914. (Full technical description appears on Original Certificate of Title No.
3905.)lawphil.net

That, on May 30, 1956, the said spouses for and in consideration of the sum of P1,800,
signed a document entitled "Kasulatan Ng Sanglaan" in favor of Ruperto Soriano and
Olimpia de Jesus, under the following terms and conditions:

1. Na ang sanglaang ito ay magpapatuloy lamang hanggang dalawang (2) taon

pasimula sa araw na lagdaan ang kasunduang ito, at magpapalampas ng dalawang
panahong ani o ani agricola.

2. Na ang aanihin ng bukid na isinangla ay mapupunta sa pinagsanglaan bilang

pakinabang ng nabanggit na halagang inutang.
 3. Na ang buwis sa pamahalaan ng lupang ito ay ang magbabayad ay ang
Nagsangla o mayari.

4. Na ang lupang nasanglang ito ay hindi na maaaring isangla pang muli sa ibang
tao ng walang pahintulot ang Unang Pinagsanglaan.

5. Na pinagkasunduan din dinatnan na sakaling magkaroon ng kakayahan ang

Pinagsanglaan ay maaaring bilhin ng patuluyan ng lupang nasanglang ito kahit
anong araw sa loob ng taning na dalawang taon ng sanglaan sa halagang Tatlong
Libo at Siam na Raan Piso (P3,900.00), salaping Pilipino na pinagkaisahan.

6. Na sakaling ang pagkakataon na ipinagkaloob ng Nagsangla sa sinundang talata

ay hindi maisagawa ng Pinagsanglaan sa Kawalan ng maibayad at gayon din
naman ang Nagsangla na hindi magbalik ang halagang inutang sa taning na
panahon, ang sanglaan ito ay lulutasin alinsunod sa itinatagubilin ng batas sa
bagay-bagay ng sanglaan, na ito ay ang tinatawag na (FORECLOSURE OF
MORTGAGES, JUDICIAL OR EXTRA JUDICIAL). Maaring makapili ng
hakbang ang Pinagsanglaan, alinsunod sa batas o kaya naman ay pagusapan ng
dalawang parte ang mabuting paraan ng paglutas ng bagay na ito.

That simultaneously with the signing of the aforementioned deed, the spouses Basilio
Bautista and Sofia de Rosas transferred the possession of the said land to Ruperto Soriano
and Olimpia de Jesus who have been and are still in possess of the said property and have
since that date been and cultivating the said land and have enjoyed and are still enjoying
the produce thereof to the exclusion of all other persons. Sometimes after May 30, 1956,
the spouses Basilio Bautista and Sofia de Rosas received from Ruperto Soriano and
Olimpia de Jesus, the sum of P450.00 pursuant to the condition agreed upon in the
aforementioned document for which no receipt issued and which was returned by the
spouses sometime on May 31, 1958. On May 13, 1958, a certain Atty. Angel O. Ver
wrote a letter to the spouses Bautista whose letter has been marked Annex 'B' of the
stipulation of facts informing the said spouses that his clients Ruperto Soriano and
Olimpia de Jesus have decided to buy the parcel of land in question pursuant to paragraph
5 of the document in question, Annex "A".

The spouses inspite of the receipt of the letter refused comply with the demand contained
therein. On May 31, 1958, Ruperto Soriano and Olimpia de Jesus filed before this Court
Civil Case No. 5023, praying that plaintiffs be allowed to consign or deposit with the
Clerk of Court the sum of P1,650 as the balance of the purchase price of the parcel of
land question and that after due hearing, judgment be rendered considering the
defendants to execute an absolute deed of sale of said property in their favor, plus
damages.

On June 9, 1958, spouses Basilio Bautista and Sofia Rosas filed a complaint against
Ruperto Soriano and Olimpia de Jesus marked as Annexed 'B' of the Stipulation of Facys,
which case after hearing was dismissed for lack of jurisdiction On August 5, 1959, the
spouses Bautista and De Rosas again filed a case in the Court of First Instance against
Soriano and De Jesus asking this Court to order the defendants to accept the payment of
the principal obligation and release the mortgage and to make an accounting of the
harvest for the harvest seasons (1956-1957). The two cases, were by agreement of the
parties assigned to one branch so that they can be tried jointly.

The principal issue in this case is whether, having seasonably advised appellants that they had
decided to be the land in question pursuant to paragraph 5 of the instrument of mortgage,
appellees are entitled to special performance consisting of the execution by appellants the
corresponding deed of sale. As translated, paragraph 5 states: "That it has likewise been agreed
that if the financial condition of the mortgagees will permit, they may purchase said land
absolutely on any date within the two-year term of this mortgage at the agreed price of
P3,900.00."

Appellants contend that, being mortgagors, they can not be deprived of the right to redeem the
mortgaged property, because such right is inherent in and inseparable from this kind of contract.
The premise of the contention is not entirely accurate. While the transaction is undoubtedly a
mortgage and contains the customary stipulation concerning redemption, it carries the added
special provision aforequoted, which renders the mortgagors' right to redeem defeasible at the
election of the mortgagees. There is nothing illegal or immoral in this. It is simply an option to
buy, sanctioned by Article 1479 of the Civil Code, which states: "A promise to buy and sell a
determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise
to buy or to sell a determinate thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price."

In this case the mortgagor's promise to sell is supported by the same consideration as that of the
mortgage itself, which is distinct from that which would support the sale, an additional amount
having been agreed upon to make up the entire price of P3,900.00, should the option be
exercised. The mortgagors' promise was in the nature of a continuing offer, non-withdrawable
during a period of two years, which upon acceptance by the mortgagees gave rise to a perfected
contract of purchase and sale. Appellants cite the case of Iigo vs. Court of Appeals, L-5572,
O.G. No. 11, 5281, where we held that a stipulation in a contract of mortgage to sell the property
to the mortgagee does not bind the same but creates only a personal obligation on the part of the
mortgagor. The citation instead of sustaining appellant's position, confirms that of appellees, who
are not here enforcing any real right to the disputed land but are rather seeking to obtain specific
performance of a personal obligation, namely, the execution of a deed of sale for the price agreed
upon, the corresponding amount to cover which was duly deposited in court upon the filing of
the complaint.

Reference is made in appellants' brief to the fact that they tendered the sum of P1,800.00 to
redeem mortgage before they filed their complaint in civil case No. 99 in the Justice of the Peace
Court of Morong, Rizal. That tender was ineffective for the purpose intended. In the first place it
must have been made after the option to purchase had been exercised by appellees (Civil Case
No. 99 was filed on June 9, 1958, only to be dismissed for lack of jurisdiction); and secondly,
appellants' to redeem could be defeated by appellees' preemptive right to purchase within the
period of two years from May 30, 1956. As already noted, such right was availed of appellants
were accordingly notified by letter dated May 13, 1958, which was received by them on the
following May 22. Offer and acceptance converged and gave to a perfected and binding contract
of purchase and sale.

The judgment appealed from is affirmed, with costs.

 [G.R. No. 135929. April 20, 2001]

LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS, SPOUSES LORENZO

DE VERA and ASUNCION SANTOS-DE VERA, TOMAS CUENCA, JR., and
SUNVAR REALTY DEVELOPMENT CORPORATION, respondents.

DECISION
BELLOSILLO, J.:

Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to
review, reverse and set aside the Decision[1] of the Court of Appeals dated 18 May 1998
reversing that of the Regional Trial Court dated 30 June 1993. The petition likewise assails
the Resolution[2] of the appellate court of 19 October 1998 denying petitioners Motion for
Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial
court,[3] alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion Santos-de
Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land
consisting of 48,260 square meters, more or less, situated in Barrio San Dionisio, Paraaque,
Metro Manila; that respondent spouses informed her that they were the owners of the subject
property; that on 31 July 1978 she agreed to buy the property at the price of P34.00 per square
meter and gave the sum of P20,000.00 to respondent spouses as "earnest money;" that
respondent spouses signed a receipt therefor and gave her a 10-day option period to purchase the
property; that respondent Lorenzo de Vera then informed her that the subject property was
mortgaged to Emilio Ramos and Isidro Ramos; that respondent Lorenzo de Vera asked her to
pay the balance of the purchase price to enable him and his wife to settle their obligation with the
Ramoses.
Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5
August 1978 at the Office of the Registry of Deeds of Makati, Metro Manila, to consummate the
transaction but due to the failure of respondent Asuncion Santos-de Vera and the Ramoses to
appear, no transaction was formalized. In a second meeting scheduled on 11 August 1978 she
claimed that she was willing and ready to pay the balance of the purchase price but the
transaction again did not materialize as respondent spouses failed to pay the back taxes of subject
property.Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera
three (3) checks in the total amount of P36,170.00 for the settlement of the back taxes of the
property and for the payment of the quitclaims of the three (3) tenants of subject land. The
amount was purportedly considered part of the purchase price and respondent Lorenzo de Vera
signed the receipts therefor.
Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of
respondent spouses that the property was the subject of a negotiation for the sale to respondent
Sunvar Realty Development Corporation (SUNVAR) represented by respondent Tomas Cuenca,
Jr. On 15 September 1978 petitioner discovered that although respondent spouses purchased the
property from the Ramoses on 20 March 1970 it was only on 15 September 1978 that TCT No.
S-72946 covering the property was issued to respondent spouses. As a consequence, she filed on
the same day an Affidavit of Adverse Claim with the Office of the Registry of Deeds of Makati,
Metro Manila, which was annotated on TCT No. S-72946. She also claimed that on the same day
she informed respondent Cuenca of her "contract" to purchase the property.
The Deed of Sale between respondent spouses and respondent SUNVAR was executed on
15 September 1978 and TCT No. S-72377 was issued in favor of the latter on 26 September
1978 with the Adverse Claim of petitioner annotated thereon. Petitioner claimed that when
respondent spouses sold the property in dispute to SUNVAR, her valid and legal right to
purchase it was ignored if not violated. Moreover, she maintained that SUNVAR was in bad
faith as it knew of her "contract" to purchase the subject property from respondent spouses.
 Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her
damage, prejudice and injury, petitioner claimed that the Deed of Sale, should be annuled and
TCT No. S-72377 in the name of respondent SUNVAR canceled and TCT No. S-72946
restored. She also insisted that a Deed of Sale between her and respondent spouses be now
executed upon her payment of the balance of the purchase price agreed upon, plus damages and
attorneys fees.
In their Answer[4] respondent spouses maintained that petitioner had no sufficient cause of
action against them; that she was not the real party in interest; that the option to buy the property
had long expired; that there was no perfected contract to sell between them; and, that petitioner
had no legal capacity to sue. Additionally, respondent spouses claimed actual, moral and
exemplary damages, and attorneys fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in their Answer,[5] alleged that
petitioner was not the proper party in interest and/or had no cause of action against them. But,
even assuming that petitioner was the proper party in interest, they claimed that she could only
be entitled to the return of any amount received by respondent spouses. In the alternative, they
argued that petitioner had lost her option to buy the property for failure to comply with the terms
and conditions of the agreement as embodied in the receipt issued therefor. Moreover, they
contended that at the time of the execution of the Deed of Sale and the payment of consideration
to respondent spouses, they "did not know nor was informed" of petitioners interest or claim over
the subject property. They claimed furthermore that it was only after the signing of the Deed of
Sale and the payment of the corresponding amounts to respondent spouses that they came to
know of the claim of petitioner as it was only then that they were furnished copy of the title to
the property where the Adverse Claim of petitioner was annotated. Consequently, they also
instituted a Cross-Claim against respondent spouses for bad faith in encouraging the negotiations
between them without telling them of the claim of petitioner. The same respondents maintained
that had they known of the claim of petitioner, they would not have initiated negotiations with
respondent spouses for the purchase of the property. Thus, they prayed for reimbursement of all
amounts and monies received from them by respondent spouses, attorneys fees and expenses for
litigation in the event that the trial court should annul the Deed of Sale and deprive them of their
ownership and possession of the subject land.
In their Answer to the Cross-Claim[6] of respondents SUNVAR and Cuenca, respondent
spouses insisted that they negotiated with the former only after the expiration of the option
period given to petitioner and her failure to comply with her commitments
thereunder. Respondent spouses contended that they acted legally and validly, in all honesty and
good faith. According to them, respondent SUNVAR made a verification of the title with the
Office of the Register of Deeds of Metro Manila District IV before the execution of the Deed of
Absolute Sale. Also, they claimed that the Cross-Claim was barred by a written waiver executed
by respondent SUNVAR in their favor. Thus, respondent spouses prayed for actual damages for
the unjustified filing of the Cross-Claim, moral damages for the mental anguish and similar
injuries they suffered by reason thereof, exemplary damages "to prevent others from emulating
the bad example" of respondents SUNVAR and Cuenca, plus attorneys fees.
After a protracted trial and reconstitution of the court records due to the fire that razed the
Pasay City Hall on 18 January 1992, the Regional Trial Court rendered its 30 June
1993 Decision[7]in favor of petitioner. It ordered (a) the annulment and rescission of the Deed of
Absolute Sale executed on 15 September 1978 by respondent spouses in favor of respondent
SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of the Registry of Deeds,
Makati, Metro Manila, issued in the name of respondent Sunvar Realty Development
Corporation, and the restoration or reinstatement of TCT No. S-72946 of the same Registry
issued in the name of respondent spouses; (c) respondent spouses to execute a deed of sale
conveying ownership of the property covered by TCT No. S-72946 in favor of petitioner upon
her payment of the balance of the purchase price agreed upon; and, (d) respondent spouses to pay
petitioner P50,000.00 as and for attorneys fees, and to pay the costs.
On appeal, the Court of Appeals completely reversed the decision of the trial court. It
ordered (a) the Register of Deeds of Makati City to lift the Adverse Claim and such other
encumbrances petitioner might have filed or caused to be annotated on TCT No. S-75377; and,
(b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal damages, P30,000.00 as
exemplary damages and P20,000 as attorneys fees; (2) respondent spouses, P15,000.00 as
nominal damages, P10,000.00 as exemplary damages and P10,000.00 as attorneys fees; and, (3)
the costs.
Petitioner timely filed a Motion for Reconsideration which was denied by the Court of
Appeals on 19 October 1998. Hence, this petition.
At issue for resolution by the Court is the nature of the contract entered into between
petitioner Lourdes Ong Limson on one hand, and respondent spouses Lorenzo de Vera and
Asuncion Santos-de Vera on the other.
The main argument of petitioner is that there was a perfected contract to sell between her
and respondent spouses. On the other hand, respondent spouses and respondents SUNVAR and
Cuenca argue that what was perfected between petitioner and respondent spouses was a mere
option.
A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the
conclusion that the agreement between the parties was a contract of option and not a contract to
sell.
An option, as used in the law of sales, is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy the property at a fixed price
within a time certain, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes called
an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to
buy.[8] It is not a sale of property but a sale of the right to purchase.[9] It is simply a contract by
which the owner of property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. He does not sell his land; he does not then agree to
sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the
other party.[10] Its distinguishing characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the offer. Until acceptance, it is not,
properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any
interest or right in the subject matter, but is merely a contract by which the owner of the property
gives the optionee the right or privilege of accepting the offer and buying the property on certain
terms.[11]
On the other hand, a contract, like a contract to sell, involves the meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to render
some service.[12] Contracts, in general, are perfected by mere consent,[13] which is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute.[14]
The Receipt[15] that contains the contract between petitioner and respondent spouses
provides

Received from Lourdes Limson the sum of Twenty Thousand Pesos (P20,000.00) under Check
No. 22391 dated July 31, 1978 as earnest money with option to purchase a parcel of land owned
by Lorenzo de Vera located at Barrio San Dionisio, Municipality of Paraaque, Province of Rizal
with an area of forty eight thousand two hundred sixty square meters more or less at the price of
Thirty Four Pesos (P34.00)[16] cash subject to the condition and stipulation that have been
agreed upon by the buyer and me which will form part of the receipt. Should the transaction of
the property not materialize not on the fault of the buyer, I obligate myself to return the full
amount of P20,000.00 earnest money with option to buy or forfeit on the fault of the buyer. I
guarantee to notify the buyer Lourdes Limson or her representative and get her conformity
should I sell or encumber this property to a third person. This option to buy is good within ten
(10) days until the absolute deed of sale is finally signed by the parties or the failure of the buyer
to comply with the terms of the option to buy as herein attached.
 In the interpretation of contracts, the ascertainment of the intention of the contracting parties
is to be discharged by looking to the words they used to project that intention in their contract, all
the words, not just a particular word or two, and words in context, not words standing
alone.[17] The above Receipt readily shows that respondent spouses and petitioner only entered
into a contract of option; a contract by which respondent spouses agreed with petitioner that the
latter shall have the right to buy the formers property at a fixed price of P34.00 per square meter
within ten (10) days from 31 July 1978. Respondent spouses did not sell their property; they did
not also agree to sell it; but they sold something, i.e., the privilege to buy at the election or option
of petitioner. The agreement imposed no binding obligation on petitioner, aside from the
consideration for the offer.
The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as
"earnest money." However, a careful examination of the words used indicates that the money
is not earnest money but option money. "Earnest money" and "option money" are not the same
but distinguished thus: (a) earnest money is part of the purchase price, while option money is the
money given as a distinct consideration for an option contract; (b) earnest money is given only
where there is already a sale, while option money applies to a sale not yet perfected; and, (c)
when earnest money is given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy,[18] but may even forfeit it depending on the
terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase
price. Moreover, it was not shown that there was a perfected sale between the parties where
earnest money was given. Finally, when petitioner gave the "earnest money," the Receipt did not
reveal that she was bound to pay the balance of the purchase price. In fact, she could even forfeit
the money given if the terms of the option were not met. Thus, the P20,000.00 could only be
money given as consideration for the option contract. That the contract between the parties is one
of option is buttressed by the provision therein that should the transaction of the property not
materialize without fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to
return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the same on
the fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner
that she or her representative would be notified in case the subject property was sold or
encumbered to a third person. Finally, the Receipt provided for a period within which the option
to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.
Doubtless, the agreement between respondent spouses and petitioner was an "option
contract" or what is sometimes called an "unaccepted offer." During the option period the
agreement was not converted into a bilateral promise to sell and to buy where both respondent
spouses and petitioner were then reciprocally bound to comply with their respective undertakings
as petitioner did not timely, affirmatively and clearly accept the offer of respondent spouses.
The rule is that except where a formal acceptance is not required, although the acceptance
must be affirmatively and clearly made and evidenced by some acts or conduct communicated to
the offeror, it may be made either in a formal or an informal manner, and may be shown by acts,
conduct or words by the accepting party that clearly manifest a present intention or determination
to accept the offer to buy or sell. But there is nothing in the acts, conduct or words of petitioner
that clearly manifest a present intention or determination to accept the offer to buy the property
of respondent spouses within the 10-day option period. The only occasion within the option
period when petitioner could have demonstrated her acceptance was on 5 August 1978 when,
according to her, she agreed to meet respondent spouses and the Ramoses at the Office of the
Register of Deeds of Makati. Petitioners agreement to meet with respondent spouses presupposes
an invitation from the latter, which only emphasizes their persistence in offering the property to
the former. But whether that showed acceptance by petitioner of the offer is hazy and dubious.
On or before 10 August 1978, the last day of the option period, no affirmative or clear
manifestation was made by petitioner to accept the offer. Certainly, there was no concurrence of
private respondent spouses offer and petitioners acceptance thereof within the option
period. Consequently, there was no perfected contract to sell between the parties.
 On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the
property of respondent spouses ceased. The subsequent meetings and negotiations, specifically
on 11 and 23 August 1978, between the parties only showed the desire of respondent spouses to
sell their property to petitioner. Also, on 14 September 1978 when respondent spouses sent a
telegram to petitioner demanding full payment of the purchase price on even date simply
demonstrated an inclination to give her preference to buy subject property. Collectively, these
instances did not indicate that petitioner still had the exclusive right to purchase subject
property. Verily, the commencement of negotiations between respondent spouses and respondent
SUNVAR clearly manifested that their offer to sell subject property to petitioner was no longer
exclusive to her.
We cannot subscribe to the argument of petitioner that respondent spouses extended the
option period when they extended the authority of their agent until 31 August 1978. The
extension of the contract of agency could not operate to extend the option period between the
parties in the instant case. The extension must not be implied but categorical and must show the
clear intention of the parties.
As to whether respondent spouses were at fault for the non-consummation of their contract
with petitioner, we agree with the appellate court that they were not to be blamed. First, within
the option period, or on 4 August 1978, it was respondent spouses and not petitioner who
initiated the meeting at the Office of the Register of Deeds of Makati. Second, that the Ramoses
failed to appear on 4 August 1978 was beyond the control of respondent spouses. Third, the
succeeding meetings that transpired to consummate the contract were all beyond the option
period and, as declared by the Court of Appeals, the question of who was at fault was already
immaterial. Fourth, even assuming that the meetings were within the option period, the presence
of petitioner was not enough as she was not even prepared to pay the purchase price in cash as
agreed upon. Finally, even without the presence of the Ramoses, petitioner could have easily
made the necessary payment in cash as the price of the property was already set at P34.00 per
square meter and payment of the mortgage could very well be left to respondent spouses.
Petitioner further claims that when respondent spouses sent her a telegram demanding full
payment of the purchase price on 14 September 1978 it was an acknowledgment of their contract
to sell, thus denying them the right to claim otherwise.
We do not agree. As explained above, there was no contract to sell between petitioner and
respondent spouses to speak of. Verily, the telegram could not operate to estop them from
claiming that there was such contract between them and petitioner. Neither could it mean that
respondent spouses extended the option period. The telegram only showed that respondent
spouses were willing to give petitioner a chance to buy subject property even if it was no longer
exclusive.
The option period having expired and acceptance was not effectively made by petitioner, the
purchase of subject property by respondent SUNVAR was perfectly valid and entered into in
good faith. Petitioner claims that in August 1978 Hermigildo Sanchez, the son of respondent
spouses agent, Marcosa Sanchez, informed Marixi Prieto, a member of the Board of Directors of
respondent SUNVAR, that the property was already sold to petitioner. Also, petitioner maintains
that on 5 September 1978 respondent Cuenca met with her and offered to buy the property from
her at P45.00 per square meter. Petitioner contends that these incidents, including the annotation
of her Adverse Claim on the title of subject property on 15 September 1978 show that respondent
SUNVAR was aware of the perfected sale between her and respondent spouses, thus making
respondent SUNVAR a buyer in bad faith.
Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are
immaterial as they were beyond the option period given to petitioner. On the other hand, the
referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as emphasized by
petitioner in her petition is very vague. It could be within or beyond the option period. Clearly
then, even assuming that the meeting with Marixi Prieto actually transpired, it could not
necessarily mean that she knew of the agreement between petitioner and respondent spouses for
the purchase of subject property as the meeting could have occurred beyond the option period. In
which case, no bad faith could be attributed to respondent SUNVAR. If, on the other hand, the
meeting was within the option period, petitioner was remiss in her duty to prove so. Necessarily,
we are left with the conclusion that respondent SUNVAR bought subject property from
respondent spouses in good faith, for value and without knowledge of any flaw or defect in its
title.
The appellate court awarded nominal and exemplary damages plus attorneys fees to
respondent spouses and respondent SUNVAR. But nominal damages are adjudicated to vindicate
or recognize the right of the plaintiff that has been violated or invaded by the defendant. [19] In the
instant case, the Court recognizes the rights of all the parties and finds no violation or invasion of
the rights of respondents by petitioner. Petitioner, in filing her complaint, only seeks relief, in
good faith, for what she believes she was entitled to and should not be made to suffer
therefor.Neither should exemplary damages be awarded to respondents as they are imposed only
by way of example or correction for the public good and only in addition to the moral, temperate,
liquidated or compensatory damages.[20] No such kinds of damages were awarded by the Court
of Appeals, only nominal, which was not justified in this case. Finally, attorneys fees could not
also be recovered as the Court does not deem it just and equitable under the circumstances.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals ordering the
Register of Deeds of Makati City to lift the adverse claim and such other encumbrances
petitioner Lourdes Ong Limson may have filed or caused to be annotated on TCT No. S-75377 is
AFFIRMED, with the MODIFICATION that the award of nominal and exemplary damages as
well as attorneys fees is DELETED.
SO ORDERED.
G.R. No. L-3438 October 12, 1907

MANUEL LOPEZ Y VILLANUEVA, plaintiff-appellant,

vs.
EVARISTO ALVAREZ Y PEREZ, J. H. GRINDROD and JUAN THOMSON
CASELLS, defendants-appellees.

M. Lopez, for appellant.

R. Montinola, for appellees.

TORRES, J.:

On the 16th of March, 1905, counsel for the plaintiff, Manuel Lopez y Villanueva, filed an
amended complaint with the Court of First Instance of Iloilo praying that judgment be entered in
his favor in this case for the sum of P5,973, with interest thereon at the rate of 10 per cent per
annum from the 5th of April, 1904; that a declaration be made that the defendants J. H. Grindrod
and Juan Thomson Casells are partners in the credit claimed in the matter of Evaristo Alvarez y
Perez; and that their right to the mortgage credit against the testate succession of the late Vicente
Lopez y Alvarez is subsequent and secondary to that of the plaintiff, ordering the execution of
the judgment on the mortgages estate denominated Bunglas, with costs.

The plaintiff, in support of his claim, alleged that on the 24th of April, 1901, Vicente Lopez y
Alvarez executed a mortgage deed in favor of the defendant Evaristo Alvarez y Perez for the sum
of 13,300 pesos and a fraction on his estate named Bunglas, situated in Concepcion, in the
municipality of Sara, Iloilo, the area and boundaries of which are stated in the complaint,
together with 20 castrated carabaos, 10 female carabaos, an 8-horsepower steam engine, and a
furnace with fittings; that the term expired without the debt or any part thereof being paid, and
Vicente Lopez y Alvarez died at Iloilo on the 2nd of August, 1901; that in order to secure the
payment of the lease of the hacienda Estrella owned by the plaintiff, Manuel Lopez, the
defendant Evaristo Alvarez mortgaged, by means of a public instrument executed on the 19th of
October, 1901, the lien he held on the testate succession of the late Vicente Lopez; that by a deed
dated April 5, 1904, the defendant Evaristo Alvarez assigned, conveyed, and transferred to the
plaintiff part of his said lien on the aforesaid testate succession to the amount of P5,973 pesos,
Mexican currency, total amount of his indebtedness to the plaintiff, for several sums received
from him in cash, and on account of the lease of the said hacienda; that he further assigned to
him all his rights and actions to and in the estate of the deceased, with power to ask for the
judicial execution of the mortgage on the hacienda Bunglas, which debt had not yet been paid by
the defendant, for which reason the latter further owed him the interest agreed upon at the rate of
10 per cent per annum from the 5th of April, 1904; that the other defendant, J. H. Grindrod, had
claims on the lien, but that all of his interest thereon was and is subsequent to that of the plaintiff;
that in consequence of the complaint filed, without any right whatever, by the said J. H. Grindrod
against Evaristo Alvarez, and notwithstanding the intervention by the plaintiff, Manuel Lopez,
Grindrod pretended to dispose by public auction of the rights of the defendant Evaristo Alvarez
over the hacienda Bunglas in favor of the other defendant, Juan Thomson Casells, on the 7th of
October, 1904, although the rights which the latter had over said hacienda were subsequent and
subject to those of the plaintiff, Manuel Lopez. It should be noticed that the defendants Grindrod
and Casells were and are partners in the lien and judgment rendered in the case against Evaristo
Alvarez, and in the purchase of the rights of the latter on the 7th of October aforesaid.

In his amended answer the defendant J. H. Grindrod asked that the complaint be dismissed with
costs against the plaintiff, and to this end he denied all and each of the allegations contained in
the amended complaint, with the exception of such as were admitted in his present answer,
admitting in fact that the credit by reason of which Evaristo Alvarez was made defendant in case
No. 503, together with the judgment rendered therein, belonged to the copartnership long before
established at Iloilo between the said Juan Thomson Casells and J. H. Grindrod; that as a special
defense he alleged that at the liquidation of accounts on the 26th of June, 1900, Evaristo Alvarez
appeared as owing the defendant Grindrod a balance of P15,722.16, which he acknowledged and
confessed under a deed dated July 7, 1900, in favor of the creditor, Grindrod, the debtor
engaging to pay the said sum with interest thereon at the rate of 15 per cent per annum from the
date of the deed by delivering all the sugar that could be produced by the hacienda Esperanza,
which he had leased from its owner, Julita Villanueva, on condition that after the sugar was sold,
deducting the expenses of delivery, freight, and commission of 1 per cent, the creditor, Grindrod,
would pay one half of the proceeds over to Evaristo Alvarez, and the other half was to be
credited to the latter's account until the same was settled in full; that for the purpose of operating
the hacienda Esperanza he obtained money and goods from J. H. Grindrod to account of one-half
of the value of the sugar without ever having covered the amounts so advanced, and that for said
reason the debt of Evaristo Alvarez amounted on the 31st of March, 1904, to 34,510.81 pesos,
Mexican currency, and that in view thereof Grindrod endeavored to protect his credit as the best
he could under the law, inasmuch as he had noticed that the debtor had lost his zeal in working
the hacienda and was greatly discouraged, for which reason the hacienda Esperanza yielded less
sugar every year, and he was therefore obliged to file a complaint against the debtor, claiming
payment of the same amount. He then obtained a preliminary attachment of all the property of
the debtor, Alvarez which was executed on the 5th of August, 1904, and included all the rights
which Alvarez had or might have over the hacienda Bunglas, especially over the mortgage of
Vicente Lopez y Alvarez, with all the buildings, furnaces, machinery, labor animals, and other
appurtenances and easements belonging thereto. Said attachment was duly recorded in the
register of property of Iloilo on the 12th of August, 1904.

Evaristo Alvarez, the defendant, not having appeared in court, judgment was entered in the case
on the 27th of the said month and year sentencing him to pay P32,867.44 and the costs of the
proceedings.

In consequence of the foregoing decision all the rights which Alvarez had or might have over the
hacienda Bunglas, particularly over the mortgage executed by Vicente Lopez on said hacienda,
were sold at public auction in accordance with the law, and Juan Thomson Casells being the
highest bidder they were adjudicated to him on the 7th of October, 1904, for the sum of P13,237,
the same being recorded in the registry of property on the 29th of the said month of October, and
inscribed therein on the 21st of March, 1905.

Evaristo Alvarez, having been summoned to appear as the executor of the estate of Vicente
Lopez, and in reply to the original complaint of Manuel Lopez, stated that the facts therein set
forth were true, particularly the assignment of part of the credit claimed by the plaintiff.

Evidence having been adduced by both parties, the judge rendered his decision on the 14th of
November, 1905; holding that the plaintiff had failed to establish his right, and decided the case
in favor of the defendant and to recover costs. Against this decision the plaintiff excepted and in
order to sustain his appeal gave notice of his intention to file a bill of exceptions and in addition
moved for a new trial on the ground that the weight of the evidence did not justify the judgment
of the court and that the same was contrary to law; upon the denial of the motion for a new trial
the plaintiff took exception and asked the approval of the bill of exceptions.

The action taken herein, though apparently an intervention based upon superior rights, is actually
an intervention based upon ownership, because its purpose was to release the lien legally
transferred to the plaintiff from the attachment levied upon request of a merely personal creditor,
and thus avoid the sale and adjudication thereof in favor of some purchaser.

By virtue of the contract executed in a public instrument dated April 5, 1904 (Exhibit 2), the
plaintiff, Manuel Lopez, acquired indisputable dominion over the credit for P5,973, and a
fraction, transferred or assigned to him by its owner, Evaristo Alvarez y Perez, having the
character of a mortgage according to the deed dated April 24, 1901, on the hacienda Bunglas
pertaining to the estate of the late Vicente Lopez. The assignment or transfer of said portion of
the credit is in accordance with the provisions of article 1878 of the Civil Code, which reads:
 A mortgage credit may be alienated or assigned to a third person, wholly or partially,
with the formalities required by law.

The fact that such assignment was not registered in the property register is no obstacle to the
transfer of the dominion or ownership of said credit in the sum therein stated in favor of the
plaintiff, Lopez, inasmuch as the assignment or alienation of a credit, made by the owner thereof
in favor of another, is prior to the act of its registration, and entirely independent of such
formality to such an extent that, if any question should arise over the contract between the
assignor and the assignee, it would have to be decided according to common law without need of
previous registration of the title, which shows that a credit secured by a mortgage may be
assigned or alienated, and is a perfectly valid contract even if it were not registered.

Article 152 of the Mortgage Law requires that the alienation or assignment in favor of a third
party of the whole or any part of a credit secured by mortgage shall be done by means of a public
instrument, that the debtor be informed thereof, and that the same be recorded in the register, the
assignee being subrogated to all the rights of the assignor; but in order that the transfer may be
effective as against a third party it is indispensable that it be recorded in the registry of property,
although the lack of such registration will not invalidate the assignment or transfer of the credit
in favor of the assignee. Article 1526 of the Civil Code provides that

The assignment of a credit, right, or action shall produce no effect against a third person
but from the time the date is considered fixed, in accordance with articles 1218 and 1227.

If said assignment involves real property, from the date of its entry in the registry.

The assignment of the credit referred to was effected by means of a public instrument; therefore,
in accordance with article 1218, it is evidence, even against a third person, of the facts which
gave rise to its execution and of the date of the latter; and the transfer of the credit must be held
to be valid and efficient in view of the authenticity of the document, which precludes all
suspicion of fraud with respect to the date when the transfer was made.

Notwithstanding the fact that the credit held by John Henry Grindrod, which amounted to 15,722
pesos, and 16 cents, Mexican currency, against the common debtor, Evaristo Alvarez, is of
anterior date to the assignment of the credit for 5,973 pesos and a fraction, according to the deed
of July 7, 1900, nevertheless, the right which Grindrod acquired by virtue of the said deed is
merely a personal right with none of the characteristics of a mortgage, and for this reason the
creditor, Grindrod, can not claim the rights of the third person referred to in article 27 of the
Mortgage Law in connection with the contract of transfer or assignment of the credit made by the
common debtor, Alvarez, in favor of the plaintiff, Manuel Lopez. In spite of the fact that John
Henry Grindrod took no part in the contract or assignation of the said mortgage credit in favor of
Lopez, and although the same was not recorded in the registry of property, Grindrod, the
personal creditor, cannot be considered as a third person nor invoke in support of his right the
provisions of article 27 of the Mortgage Law. This latter provision is for the purpose of securing
the dominion over real property and rights in rem, such as that of the mortgage constituted
thereon, and as the creditor is merely a personal one he has no right in rem over the credit
assigned to the plaintiff, Lopez, by Alvarez, the common debtor.

The supreme court of Spain, applying provisions of law almost identical to those in force in these
Islands to lawsuits pending in cassation, has, by a decision dated June 20, 1888, established the
doctrine that he who does not possess a registered title can not be considered as a third person for
the effects of the Mortgage Law, as would be the case with a mere bidder at a public sale for
account and risk of his principal. The decision of the 25th of October, 1888, establishes the
doctrine that

Where the dominion over real property is concerned the creditor who obtained a
preliminary attachment for the safety and security of his credit can not be considered as a
third person, because article 44 of the Mortgage Law, in conformity with article 1923 of
 the Civil Code, grants him the right of preference only in respect to property recorded,
and simply as regards subsequent credits.

In that of the 17th of May, 1898, the court says:

The third persons are only those whose respective title to property or rights under
litigation have been previously recorded.

The attachment levied at the instance of Grindrod on the credit secured by the mortgage which
the common debtor, Evaristo Alvarez, held upon the hacienda Bunglas, even if it had been
recorded in the registry of property, would not confer on the creditor, J. H. Grindrod, any right in
rem, at least over the credit for 5,973 pesos and a fraction which had already become the
property of Manuel Lopez, nor did it improve his personal right to recover his credit, as regards
the assignee, from a portion of the credit secured by mortgage, because when the attachment was
carried out that part of the mortgage credit had already been alienated, and it no longer belonged
to Evaristo Alvarez, the common debtor. Article 1923 of the Civil Code prescribes that

With regard to determined real property and property rights of the debtor, the following
are preferred:

xxx xxx xxx

4. Credits, of which a cautionary notice has been made in the registry of property by
virtue of a judicial mandate, by reason of attachments, sequestrations, or execution of
judgments, with regard to the property entered therein and only with regard to subsequent
credits.

The plaintiff is not a mere personal creditor, but the owner of a credit secured by a mortgage
which was lawfully transferred to him by the original owner thereof.

The supreme court of Spain in its decisions of March 20, 1874, and June 17, 1875, laid down the
rule which has since become a settled doctrine: lawphil.net

The preliminary recording of an attachment, as the result of an order of court and

intended only to secure the consequences of the action, does not create nor declare any
right, nor alter the nature of the obligations or convert into real and hypothecary that
which did not have this character previously, nor does it injure the rights in the property
that may be claimed by others.

It is a fact, and has been admitted by appellee, that when the attached mortgage credit of Alvarez,
the debtor, was sold on the 7th of October, 1904, Manuel Lopez had already filed his complaint
in intervention on the 14th of September previous; therefore upon true principles of procedure,
the sale should have been suspended, inasmuch as it was not a question of which of the creditors
had a better right to recover, but whether the personal right of creditor J. H. Grindrod could
prevail over the right of ownership of Manuel Lopez to a certain part of the mortgage credit
legally transferred to him by its former owner.

When the sheriff undertook the sale of the said mortgage credit in its totality, a part of the same,
to the value of 5,973 pesos, was no longer owned by the debtor, Evaristo Alvarez, but belonged
to the assignee Manuel Lopez, and as the latter was not in any way obligated in favor of the said
Grindrod, it is evident that a thing which belonged to another person was sold, and in respect to
which the creditor, who asked for the sale, had no right. Hence, such a sale is null and void, and
produced no effect with respect to that part of the credit owned by the plaintiff, Manuel Lopez,
nor could it deprive him of his property by means of a process which, under no consideration,
could have been based on any provision of law.

In its decision of the 12th of July, 1904, the same supreme court said that
 It has been repeatedly held by the supreme court that article 1280 of the Civil Code is not
so far reaching as to require that, in order to prove dominion, the same should be set forth
in a public instrument, because in accordance with article 1278 all contracts are binding,
provided the essential conditions referred to in article 1261 exist, without prejudice to the
right of the contracting parties to require the execution of a written instrument, as
provided in article 1279; the absence thereof, however, can not be taken advantage of by
either of the parties, and much less by a third person, to deny the existence and reality of
a contract when it is substantiated by proof admissible in law. That the lack of
registration of the documents with which the intervening party could justify his claim as
the real owner of the subject-matter of intervention, is no obstacle to the
acknowledgement of this right as opposed to that which corresponds to the defendant in
the suit by reason of the preliminary attachment recorded, because this fact can only
produce its logical consequences where the thing that has been attached belongs to the
person against whom the attachment is levied.

It being conditional in attachments of all kinds that the thing attached must be the
property of the debtor, from no provision of the Mortgage Law can a conclusion be
derived contrary to such principle, simply because the name of the debtor appears in the
registry as the owner of property which does not actually belong to him, and much less
when it happens that the entry in his name was made in order to record the attachment
after the property was no longer owned by him.

Article 33 of the Mortgage Law provides that

The record of instruments or contracts which are null in accordance with the law are not
validated thereby.

If the sale of that part of the credit owned by Manuel Lopez is null and can not be sustained, the
recording of the same in the registry of property can in no way validate it nor produce any effect
against the real owner thereof who, contrary to law, was deprived of what pertained to him at the
instance of a third person, with whom he was not in any manner connected, without being
previously heard or defeated in an action at law, nor yet without due process of law, as provided
in section 5 of the Philippine Bill.

Therefore, by virtue of the considerations set forth, it is our opinion, and we so hold, that the
judgment appealed from should be reversed, that the credit secured by the mortgage upon the
hacienda Bunglas, amounting to 5,973 pesos, to which the deed of the 5th of April, 1904 refers,
is of the exclusive ownership of Manuel Lopez y Villanueva as assignee, and that the sale of
such part of the credit is null and void and the plaintiff is entitled to recover from the proceeds of
the sale of the said hacienda, in preference to the testate or intestate succession of J. H. Grindrod,
the amount of his aforesaid credit together with the interest agreed upon, without prejudice to the
subordinate rights of the said succession of the deceased creditor over the rest of the mortgage
credit not assigned to the plaintiff. No special ruling is made as to costs in either instance. So
ordered.
G.R. No. L-30150 August 31, 1971

NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, petitioner,

vs.
HONORABLE WALFRIDO DE LOS ANGELES, in his capacity as Judge of the Court of
First Instance of Rizal, Branch IV (Quezon City), THE SPOUSES BASILISA ROQUE and
FRANCISCO BAUTISTA; LEONILA SANCHEZ and BENJAMIN N. BONUS; AURORA
SANCHEZ and BONIFACIO EUGENIO; CARMELITA SANCHEZ and FRANCISCO
IGNACIO; BIENVENIDO SANCHEZ, LEONARDO SANCHEZ, ROQUE VILLAGE
SUBDIVISION and THE REGISTER OF DEEDS OF QUEZON City, respondents.

Carreon, Taada and Taada for petitioner.

Eliseo M. Tenza and Nestor Fernandez, for private respondents.

CASTRO, J.:

By the instant petition for certiorari and mandamus with preliminary injunction, the petitioner
National Investment and Development Corporation (hereinafter referred to as the NIDC)
impugns three orders issued by the respondent Court of First Instance of Rizal in civil case Q-
8407, namely, (1) an order dated May 28, 1968 dismissing the appeal of the NIDC from that
court's order dated March 31, 1967 which directed the cancellation of the annotation, on several
certificates of title involved in the said case, of the assignment of mortgage rights made by the
Philippine Commercial and Industrial Bank (hereinafter referred to as the PCIB), a defendant in
the said civil case, in favor of the NIDC, the respondent Judge stating that since the NIDC had
not been properly substituted for PCIB and latter had failed to perfect an appeal from the order of
March 31, 1967, therefore, the appeal which was taken by the NIDC was ineffective, and
moreover filed out of time; (2) an order dated November 9, 1968 directing the NIDC to surrender
to the Register of Deeds of Quezon City the certificates of title over parcels of land involved in
the said civil case which the lower court, in a judgment rendered therein which had already
become final and executory, ordered reconveyed to the herein private respondents (the spouses
Basilisa Roque and Francisco Bautista, Leonila Sanchez and Benjamin N. Bonus, Aurora
Sanchez and Bonifacio Eugenio, Carmelita Sanchez and Francisco Ignacio, Bienvenido Sanchez,
Leonardo Sanchez and Roque Village Subdivision), plaintiffs in the case below, subject,
however, to the mortgage executed in favor of the PCIB by the defendant therein, Araceli W.
Vda. de Del Rosario; and (3) an order dated January 27, 1969 declaring as cancelled and null and
void the certificates of title involved in the mentioned civil case which were then held by the
NIDC, for failure of the latter to comply with the respondent Judge's order of November 9, 1968
requiring the NIDC to surrender the said title certificates to the Register of Deeds of Quezon
City. 1

The essential facts are undisputed.

Sometime in July, 1963 the private respondents herein sold several lots registered in their names
to Araceli W. Vda. de Del Rosario who, after securing registration of the said lots in her name,
mortgaged them to the PCIB. Del Rosario failed to complete payment of the purchase price
agreed upon, for which reason, on November 17, 1964, the herein private respondents filed a
complaint against her and the PCIB for reconveyance to them of the said lots or rescission of the
contracts of sale executed thereon and the cancellation of the mortgages held by the PCIB.

On January 25, 1965 the court a quo rendered summary judgment directing the rescission of the
contracts of sale adverted to above and the reconveyance of the lots in dispute covered by TCTs
70809, 70813, 70814 and 76401 to 76472. The rescission of the purchase contracts on the lots
was, however, declared to be without prejudice to the rights of the PCIB thereon which was
adjudged as mortgaged in good faith. The lower court reserved for a separate hearing the parties'
respective claims for damages.

This decision of the trial court was appealed to this Court by del Rosario in
L-24873. The appeal was, however, dismissed on September 23, 1966 because it was taken out
of time. No appeal was interposed by the private respondents herein with respect to the portion
of the lower court's decision in favor of the PCIB.

On June 16, 1965 the PCIB foreclosed its mortgage on the lots covered by TCTs 70809, 70813
and 70814. At the auction sale, it appeared as the highest bidder; on December 2, 1965 the
certificate of sale issued in its favor was duly registered.

On May 4, 1966 the PCIB assigned its mortgage rights over the lots covered by TCTs 70809,
70813, 70814 and 76401 to 76472 to the NIDC, as well as its rights as highest bidder for the lots
covered by the first three titles mentioned. This assignment was duly inscribed and annotated at
the back of the certificates of the title concerned on May 16, 1966.

On November 16, 1966 the private respondents filed with the trial court, in the same civil case
Q-8407, a motion to cancel time encumbrance held by the NIDC appearing at the back of TCTs
76401 to 76472 and 70809. The private respondents alleged in their motion that del Rosario had
negotiated a loan with the NIDC by virtue of which the latter assumed the payment of, and did
pay, del Rosario's mortgage indebtedness to the PCIB. For this reason, and for the further reason
that there was no privity of contract between them and del Rosario and the PCIB concerning the
said indebtedness, the private respondents maintained that the mortgage lien of the PCIB over
the lots subject of their motion was thereby discharged. They further argued that the mortgage
lien has been extinguished because when it assumed payment of the indebtedness of del Rosario
to the PCIB, the NIDC was aware of the respondents' claim over the lots in question which was
annotated at the back of the certificates of title in dispute. Lastly, the respondents contended that
their claim is superior to that of the NIDC under the provisions of articles 2242(2) and 2243 of
the new Civil Code. The respondents served a copy of this motion on the NIDC.

On November 19, 1966, at the hearing on the above motion, the NIDC, through counsel, having
been notified thereof, entered its appearance. The respondent Judge at the said hearing gave the
NIDC opportunity to file its written opposition to the motion.

On December 20, 1966 the NIDC filed its written opposition, claiming that it merely stepped
into the shoes of the PCIB as an assignee and that the private respondents must respect its rights
as such assignee in the same manner that they would respect the rights of the PCIB the
adjudication regarding which, it was alleged, had already long become final when they were
acquired by the NIDC, citing article 1625 of the new Civil Code.

On January 5, 1967 the private respondents filed a rejoinder to the above opposition, furnishing
the NIDC a copy of the same.

On March 31, 1967 the respondent Judge issued an order granting the private respondents'
motion to cancel the encumbrance of the NIDC from the certificates of title in dispute, reasoning
as follows:

... There is no question that the deed of assignment in question is valid between
the defendant Bank and the National Investment & Development Corporation.
But this Court, however, is not inclined to sustain incumbrancer's view; first, it
should have submitted the deed of assignment for approval of the Court knowing
that the subject-matter of the said deed of assignment is in custodia legis, and so
that the consent of all the parties plaintiffs could be taken; second, the payment of
the mortgage debt of defendant Del Rosario by the National Investment &
Development Corporation to the PCI Bank extinguished the plaintiff's obligation
to respect the mortgage lien of the PCI Bank; and third, the NIDC could ask for
 reimbursement of its expenses and the amount it has paid to the PCI Bank from
defendant Del Rosario. Moreover, it is more on equity and justice as well as in
law that the incumbrancer should not enforce its rights against the plaintiffs who,
in the first place; were not benefited by the mortgage debt incurred by defendant
Del Rosario.

A copy of this order was, however, not furnished the NIDC, although the PCIB was served a
copy thereof.

On April 22, 1967 the respondent Judge issued another order directing the NIDC to surrender the
certificates of title in dispute to the Register of Deeds of Quezon City in order that its order of
March 31, 1967 could be implemented. The NIDC filed a motion for reconsideration on the
ground that the issuance of the order was premature for it had not yet received a copy of the
court's order of March 31, 1967. The private respondents opposed the said motion.

On September 19, 1967 the NIDC received a copy of the respondent court's order dated March
31, 1967. The NIDC then filed, on October 16, 1967, or 27 days from its receipt of the said
order, a motion for reconsideration thereof. On January 8, 1968 the NIDC received another order
from the respondent court dated December 29, 1967 denying its motion for reconsideration "for
lack of merit."

On January, 9 1968 the NIDC filed with the court below a notice of appeal on "purely questions
of law" from the order of March 31, 1967 and an appeal bond; on January 11, 1968 it filed its
record on appeal.

On February 7, 1968 the private respondents filed with the lower court a motion to dismiss the
appeal of the NIDC stating (a) that the appeal was filed out of time since the PCIB did not appeal
from the appealed order and the NIDC had not been properly substituted for the PCIB as a party
in the case (citing section 20, Rule 3 of the Rules of Court and Oria Hermanos vs. Gutierrez
Hermanos, 52 Phil. 156 [1928] and Feltalino vs. Sanz , 44 Phil. [1923]); and (b) that the appeal is
frivolous and dilatory because the trial court's decision ordering reconveyance to the private
respondents of the lots in dispute by del Rosario had long become final and executory. The
NIDC opposed this motion, contending that it had acquired the necessary personality in civil
case Q-8407 by virtue of the respondents' and the lower court's recognition thereof.

On May 28, 1968 the respondent Judge issued an order dismissing the appeal interposed by the
NIDC for reasons substantially identical to those adduced by the private respondents in their
motion to dismiss the appeal.

On July 3, 1968 the NIDC filed a motion for reconsideration of the dismissal of its appeal. This
motion was denied on December 18, 1968.

Meanwhile, on September 12, 1968, the NIDC received a copy of a petition of the private
respondents to declare TCTs 70809, 70813, 70814 and 76401 to 76472 null and void for failure
of the NIDC to surrender the certificates of title in question to the Register of Deeds of Quezon
City "in order that the deeds of reconveyance executed by the Clerk of Court and orders of this
Honorable Court may be given due course for registration ..."

The NIDC opposed this petition, alleging that to grant it will amount to enforcement of the lower
court's order of March 31, 1967 which had not yet become final and executory as the NIDC had
appealed within the prescribed period. It was also pointed out by the NIDC that its motion for
reconsideration of the order dismissing its appeal had not as yet been resolved.

On November 9, 1968 the respondent Judge issued another order requiring the NIDC to
surrender the certificates of title in dispute to the Register of Deeds of Quezon City within five
days, otherwise the said certificates would be declared null and void. The NIDC filed a motion
for reconsideration of this order on the ground that its motion for reconsideration of the order
dismissing its appeal had not up to that time been resolved.

On January 27, 1969, the NIDC received a copy of a "Manifestation" dated January 21, 1969
wherein the private respondents prayed for the cancellation of the mentioned certificates of title
on the ground that the NIDC had already received a copy of the order of the respondent Judge
dated December 18, 1968 denying the motion for reconsideration of the NIDC dated November
19, 1968. It turned out, however (as explained by the NIDC in one of its pleadings filed with this
Court), that while the NIDC did receive on January 13, 1969 the said order dated December 18,
1968, the same was overlooked because the copy of the said order sent by the respondent Judge
was stapled beneath two other orders also dated December 18, 1968. One of these orders which
was stapled on top of the others, was in connection with another case (civil case 10636)
involving the same parties herein. According to the NIDC, it was thought that the papers stapled
beneath were mere copies of the order in the said civil case. The third order, similarly dated, was
an order denying the NIDC's motion for reconsideration of the respondent Judge's order
dismissing its appeal from the order of March 31, 1967.

On January 30, 1969 the counsel of the NIDC went to the lower court to inquire if it had already
acted upon the said "Manifestation"; and there and then he was served a copy of an order dated
January 27, 1969, declaring TCTs 70809, 70813, 70814 and 76401 to 76472 null and void and
cancelled.

The submission of the parties for resolution by this Court involves mainly the question of
whether the petitioner has legal personality to appeal the order a quo dated March 31, 1967. If
the answer be in the affirmative, then the order of the respondent Judge dismissing the appeal
and all subsequent orders adverse to the petitioner will not avail the private respondents any.

We do not think, however, that this is the real issue that should first be resolved in order to
bundle properly the contending claims of the parties. Of basic crucial importance, in our opinion,
is an inquiry into, and resolution of, whether, in the first place, the lower court had jurisdiction to
entertain the motion of the private respondents that led to the issuance of the order of March 31,
1967. Obviously, it will not be necessary to resolve the question posited by the parties if, from
the facts which the instant petition opened for inquiry by this Court, it will be determined that the
lower court was devoid of jurisdiction to take cognizance of the mentioned motion of the private
respondents.

After a painstaking study of the matter, we reach the view and we so hold that the respondent
Judge's assumption of jurisdiction over the private respondents' motion that led to the order of
March 31, 1967 dismissing the appeal of the NIDC, is completely devoid of legal authority. The
judgment of the court a quo in civil case Q-8407, on the matter of the recognition of the
mortgage rights of the PCIB over the lots in question, had already become final and executory
when the said bank assigned its rights to the NIDC. It had, in fact, foreclosed its mortgage rights
over some of the lots and had purchased them at an auction sale before it executed the deed of
assignment to the NIDC. Such being the case, the lower court no longer had jurisdiction in the
said case to resolve, by a mere motion therein, issues having to do with the disposition made by
the PCIB of its rights over the lots in question, which rights were then no longer in litigation as
they had been adjudged with finality.

An independent action, or any other appropriate remedy, securing to all the real parties in interest
the proceses and due opportunities afforded by the Rules of Court will be of the essence if the
private respondents, as the judicially declared owners of the lots in question by final judgment
prior to the present controversy, believe that they have a right of action to cause the
extinguishment by judicial fiat of the mortgage constituted over those lots on account of the
assignment by the mortgagee and/or purchaser at public auction of its rights to the parcels in
question.
The necessity for such an independent action or other appropriate remedy becomes more patent,
as a matter of due process, when it is considered that the NIDC, as assignee after a final
adjudication of the rights of the PCIB over the said lots, will be the real party to be affected
directly by any action which the private respondents will commence whose object is to render
inutile the legal efficacy of the PCIB's assignment of its rights thereon. In such an action, the
NIDC will clearly be an indispensable party, which it will be the duty of the private respondent
to include as a party in the case, otherwise, it will not be bound by any adjudication which will
adversely affect its rights over the lots in dispute.

It would appear, however, from the facts admitted by the parties, that a valid assignment, binding
upon the private respondents, has been made by the PCIB to the NIDC of its mortgage rights as
well as its rights as purchaser of the lots in question. There does not appear to be anything in our
statutes or jurisprudence which prohibits a creditor without the consent of the debtor from
making an assignment of his credit and the rights accessory thereto; and, certainly, an assignment
of credit and its accessory rights does not at all obliterate the obligation of the debtor to pay, but
merely puts the assignee in the place of his assignor. Indeed, article 1634 of the new Civil Code
definitely recognizes the likelihood that credits and other incorporeal rights in litigation may be
assigned pendente lite, and, in such event, provides that the debtor may extinguish his obligation
by making appropriate reimbursement to the assignee. 2 In other words, an assignment of
credit pendente lite, contrary to the respondent Judge's opinion of March 31, 1967, under which
it was construed that the mortgage rights and rights as purchaser of the PCIB over the lots in
question were still in custodia legis at the time of their assignment to the NIDC, does not
extinguish the credit or accessory rights assigned, but simply changes the bag into which the
debtor must empty his money in payment.

ACCORDINGLY, the order of the court a quo dated March 31, 1967, and its subsequent orders
dated May 28, 1968, November 9, 1968 and January 27, 1969, and all related orders are hereby
declared null and void and without legal effect, for having been issued without jurisdiction. The
preliminary injunction issued by this Court on March 11, 1970 is hereby made permanent. No
pronouncement as to costs.
 [G. R. No. 99433. June 19, 2001]

PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO

ENRIQUEZ, petitioners, vs. THE COURT OF APPEALS and INDUSTRIAL
FINANCE CORPORATION, respondents.

DECISION
VITUG, J.:

This case has been re-raffled to herein ponente pursuant to the Courts Resolution in A.M.
No. 00-9-03-SC of 27 February 2001. The petition for review on certiorari oppugns the decision
of the Court of Appeals in CA-G.R. CV No. 08582, entitled Industrial Finance Corporation vs.
Project Builders, Inc., et al., reversing the decision of Branch XX of the Regional Trial Court of
Manila in Civil Case No. 141774.
The antecedents of the case were capsulized by the trial court and cited by the appellate
court; viz:

This collection suit was filed on July 17, 1981 by Industrial Finance Corporation (IFC for short)
against defendant Project Builders, Inc. (PBI for short), Galicano Calapatia, Jr., Pablo Malasarte,
Teodoro Banas and Leandro Enriquez, arising from an alleged deficiency of P1,323,053.08, after
the extrajudicial foreclosure of the real estate mortgage.

The defendants deny liability and in their answer they allege that plaintiff has no cause or right
of action because the obligation is already fully paid out of the proceeds of foreclosure sale of
defendants property. Further, defendants alleged that a proper accounting of the transaction
between the parties will show that it is the plaintiff who is liable to the defendants.

The facts, which led to the filing of the case, are as follows:

On August 21, 1975, plaintiff and defendant PBI entered into an agreement (Exh. A) whereby it
was agreed that plaintiff would provide a maximum amount of P2,000,000.00 against which said
defendant would discount and assign to plaintiff on a with recourse non-collection basis its
(PBIs) accounts receivable under the contracts to sell specified in said agreement. And on June
15, 1976, the same parties entered into an agreement (Exh. B) whereby it was agreed that PBIs
credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line of
P5,000,000.00 granted includes the amount already assigned/discounted.

Against the above-mentioned credit line, defendant PBI discounted with plaintiff on different
dates accounts receivables with different maturity dates from different condominium-unit
buyers.And each time a certain account receivable was discounted, the covering Contract to Sell
(Exh. C-1 to O-1) was assigned by defendant to plaintiff.

The total amount of receivables discounted by defendant PBI is P7,986,815.38 and consists of
twenty accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to defendant
PBI the amount of P4,549,132.72 and the difference of P3,437,682.66 represents the discounting
fee or finance fee.

To secure compliance with the terms and conditions of the agreement dated June 15, 1976 (Exh.
B), defendants on the same date executed a Deed of Real Estate Mortgage (Exh. Q) in favor of
plaintiff. When defendants allegedly defaulted in the payment of the subject account, plaintiff
foreclosed the mortgage and plaintiff was the highest bidder in the amount of P3,500,000.00.
The foreclosed property was redeemed a year later (Exh. T), but after application of the
redemption payment, plaintiff claims that there is still a deficiency in the amount of
P1,323,053.08, hence, this complaint.

The terms and conditions of the Agreement dated June 15, 1976 (Exh. B) which are material to
the present appeal state as follows:

1. That the Assignor assigned all its rights and interests on several Contracts to Sell executed by
Assignor and the latters customers.

2. That the Assignor requested the Assignee to increase the formers credit line to FIVE
MILLION (P5,000,000.00) PESOS, Phil. Currency, which was granted by the Assignee subject
to the following terms and conditions:

a. It is hereby agreed that the credit line of P5,000,000.00 granted includes the amount already
assigned/discounted by Assignor to Assignee as stated in paragraph 1 of this Agreement.

b. This assignment/discounting of the Contracts to Sell shall be with recourse to Assignor and on
a non-collection basis.

c. That Assignee will execute a Real Estate Mortgage on 3 lots described as Transfer Certificate
of Title Nos. 491702, 491703 and 491704 of the Registry of Deeds of Rizal to secure the faithful
performance of the terms and conditions of this agreement and the Contracts to Sell assigned or
which may be assigned to Assignee.

d. Should there be a default on the part of the Assignor to pay Assignee or should Assignor fail
to pay Assignee the amount or amounts due to Assignee arising from the assignment of the
accounts receivables or remit to Assignee a lesser amount, the Assignor and/or PABLO
MALASARTE, ROLANDO L. JUSTO, LEANDRO D. ENRIQUEZ, TEODORO G. BANAS,
GALICANO A. CALAPATIA, JR. shall jointly and severally in their personal capacities upon
demand by the Assignee, repurchase the Contracts to Sell or installment papers assigned and/or
discounted by Assignor in favor of Assignee and/or pay Assignee the remaining balance of the
amount of the receivables discounted and/or assigned by Assignor to Assignee.

e. That the Performance Bond covering the condominium building Jovan located in
Mandaluyong, Rizal shall be endorsed and delivered by Assignor to Assignee.

f. That the Assignor shall comply with all the terms and conditions specified on the said
Contracts to Sell, executed by the assignor and its individual purchaser or customers, and
assigned/discounted to Assignee whether the assignment is on a with or without recourse basis.

g. Should it become necessary for the assignee to take any legal action, the Assignor shall pay to
the Assignee as attorneys fee allowed by the Rules of Court in the sum equivalent to Twenty
(20%) per cent of the total indebtedness then unpaid, plus whatever legal costs incurred, and that
any legal action arising out of this agreement may be instituted in the courts of the City of
Manila.[1]

After the joinder of issues, the trial court dismissed the complaint and ruled on the
counterclaim in this wise -
1. Ordering plaintiff to return to the defendants the amount of P3,705.91 which plaintiff
charged on the account of Dr. Ricardo Ortiz and Olympic Engineering Sales
Corporation which had already been paid;
2. Ordering plaintiff to pay to defendants the amount of P238,052.53, representing the
amount of the promissory note which was (sic) not been compensated or applied to
the account of defendants;
 3. Ordering plaintiff to return to defendants the amount of P425,833.33, representing the
interest collected by plaintiff from defendants from foreclosure to redemption of the
real estate mortgage;
4. Ordering plaintiff to return to defendants the amount of P344,302.18, representing the
prepaid interests collected by plaintiff, since defendants were not allowed to use the
period of such prepaid interests;
5. Ordering plaintiff to pay attorneys fees in the amount of P20,000.00.

Costs is adjudged against the plaintiff.[2]

The Court of Appeals, in its decision of 14 May 1991, overturned the judgment of the trial
court and ruled thusly:

WHEREFORE, the decision appealed from is REVERSED. Defendants are hereby ordered to
pay, jointly and severally, to the plaintiff the deficiency in the amount of P1,237,802.48 with
interest thereon at the rate of 12% per annum computed from August 13, 1981 minus the amount
of the promissory note in the sum of P238,052.53 with interest thereon at the rate of 12% per
annum computed from September 14, 1976, the respective computation of the interest to end
upon execution of this decision. No special pronouncement as to costs of suit.[3]

Feeling aggrieved, Public Builders, Inc., and its officers, namely, Galicano Calapatia, Jr.,
Teodoro Banas and Leandro Enriquez, have come to this Court via a petition for review
on certiorari, proffering the following issues:
1.) Whether Republic Act No. 5980 (Financing Company Act) is intended for the
benefit of financing companies or for the protection of public interests;
2.) Whether or not the above-mentioned Act should be made to apply even when the
design or scheme to make it appear that there was a purchase of receivables or credit
is only a subterfuge to evade Republic Act No. 3765 (Truth in Lending Act),
particularly Section 4 thereof, and compound exorbitant interests under the guise of
purchase discount;
3.) Whether or not said Republic Act No. 5980 should govern the transaction between
petitioners and private respondent which in reality was bilateral, not trilateral, and
respondent financing company was not really subrogated in the place of the
supposed seller or assignor; and
4.) If said Republic Act No. 5980 should govern the transaction of the parties, should
petitioners still answer for any deficiency after the mortgage with which they
guaranty the collection of the assigned credit, had been foreclosed?[4]
At the pith of the controversy lies the question of whether or not the agreement forged by
petitioners and private respondent is a simple loan or a financing transaction governed by the
provisions of Republic Act No. 5980.[5] Petitioners would have us convinced that the transaction
forged by them with private respondent is a simple loan. It is a contention difficult to accept.
Petitioner corporation, the developer-builder of Jovan Condominium Building, in obtaining
a credit line of P5,000,000.00 from private respondent, assigned twenty (20) contracts to sell
with accounts receivable from its condominium unit buyers to the latter with recourse to assignor
and on a non-collection basis.
Succinctly, private respondent is a financing company as so defined by the Financing
Company Act.

(a) Financing companies, x x x organized for the purpose of extending credit facilities to
consumers and to industrial, commercial, or agricultural enterprises, either
by discounting or factoringcommercial papers or accounts receivable, or by buying and
selling contracts, leases, chattel mortgages, or other evidences of indebtedness or by leasing of
motor vehicles, heavy equipment and industrial machinery, business and office machines and
equipment, appliances and other movable property.[6]

The assignment of the contracts to sell falls within the purview of the Act. The term credit has
been defined to -

(c) x x x mean any loan, mortgage, deed of trust, advance, or discount; any conditional sales
contract, any contract to sell, or sale or contract of sale of property or service, either for present
or future delivery, under which, part or all of the price is payable subsequent to the making of
such sale or contract; any rental-purchase contract; any option, demand, lien, pledge, or other
claim against, or for the delivery of, property or money, any purchase, or other acquisition of or
any credit upon the security of, any obligation or claim arising out of the foregoing; and any
transaction or series of transactions having a similar purpose or effect;[7]

An assignment of credit is an act of transferring, either onerously or gratuitously, the right of

an assignor to an assignee who would then be capable of proceeding against the debtor for
enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection of the
contract,[8] and ownership of the right, including all appurtenant accessory rights, is thereupon
acquired by the assignee. The assignment binds the debtor only upon acquiring knowledge of the
assignment but he is entitled, even then, to raise against the assignee the same defenses he could
set up against the assignor. Where the assignment is on account of pure liberality on the part of
the assignor, the rules on donation would likewise be pertinent; where valuable consideration is
involved, the assignment partakes of the nature of a contract of sale or purchase.[9]
Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of
the assignor and in a position to enforce the contract to sell to the same extent as the assignor
could.
An insistence of petitioners that the subject transaction should be considered a simple loan
since private respondent did not communicate with the debtors, condominium unit buyers, to
collect payment from them, is untenable. In an assignment of credit, the consent of the debtor is
not essential for its perfection,[10] his knowledge thereof or lack of it affecting only the
efficaciousness or inefficaciousness of any payment he might make.[11] In Rodriguez vs. Court of
Appeals,[12] the Court has said:

We have ruled in Sison & Sison v. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely,
consent is not necessary in order that assignment may fully produce legal effects. Hence, the
duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be
prevented from assigning their credits because of the possibility of the debtors refusal to give
consent.

What the law requires in an assignment of credit is not the consent of the debtor but merely
notice to him. A creditor may, therefore, validly assign his credit and its accessories without the
debtors consent (National Investment and Development Co. v. De los Angeles, 40 SCRA 489
[1971]). The purpose of the notice is only to inform the debtor that from the date of the
assignment, payment should be made to the assignee and not to the original creditor.[13]

The assignment, it might be pointed out, was with recourse, and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the mortgaged
parcels of land. The resort to foreclosure of the mortgaged properties did not preclude private
respondent from collecting interest from the assigned Contracts To Sell from the time of
foreclosure to the redemption of the foreclosed property. The imposition of interest was a mere
enforcement or exercise of the right to the ownership of the credit or receivables which the
parties stipulated in the 1976 financing agreement. Thus -

f. That the Assignor shall comply with all the terms and conditions specified on the said
Contracts to Sell, executed by the assignor and its individual purchaser or customers, and
assigned/discounted to Assignee.[14]
 One of the provisions in the contracts to sell, subject matter of the assignment agreement,
related to the imposition of interest in the event of default by the debtor in the payment of
installments, to wit:

All payments shall be made on or before their respective due dates without necessity of demand
therefor, and failure to make such payments on time shall entitle the Developer to charge interest
at the rate of one percent (1%) per month without prejudice to the other remedies available to the
Developer.[15]

As owner of the account receivables, private respondent was impressed with the entitlement
over such interest payment.
Petitioners claim that private respondent is proscribed from imposing interest and other
charges beyond the limits set out by the Financing Company Act lacks merit. The law states:

SEC. 5. Limitation on purchase discount, fees, service and other Charges. --- In the case of
assignments of credit or the buying of installment papers, accounts receivables and other
evidences of indebtedness by financing companies, the purchase discount, exclusive of interest
and other charges, shall be limited to fourteen (14%) per cent of the value of the credit assigned
or the value of the installment papers, accounts receivable and other evidence of indebtedness
purchased based on a period of twelve (12) months or less, and to one and one-sixth (1 1/6%) per
cent for each additional month or fraction thereof in excess of twelve months, regardless of the
terms and conditions of the assignment or purchase.

Clearly, the 14% ceiling provided for purchase discount is exclusive of interest and other
charges. A purchase discount is distinct from interest. The term purchase discount refers to the
difference between the value of the receivable purchased or credit assigned, and the net amount
paid by the finance company for such purchase or assignment, exclusive of fees, service
charges, interests and other charges incident to the extension of credit,[16] and it is akin to
time price differential, or the increase in price to cover the expense generally entailed by
transactions on credit.[17]There is thus no impingement of the Usury Law even when the
controversy might have arisen prior to the adoption by the Central Bank Monetary Board on 03
December 1982 of its Resolution No. 224 on interest ceilings.
WHEREFORE, the petition is DENIED. The challenged decision of the Court of Appeals
reversing the decision of the trial court is AFFIRMED. No costs.
SO ORDERED.
 THIRD DIVISION

[G.R. No. 84220. March 25, 1992.]

BENJAMIN RODRIGUEZ, Petitioner, v. COURT OF APPEALS, and HADJI

ESMAYATEN LUCMAN, Respondents.

Manuel V. Trinidad for Petitioner.

Eriberto D. Ignacio for Private Respondent.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; ASSIGNMENT OF CREDIT;

DIFFERENTIATED FROM SUBROGATION. The case is one of assignment of credit and
not subrogation. In subrogation, the third party pays the obligation of the debtor to the creditor
with the latters consent. As a consequence, the paying third party steps into the shoes of the
original creditor as subrogee of the latter. An assignment of credit, on the other hand, is the
process of transferring the right of the assignor to the assignee who would then have the right to
proceed against the debtor. The assignment may be done either gratuitously or onerously, in
which case, the assignment has an effect similar to that of a sale (p. 235, Civil Code of the
Philippines, Annotated, Vol. V, Paras, 1982 ed.; Nyco Sales Corp., v. BA Finance Corp., G.R.
No. 71694, August 16, 1991).

2. ID.; ID.; ID.; EFFECT THEREOF. The questioned deed of assignment is neither one of
subrogation nor a power of attorney as the petitioner alleges. The deed of assignment clearly
states that the private respondent became an assignee and, therefore, he became the only party
entitled to collect the indebtedness. As a result of the Deed of Assignment, the plaintiff acquired
all rights of the assignor including the right to sue in his own name as the legal assignee.

3. ID.; ID.; ID.; CONSENT OF THE DEBTOR NOT ESSENTIAL TO VALIDITY. In

assignment, the debtors consent is not essential for the validity of the assignment (Art. 1624 in
relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the
payment he might make (Article 1626, Civil Code). Article 1626 also shows that payment of an
obligation which is already existing does not depend on the consent of the debtor. It, in effect,
mandates that such payment of the existing obligation shall already be made to the new creditor
from the time the debtor acquires knowledge of the assignment of the obligation.

4. ID.; ID.; ID.; ID.; CONSENT OF THE DEBTOR NOT NECESSARY TO PRODUCE
LEGAL EFFECTS. The law is clear that the debtor had the obligation to pay and should have
paid from the date of notice whether or not he consented. We have ruled in Sison & Sison v. Yap
Tico and Avancea, 37 Phil. 587 [1918] that definitely, consent is not necessary in order that
assignment may fully produce legal effects. Hence, the duty to pay does not depend on the
consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits
because of the possibility of the debtors refusal to give consent.

5. ID.; ID.; ID.; NOTICE TO DEBTOR, REQUIRED; PURPOSE. What the law requires in
an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may,
therefore, validly assign his credit and its accessories without the debtors consent (National
Investment and Development Co. v. De los Angeles, 40 SCRA 489 [1971]). The purpose of the
notice is only to inform the debtor that from the date of the assignment, payment should be made
to the assignee and not to the original creditor.

6. ID.; ID.; ID.; CONSIDERATION; SMALL OR NOMINAL CONSIDERATION

SUFFICIENT IN THE ABSENCE OF FRAUD. A valuable consideration, however small or
nominal if given or stipulated in good faith is, in the absence of fraud, sufficient. A stipulation in
consideration of $1 is just as effectual and valuable a consideration as a larger sum stipulated for
or paid (Penaco v. Ruaya, 110 SCRA 46 [1981]; Ascalon v. Court of Appeals, 158 SCRA 542,
[1988]).

7. ID.; ID.; ID.; RIGHTS OF THE ASSIGNEE. Hence, by virtue of the deed of assignment
whose existence and legality remains unrebutted, the respondent assignee acquired all the rights
of the assignor including the right to sue in his own name as the legal assignee. The contract was
not executed merely to enable the foreign corporation to sue in the Philippines because even
without the assignment, the foreign corporation can also sue in the Philippines for isolated
transactions even if not licensed to engage in business in this country.

8. ID.; DAMAGES; ACTUAL DAMAGES MUST BE SUPPORTED BY FACTUAL BASIS.

We find the amounts equitable except for the award of P500,000.00 as actual damages in
addition to the P450,553.00 indebtedness. The records do not contain the factual basis for such
an award. Thus, we agree with the petitioner that it is not justifiable to award that amount.

9. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACTS OF THE TRIAL APPELLATE

COURTS, GENERALLY UPHELD ON APPEAL. Furthermore, it is well-settled that the
jurisdiction of the Supreme Court is confined to a review of questions of law, except where the
findings of facts of the appellate court are not supported by the record or are so glaringly
erroneous as to constitute a serious abuse of discretion. (Caete v. Court of Appeals, 171 SCRA
13 [1989]). The findings of fact of the trial court being adequately supported by documentary as
well as testimonial evidence and affirmed by the Court of Appeals, are conclusive on the
Supreme Court unless they fall within a few well-defined exceptions. No such exception is
shown in this case.

DECISION

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the decision of the Court of Appeals affirming a
decision of the trial court which allowed Hadji Esmayaten Lucman as assignee to collect from
Benjamin Uy Rodriguez, an indebtedness owed to the assignor, a Hongkong
corporation.chanrobles virtual lawlibrary

The antecedent facts of the case are as follows:chanrob1es virtual 1aw library

Petitioner Rodriguez alias Uy Tian Kiu is a businessman from Cebu City whose business,
includes the importation of various commodities from Hongkong which he occasionally ordered
from Allied Overseas Commercial Co., Ltd., a Hongkong corporation. The Managing Director of
Allied Overseas Commercial Co., Ltd is Lin Ping Huang, a close friend of private respondent
Lucman.chanrobles law library : red

Petitioner Rodriguez, as a result of business transactions with the Hongkong Corporation,

accumulated an indebtedness owed to Allied Overseas in the amount of HK $418,729.60 which
had at that time in 1968 an exchange value of P450,553.00.

Upon demand for payment by the Hongkong Corporation, the petitioner issued a pay-to-cash
check dated September 11, 1970 covering the indebtedness. The check was, however, dishonored
for lack of funds, the account having been closed two months earlier.

Subsequently, the Allied Overseas Commercial Co., Ltd., through its Managing Director, Lin
Ping Huang, assigned its credit to the private Respondent. The contract was evidenced by a Deed
of Assignment (Exhs. "B-2" and "B-3") duly executed before Philippine Consular officials in
Hongkong. It reads:jgc:chanrobles.com.ph

"That WE, the ALLIED OVERSEAS COMMERCIAL CO., LTD., a commercial association
duly organized and registered in the companys registry of the Crown Colony of Hongkong with
offices at No. 5-7 Des Voeux Road, West, 1st Floor, Hongkong, represented in this instance by
its Managing Director duly authorized by a Board resolution, for and in consideration of HK$ 1
and other valuable considerations, have on this date assigned, ceded, transferred and conveyed
by way of irrevocable assignment and transferred to Hadji Esmayaten Lucman, Esq., of legal
age, Filipino citizen, and a resident of No. 95-I, A. Lake St., San Juan, Province of Rizal,
Republic of the Philippines, our outstanding and collectible credit due and owing us by and from
Benjamin Uy Rodriguez alias Uy Tian Kiu of Cebu City, Republic of the Philippines, in the total
amount of HK $418,729.60 or its equivalent in the Philippine Currency, for said Hadji
Esmayaten Lucman to collect and secure from the aforesaid debtor, Benjamin Uy Rodriguez
alias Uy Tian Kiu the aforesaid amount in any manner, including court proceedings if necessary,
in accordance with the provisions of existing laws in the jurisdiction of the Republic of the
Philippines."cralaw virtua1aw library

"We, as creditors assignors of the aforesaid debt, have on this date notified formally the debtor
named herein of this full assignment of the aforesaid credit. (Orig. Record, p. 11).

The assignee filed an action to collect the indebtedness. On March 4, 1985, the trial court
rendered a decision in favor of the private Respondent. The dispositive portion of the Decision
reads:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendant,
sentencing the latter to pay the former the following sums:chanrob1es virtual 1aw library

(a) P450,553.00 representing defendants outstanding account to plaintiffs assignor, with

interest thereon at twelve per cent (12%) per annum from the time of the filing of the complaint
on February 4, 1971 until fully paid;

(b) P500,000.00 as actual damages;

(c) P100,000.00 as moral damages;

(d) The further sum equivalent to ten (10%) per cent of all the foregoing sums as attorneys fees
and costs of litigation.

Costs against the defendant.

SO ORDERED." (pp. 142-143, Orig. Rec.)

Benjamin Rodriguez appealed the decision to the Court of Appeals and assigned the following as
errors committed by the trial court:chanrob1es virtual 1aw library

1) Plaintiff is not the real party-in-interest and is therefore, without legal capacity to sue;

2) The obligation does not exist or has not been sufficiently proven to exist;

3) Venue is improperly laid.

After carefully evaluating the evidence presented by the parties, the Court of Appeals rendered
the questioned decision dismissing the appeal for lack of merit. Benjamin Rodriguez filed a
motion for reconsideration which was denied by the appellate court which stated that the
arguments submitted in support of the motion were a mere rehash of the arguments in the
Appellants Brief.chanrobles lawlibrary : rednad
The petitioner is now before us questioning the decision of the Court of Appeals. He specifically
relies on the following as bases for his petition:chanrob1es virtual 1aw library

I. That the judgment in the criminal case cannot be given in evidence in the civil action.

II. That the decision of the Court of Appeals is not in accord with Article 1301 of the New Civil
Code which requires consent to subrogation; and

III. That the award of damages is excessive.

We find the petition devoid of merit.

The petitioner alleges that the only evidence presented by private respondent was the decision of
the Court of Appeals in the case of People v. Lucman (CA G.R. No. 21365-CR) for falsification
of commercial document. The case was filed by the petitioner before the Regional Trial Court of
Cebu while the civil case filed by Lucman in the Regional Trial Court of Pasig was in progress.

The Regional Trial Court of Cebu convicted Lucman but on appeal, the Court of Appeals
acquitted him on the basis of its finding that complainant Rodriquez had indeed an unpaid
balance which was sufficiently established by evidence.

The decision in the criminal case was only one of the pieces of evidence relied upon by the
respondent court. The petitioner is giving undue weight to this particular item.

It is clear from the records, both testimonial and documentary that the obligation exists. The
documents, all testified to by private respondent Lucman as well as other witnesses had
sufficiently proven that Rodriguez had an unpaid balance from previous transactions with Allied
Overseas Commercial Co., Ltd. which arose from the importation of the 800 bales of Hessian
sacks.

The unpaid balance was evidenced by a record of transactions between Allied Overseas Co., Ltd
and Ben Rodriguez. The statement of account was sent to the petitioner on September 30, 1968
and the receipt portion was duly signed by him and returned. (Exh. "E-3" and "E-3A")

If the importation was made in the name of Madipo Mercantile this was pursuant to the
petitioners request that his importations be carried out in the names of different companies.
This explains the shipment made to Madipo, a business firm owned by Wilfredo Tiu, a brother-
in-law of Rodriguez. However, the exchange of cables regarding the importation clearly
indicates that Rodriguez was the real importer (Exh. "L", "M", "M-1", "M-2", and "M-3)

The authenticity of the above cable communications has not been impugned by the petitioner.

Lucman also took the witness stand and identified numerous documents consisting of Purchase
Orders, Bills of Lading, Delivery Receipts, and other evidences of the purchase of a barge and
other goods by the petitioner from Allied Overseas Commercial Co., Ltd. Hueng Huan Yuen
Sabio, Assistant to the General Manager and in-charge of shipping of Allied Overseas
Commercial Co., Ltd., further testified to the same transactions.

We have no doubt from the records that the obligation actually existed.

Anent petitioners second point, we find no merit in his contention that there was subrogation
instead of an assignment of credit.

The basis of the complaint is not a deed of subrogation but an assignment of credit whereby the
private respondent became the owner, not the subrogee of the credit since the assignment was
supported by HK $1.00 and other valuable considerations.
The case is one of assignment of credit and not subrogation. In subrogation, the third party pays
the obligation of the debtor to the creditor with the latters consent. As a consequence, the paying
third party steps into the shoes of the original creditor as subrogee of the latter.

An assignment of credit, on the other hand, is the process of transferring the right of the assignor
to the assignee who would then have the right to proceed against the debtor. The assignment may
be done either gratuitously or onerously, in which case, the assignment has an effect similar to
that of a sale (p. 235, Civil Code of the Philippines, Annotated, Vol. V, Paras, 1982 ed.; Nyco
Sales Corp., v. BA Finance Corp., G.R. No. 71694, August 16, 1991).

The petitioner further contends that the consent of the debtor is essential to the subrogation.
Since there was no consent on his part, then he allegedly is not bound.

Again, we find for the Respondent. The questioned deed of assignment is neither one of
subrogation nor a power of attorney as the petitioner alleges. The deed of assignment clearly
states that the private respondent became an assignee and, therefore, he became the only party
entitled to collect the indebtedness. As a result of the Deed of Assignment, the plaintiff acquired
all rights of the assignor including the right to sue in his own name as the legal assignee.
Moreover, in assignment, the debtors consent is not essential for the validity of the assignment
(Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity
of the payment he might make (Article 1626, Civil Code).

Article 1626 also shows that payment of an obligation which is already existing does not depend
on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation
shall already be made to the new creditor from the time the debtor acquires knowledge of the
assignment of the obligation.

The law is clear that the debtor had the obligation to pay and should have paid from the date of
notice whether or not he consented.

We have ruled in Sison & Sison v. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely,
consent is not necessary in order that assignment may fully produce legal effects. Hence, the
duty to pay does not depend in the consent of the debtor. Otherwise, all creditors would be
prevented from assigning their credits because of the possibility of the debtors refusal to give
consent.

What the law requires in an assignment of credit is not the consent of the debtor but merely
notice to him. A creditor may, therefore, validly assign his credit and its accessories without the
debtors consent (National Investment and Development Co. v. De los Angeles, 40 SCRA 489
[1971]). The purpose of the notice is only to inform the debtor that from the date of the
assignment, payment should be made to the assignee and not to the original creditor.

The fact that the deed of assignment empowered the assignee to collect the credit originally
owing to the foreign corporation does not make the assignee a mere attorney-in-fact.

The case of Ngo Tian Tek and Ngo Hay v. Philippine Education Co., 78 Phil. 271 [1947] is in
point:jgc:chanrobles.com.ph

"When a chose, capable of legal assignment is assigned absolutely to one, but the assignment is
made for purpose of collection, the legal title thereto vests, in the assignee, and it is no concern
of the debtor that the equitable title is in another and payment to the assignee discharges the
debtor."cralaw virtua1aw library

The petitioner further assails the consideration given for the deed of assignment which is stated
as "HK$1.00 and other valuable considerations."cralaw virtua1aw library
A valuable consideration, however small or nominal if given or stipulated in good faith is in the
absence of fraud, sufficient. A stipulation in consideration of it is just as effectual and valuable a
consideration as a larger sum stipulated for or paid (Penaco v. Ruaya, SCRA 46 [1981], Ascalon
v. Court of Appeals, 150 SCRA 542, [1988]). It is not clear what considerations led to the
assignment but they must have been sufficiently valuable to the assignor in view of the amount
involved.

Hence, by virtue of the deed of assignment whose existence and legality remains unrebutted, the
respondent acquired all the rights of the assignor including the right to sue in his own name as
the legal assignee. The contract was not executed merely to enable the foreign corporation to sue
in the Philippines because even without the assignment, the foreign corporation can also sue in
the Philippines for isolated transactions even if not licensed to engage in business in this country.

Lastly, the petitioner asserts that the award of damages was excessive there being no finding to
justify the amounts.

We find the amounts equitable except for the award of P500,000.00 as actual damages in
addition to the P450,553.00 indebtedness. The records do not contain the factual basis for such
an award. Thus, we agree with the petitioner that it is not justifiable to award that amount.

All premises considered, we find for the private Respondent. We should also add that the case
has dragged on for 21 years since its filing with the then Court of First Instance of Pasig, Rizal
on February 4, 1971, due to the numerous dilatory tactics of the petitioner. The delay has
obviously created an injustice on the part of private respondent not fully compensated by the
payment of interests.chanrobles law library : red

Furthermore, it is well-settled that the jurisdiction of the Supreme Court is confined to a review
of questions of law, except where the findings of facts of the appellate court are not supported by
the record or are so glaringly erroneous as to constitute a serious abuse of discretion. (Caete v.
Court of Appeals, 171 SCRA 13 [1989]).

The findings of fact of the trial court being adequately supported by documentary as well as
testimonial evidence and affirmed by the Court of Appeals, are conclusive on the Supreme Court
unless they fall within a few well-defined exceptions. No such exception is shown in this case.

ACCORDINGLY, the petition is hereby DISMISSED. The decision of the Court of Appeals
dated October 22, 1987 and its resolution dated June 16, 1988 are AFFIRMED with the
modification that the award of additional actual damages in the amount of P500,000.00 is
deleted.chanroblesvirtualawlibrary

SO ORDERED.
G.R. No. L-48113 April 7, 1947

NGO TIAN TEK and NGO HAY, petitioner,

vs.
PHILIPPINE EDUCATION CO., INC., respondent.

Tansinsin and Yatco for petitioner.

Marcial Esposo for respondent.

PARAS, J.:

The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of Manila an
action against the defendants, Vicente Tan alias Chan Sy and the partnership of Ngo Tian Tek
and Ngo Hay, for the recovery of some P16,070.14, unpaid cost of merchandise purchased by
Lee Guan Box Factory from the plaintiff and five other corporate entities which, though not
parties to the action, had previously assigned their credits to the plaintiff, together with attorney's
fees, interest and costs. /by agreement of the parties, the case was heard before a referee,
Attorney Francisco Dalupan, who in due time submitted his report holding the defendants jointly
and severally liable to the plaintiff for the sum of P16,070.14 plus attorney's fees and interest at
the rates specified in the report. On March 6, 1939, the Court of First Instance of Manila
rendered judgment was affirmed by the Court of Appeals in its decision of January 31, 1941,
now the subject of our review at the instance of the partnership Ngo Tian Tek and Ngo Hay,
petitioner herein.

"It appears that," quoting from the decision of the Court of Appeals whose findings of fact are
conclusive, "as far back as the year 1925, the Modern Box Factory was established at 603
Magdalena Street, Manila. It was at first owned by Ngo Hay, who three years later was joined by
Ngo Tian Tek as a junior partner. The modern Box Factory dealt in pare and similar merchandise
and purchased goods from the plaintiff and its assignors in the names of the Modern Box
Factory, Ngo Hay and Co., Go Hay Box Factory, or Go Hay. Then about the year 1930, the Lee
Guan Box Factory was established a few meters from the Modern Box Factory, under the
management of Vicente Tan. When that concern, through Vicente Tan, sought credit with the
plaintiff and its assignors, Ngo Hay, in conversations and interviews with their officers and
employees, represented that he was the principal owner of such factory, that the Lee Guan Box
Factory and the Modern Box Factory belonged to the same owner, and that the Lee Guan Box
Factory was a subsidiary of the Modern Box Factory. There is evidence that many goods
purchased in the name of the Lee Guan Box Factory were delivered to the Modern Box Factory
by the employees of the plaintiff and its assignors upon the express direction of Vicente Tan.
There is also evidence that the collectors of the sellers were requested by Vicente Tan to collect
and did collect from the Modern Box Factory the bills against the Lee Guan Box Factory.
In the fact the record shows many checks signed by Ngo Hay or Ngo Tian Tek in payment of
accounts of the Lee Guan Box Factory. Furthermore, and this seems to be conclusive-Ngo
Hay, testifying for the defense, admitted that 'he' was the owner of the Lee Guan Box Factory in
and before the year 1934, but that in January, 1935, 'he' sold it, by the contract of sale Exhibit 7,
to Vicente Tan, who had been his manager of the business. Tan declared also that before
January, 1935, the Lee Guan Box Factory pertained to Ngo Hay and Ngo Tian Tek. The contract
Exhibit 7 was found by the referee, to be untrue and simulated, for various convincing reasons
that need no repetition here. And the quoted statements serve effectively to confirm the evidence
for the plaintiff that it was Ngo Hay's representations of ownership of, and responsibility for, Lee
Guan Box Factory that induced them to open credit for that concern. It must be stated that in this
connection to answer appellant's fitting observation that the plaintiff and the assignors
have considered Ngo Hay, the Modern Box Factory and Ngo Hay and Co. as one and the same,
through the acts of the partners themselves, and that the proof as to Ngo Hay's statements
regarding the ownership of Lee Guan Box Factory must be taken in that view. Ngo Hay was
wont to say 'he' owned the Modern Box Factory, meaning that he was the principal owner, his
other partner being Ngo Tian Tek. Now, it needs no demonstration for appellant does not
deny it that the obligations of the Lee Guan Box Factory must rest upon its known owner.
And that owner in Ngo Tian Tek and Ngo Hay."

We must overrule petitioner's contention that the Court of Appeals erred in holding that Lee
Guan Box Factory was a subsidiary of the Modern Box Factory and in disregarding the fact that
the contracts evidencing the debts in question were signed by Vicente Tan alias Chan Sy,
without any indication that tended to involve the Modern Box Factory or the petitioner. In the
first place, we are concluded by the finding of the Court of Appeals regarding the ownership by
the petitioner of Lee Guan Box Factory. Secondly, the circumstances that Vicente
Tan alias Chan Sy acted in his own name cannot save the petitioner, in view of said ownership,
and because contracts entered into by a factor of a commercial establishment known to belong to
a well known enterprise or association, shall be understood as made for the account of the owner
of such enterprise or association, even when the factor has not so stated at the time of executing
the same, provided that such contracts involve objects comprised in the line and business of the
establishment. (Article 286, Code of Commerce.) The fact that Vicente Tan did not have any
recorded power of attorney executed by the petitioner will not operate to prejudice third persons,
like the respondent Philippine Education Co., Inc., and its assignors. (3 Echavarri, 133.)

Another defense set up by the petitioner is that prior to the transactions which gave rise to this
suit, Vicente Tan had purchased Lee Guan Box Factory from Ngo Hay under the contract,
Exhibit 7; and the petitioner assails, under the second assignment of error, the conclusion of the
Court of Appeals that said contract is simulated. This contention is purely factual and must also
be overruled.

The petitioner questions the right of the respondent Philippine Education Co., Inc., to sue for the
credits assigned by the five entities with which Lee Guan Box Factory originally contracted, it
being argued that the assignment, intended only for purposes of collection, did not make said
respondent the real party in interest. The petitioner has cited 5 Corpus Juris, section 144, page
958, which points out that "under statutes authorizing only a bona fide assignee of choses in
action to sue thereon in his own name, an assignee for collection merely is not entitled to sue in
his own name."

The finding of the Court of Appeals that there is nothing "simulated in the assignment,"
precludes us from ruling that respondent company is not a bona fide assignee. Even assuming,
however, that said assignment was only for collection, we are not prepared to say that, under
section 114 of the Code of Civil Procedure, in force at the time this action was instituted, ours is
not one of those jurisdictions following the rule that "when a choose, capable of legal
assignment, is assigned absolutely to one, but the assignment is made for purpose of collection,
the legal title thereto vests in the assignee, and it is no concern of the debtor that the equitable
title is in another, and payment to the assignee discharges the debtor." (5 C. J., section 144, p.
958.) No substantial right of the petitioner could indeed be prejudiced by such assignment,
because section 114 of the Code of Civil Procedure reserves to it "'any set-off or other defense
existing at the time of or before notice of the assignment.'"

Petitioner's allegation that "fraud in the inception of the debt is personal to the contracting parties
and does not follow assignment," and that the contracts assigned to the respondent company "are
immoral and against public policy and therefore void," constitute defenses on the merits, but do
not affect the efficacy of the assignment. It is obvious that, apart from the fact that the petitioner
can not invoke fraud of its authorship to evade liability, the appealed decision is founded on an
obligation arising, not from fraud, but from the very contracts under which merchandise had
been purchased by Lee Guan Box Factory.

The fourth and fifth assignments of error relate to the refusal of the Court of Appeals to hold that
the writ of attachment is issued at the commencement of this action by the Court of First Instance
is illegal, and to award in favor of the petitioner damages for such wrongful attachment. For us to
sustain petitioner's contention will amount to an unauthorized reversal of the following
conclusion of fact of the Court of Appeals: "The stereotyped manner in which defendants
obtained goods on credit from the six companies, Vicente Tan's sudden disappearance, the
execution of the fake sale Exhibit 7 to throw the whole responsibility upon the absent or
otherwise insolvent Tan, defendant's mercurial and unbelievable theories as to the ownership of
the Modern Box Factory and Lee Guan Box Factory obviously adopted in a vain effort to
meet or explain away the evidentiary force of plaintiff's documentary evidence are much too
significant to permit a declaration that the attachment was not justified."

Regarding the suggestion in petitioner's memorandum that this case should be dismissed because
of the death of Ngo Hay, it is sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is
sued as a partnership possessing a personality distinct from any of the partners.

The appealed decision is affirmed, with costs against the petitioner. So ordered.

Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ., concur.

Separate Opinions

FERIA, J., concurring and dissenting:

I concur in the majority except that portion thereof which deals with the question whether an
assignee for collection merely is entitled to sue in his own name, which need not be discussed, in
view of the finding of the Court of Appeals that there is nothing "simulated in the assignment"
which according to the very opinion of the majority "precludes us from ruling that the respondent
company is not a bona fide assignee;" because such being the conclusion of fact of the Court of
Appeals, this Supreme Court can not modify or reverse that conclusion and find that respondent
Philippine Education Co. was not a bona fide assignee, and the assignment was not absolute, but
made merely for collection in order that said respondent may sue in its own name.

But I dissent from the majority opinion when it further says:

Even assuming, however, that said assignment was only for collection, we are not
prepared to say that, under section 114 of the Code of Civil Procedure, in force at the
time this action was instituted, ours is not one of those jurisdictions following the rule
that "when a choose, capable of legal assignment, is assigned absolutely to one, but the
assignment is made for purpose of collection, the legal title thereto vests in the assignee,
and it is no concern of the debtor that the equitable title is in another, and payment to the
assignee discharges the debtor." (5 C. J., section 114, p. 958.) No substantial right of the
petitioner could indeed be prejudiced by such assignment, because section 114 of the
Code of Civil Procedure reserves to it "any set-off or other defense exiting at the time of
or before notice of the assignment."

The reason for my dissenting is that, after quoting the finding of the Court of Appeals and stating
that said conclusion precludes this Court "from ruling that the respondent company is not a bona
fide assignee," the majority should have stopped then and there. But having preferred to adduce
an additional ratio decidendi, and assume that the assignment was for collection only and not an
absolute and bona fide one, in order to meet the latter's argument, because the Court of Appeals'
conclusion is that the assignment was not simulated, that is, absolute and bona fide, the majority
should have quoted and discussed the second and third sentences of paragraph 144, page 958, of
the Corpus Juris, quoted and relied on by the petitioner, which refers to an assignment that is not
absolutely and bona fide made. However the majority opinion did not do so, and quotes and
bases its conclusion to the contrary on the first sentence of said paragraph, not relied on by the
petitioner, and which deals with absolute and bona fide assignment, and to the provision of
section 114 of the Code of Civil Procedure on set-off and defenses which defendant may set up
to an action instituted by a bona fide assignee.
To clearly show the error, we transcribe below section 144, page 958, of Corpus Juris quoted and
underlined by the petitioner in his brief:

144. G. Assignments for Collection. When a chose, capable of legal assignment, is

assigned absolutely to one, but the assignment is made for purpose of collection, the legal
title thereto vests in the assignee, and it is no concern of the debtor that the equitable title
is in another, and payment to the assignee discharges the debtor. Under the statutes of
most jurisdictions, the assignee may prosecute an action thereon in his own name as the
real party in interest or as a trustee of an express trust; but, under statutes authorizing
only a bona fide assignee of choses in action to sue thereon in his own name, an assignee
for collection merely is not entitled to sue in his own name. An assignment merely for
collection does not transfer the beneficial ownership to the assignee.

It is not only convenient but necessary to point this error in the present concurring and dissenting
opinion, for the conclusion set forth in the above quoted portion of the majority decision is
misleading; because it apparently lays down the ruling that an assignee not bona fide to whom a
credit was assigned, not absolutely, but for collection merely may sue in his own name (a
debatable question which has not yet been passed upon squarely by this Court [ Annotation; 64
L. R. A., 585]), but the premise on which the majority's conclusion or ruling is predicated in said
portion of the Corpus Juris quoted in the opinion, which is a wrong premise laid down, not by the
petitioner, but by the writer himself of the majority opinion.
G.R. No. 71694 August 16, 1991

NYCO SALES CORPORATION, petitioner,

vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEONREGIONAL TRIAL
COURT, BR. II, INTERMEDIATE APPELLATE COURT, FIRST CIVIL CASES
DIVISION, respondents.

ABC Law Offices for petitioner.

Valera, Urmeneta & Associates for private respondent.

PARAS, J.:p

In this petition for review on certiorari, petitioner challenges the April 22, 1985 decision * and
the July 16, 1985 resolution * of the then Intermediate Appellate Court in AC-G.R. CV No.
02553 entitled "BA Finance Corporation v. Nyco Sales Corporation, et al." which affirmed with
modification the July 20, 1983 decision ** of the Regional Trial Court, National Capital Region,
Manila, Branch II in the same case docketed as Civil Case No. 125909 ordering petitioner to pay
respondent the amount of P60,000.00 as principal obligation plus corresponding interest, the sum
of P10,000.00 as and for, attomey's fees and 1/3 of the costs of suit.

It appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as Nyco)
whose president and general manager is Rufino Yao, is engaged in the business of selling
construction materials with principal office in Davao City. Sometime in 1978, the brothers
Santiago and Renato Fernandez (hereinafter referred to as the Fernandezes), both acting in behalf
of Sanshell Corporation, approached Rufino Yao for credit accommodation. They requested
Nyco, thru Yao, to grant Sanshell discounting privileges which Nyco had with BA Finance
Corporation (hereinafter referred to as BA Finance). Yao apparently acquiesced, hence on or
about November 15, 1978, the Fernandezes went to Yao for the purpose of discounting
Sanshell's post-dated check which was a BPI-Davao Branch Check No. 499648 dated February
17, 1979 for the amount of P60,000.00. The said check was payable to Nyco. Following the
discounting process agreed upon, Nyco, thru Yao, endorsed the check in favor of BA Finance.
Thereafter, BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell.
Sanshell then made use of and/or negotiated the check. Accompanying the exchange of checks
was a Deed of Assignment executed by Nyco in favor of BA Finance with the conformity of
Sanshell. Nyco was represented by Rufino Yao, while Sanshell was represented by the
Fernandez brothers. Under the said Deed, the subject of the discounting was the aforecited check
(Rollo, pp- 26-28). At the back thereof and of every deed of assignment was the Continuing
Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the
full, faithful and prompt payment and discharge of any and all indebtedness of Nyco (Ibid., pp.
36, 46). The BPI check, however, was dishonored by the drawee bank upon presentment for
payment. BA Finance immediately reported the matter to the Fernandezes who thereupon issued
a substitute check dated February 19,1979 for the same amount in favor of BA Finance. It was a
Security Bank and Trust Company check bearing the number 183157, which was again
dishonored when it was presented for payment. Despite repeated demands, Nyco and the
Fernandezes failed to settle the obligation with BA Finance, thus prompting the latter to institute
an action in court (Ibid., p 28). Nyco and the Fernandezes, despite having been served with
summons and copies of the complaint, failed to file their answer and were consequently declared
in default. On May 16, 1980, the lower court ruled in favor of BA Finance ordering them to pay
the former jointly and severally, the sum of P65,536.67 plus 14% interest per annum from July 1,
1979 and attorney's fees in the amount of P3, 000. 00 as well as the costs of suit (Rollo, pp. 51-
52). Nyco, however, moved to set aside the order of default, to have its answer admitted and to
be able to implead Sanshell. The prayer was granted through an order dated June 23, 1980,
wherein the decision of the court was set aside only as regards Nyco. Trial ensued once more
until the court reached a second decision which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against

the defendant Nyco Sales Corporation by ordering the latter to pay the former the
following:

1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per
annum from February 1, 1979 until fully paid;

2) The amount of P100,000.00 as and for attorney's fees; and

3) One-third (1/3) of the costs of this suit.

With respect to defendants Santiago and Renato Fernandez, the decision of May
16, 1980 stands.

The cross-claim of defendant Nyco Sales Corporation against codefendants

Santiago B. Fernandez and Renato B. Fernandez is hereby denied, as there is no
showing that Nyco's Answer with cross-claim dated May 29, 1980 was ever
received by said Fernandez brothers, even as it is noted that the latter have not
been declared in default with respect to said cross-claim, nor were evidence
adduced in connection therewith.

As to the would-be litigant Sanshell Construction and Development Corporation,

defendant Nyco Sales Corporation did not properly implead said corporation
which should have been by way of a third-party complaint instead of a mere
cross-claim. The same observations are noted as regard this cross-claim against
Sanshell as those made with respect to the Fernandez brothers.

SO ORDERED.

On appeal, the appellate court also upheld BA Finance but modified the lower court's decision by
ordering that the interest should run from February 19, 1979 until paid and not from February 1,
1979. Nyco's subsequent motion for reconsideration was denied (Ibid., pp. 33, 62). Hence, the
present recourse.

The crux of the controversy is whether or not the assignor is liable to its assignee for its
dishonored checks.

For its defense, Nyco anchors its arguments on the following premises: a) that the appellate court
erred in affirming its liability for the BPI check despite a similar finding of liability for the SBTC
check rendered by the same lower court; b) that it was actually discharged of its liability over the
SBTC check when BA Finance failed to give it a notice of dishonor; c) that there was novation
when BA Finance accepted the SBTC check in replacement of the BPI check; and d) that it
cannot be held liable for its Presidents unauthorized acts.

The petition is devoid of merit.

An assignment of credit is the process of transferring the right of the assignor to the assignee,
who would then be allowed to proceed against the debtor. It may be done either gratuitously or
generously, in which case, the assignment has an effect similar to that of a sale.

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself
(its existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the
case at bar. Consequently, if there be any breach of the above warranties, the assignor-vendor
should be held answerable therefor. There is no question then that the assignor-vendor is indeed
liable for the invalidity of whatever he as signed to the assignee-vendee.

Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of
assignment in favor of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance
is actually enforcing said deed and the check covered thereby is merely an incidental or collateral
matter. This particular check merely evidenced the credit which was actually assigned to BA
Finance. Thus, the designation is immaterial as it could be any other check. Both the lower and
the appellate courts recognized this and so it is utterly misplaced to say that Nyco is being held
liable for both the BPI and the SBTC checks. It is only what is represented by the said checks
that Nyco is being asked to pay. Indeed, nowhere in the dispositive parts of the decisions of the
courts can it be gleaned that BA Finance may recover from the two checks.

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the
formal demand letter but also by the findings of the trial court that Rufino Yao of Nyco and the
Fernandez Brothers of Sanshell had frequent contacts before, during and after the dishonor
(Rollo, p. 40). More importantly, it fails to realize that for as long as the credit remains
outstanding, it shall continue to be liable to BA Finance as its assignor. The dishonor of an
assigned check simply stresses its liability and the failure to give a notice of dishonor will not
discharge it from such liability. This is because the cause of action stems from the breach of the
warranties embodied in the Deed of Assignment, and not from the dishonoring of the check
alone (See Art. 1628, Civil Code).

Novation is the third defense set up by petitioner Nyco. It insists that novation took place when
BA Finance accepted the SBTC check in replacement of the BPI cheek. Such is manifestly
untenable.

There are only two ways which indicate the presence of novation and thereby produce the effect
of extinguishing an obligation by another which substitutes the same. First, novation must be
explicitly stated and declared in unequivocal terms as novation is never presumed (Mondragon v.
Intermediate Appellate Court, G.R. No. 71889, April 17, 1990; Caneda Jr. v. Court of Appeals,
G.R. No. 81322, February 5, 1990). Secondly, the old and the new obligations must be
incompatible on every point. The test of incompatibility is whether or not the two obligations can
stand together, each one having its independent existence If they cannot, they are incompatible
and the latter obligation novates the first (Mondragon v. Intermediate Appellate Court, supra;
Caneda Jr. v. Court of Appeals, supra). In the instant case, there was no express agreement that
BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is there
incompatibility because both checks were given precisely to terminate a single obligation arising
from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is
inapplicable to this case.

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's
President) to even apply to BA Finance for credit accommodation. It supports its argument with
the fact that it did not issue a Board resolution giving Yao such authority. However, the very
evidence on record readily belies Nyco's contention. Its corporate By-Laws clearly provide for
the powers of its President, which include, inter alia, executing contracts and agreements,
borrowing money, signing, indorsing and delivering checks, all in behalf of the corporation.
Furthermore, the appellate court correctly adopted the lower court's observation that there was
already a previous transaction of discounting of checks involving the same personalities wherein
any enabling resolution from Nyco was dispensed with and yet BA Finance was able to collect
from Nyco and Sanshell was able to discharge its own undertakings. Such effectively places
Nyco under estoppel in pais which arises when one, by his acts, representations or admissions, or
by his silence when he ought to speak out, intentionally or through culpable negligence, induces
another to believe certain facts to exist and such other rightfully relies and acts on such belief, so
that he will be prejudiced if the former is permitted to deny the existence of such facts (Panay
Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, June 29,1989). Nyco remained silent in
the course of the transaction and spoke out only later to escape liability. This cannot be
countenanced. Nyco is estopped from denying Rufino Yao's authority as far as the latter's
transactions with BA Finance are concerned.

PREMISES CONSIDERED, the decision appealed from is AFFIRMED.

SO ORDERED.